EXHIBIT 10.23
Draft of 9/3/98
NOTE PURCHASE AND EXCHANGE AGREEMENT
DATED AS OF JULY 31, 1998
BY AND BETWEEN
EQUALNET COMMUNICATIONS CORP.
AND
ADVANTAGE FUND LIMITED
____________________
6% SENIOR SECURED CONVERTIBLE NOTES DUE 2001
SERIES D CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
NOTE PURCHASE AND EXCHANGE AGREEMENT
6% SENIOR SECURED CONVERTIBLE NOTES DUE 2001
SERIES D CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
EQUALNET COMMUNICATIONS CORP.
Page
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1. PURCHASE OF NOTE........................................ 1
(a) Purchase of Note............................... 1
(b) Exchange....................................... 1
(c) Certain Terms.................................. 2
(d) Deliveries and Form of Payment................. 2
(e) Method of Payment.............................. 2
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.................. 3
(a) Purchase for Investment........................ 3
(b) Accredited Investor............................ 3
(c) Reoffers and Resales........................... 3
(d) Company Reliance............................... 3
(e) Information Provided........................... 3
(f) Absence of Approvals........................... 4
(g) Note Purchase and Exchange Agreement........... 4
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC................ 4
(a) Organization and Authority..................... 4
(b) Capitalization................................. 4
(c) Concerning the Shares and the Common Stock..... 5
(d) Note Purchase and Exchange Agreement and Other
Transaction Documents........................ 5
(e) Non-contravention.............................. 6
(f) Approvals...................................... 6
(g) Information Provided........................... 6
(h) Absence of Certain Changes..................... 7
(i) Absence of Certain Proceedings................. 7
(j) Properties..................................... 7
(k) Labor Relations................................ 8
(l) SEC Filings.................................... 8
(m) Absence of Brokers, Finders, Etc............... 8
(n) No Solicitation................................ 9
(o) Certain Issuances of Securities................ 9
(p) Absence of Rights Agreement.................... 9
4. Certain Covenants and Acknowledgments................... 9
(a) Transfer Restrictions.......................... 9
(b) Restrictive Legend............................. 9
(c) Registration Rights Agreement.................. 11
(d) Form D......................................... 11
(e) Authorization for Trading...................... 11
(f) Use of Proceeds................................ 11
(g) Blue Sky Laws.................................. 11
(h) Certain Expenses............................... 12
(i) Certain Issuances of Securities................ 12
(j) Stockholder Approval........................... 12
(k) Commercially Reasonable Efforts................ 13
5. TRANSFER AGENT INSTRUCTION.............................. 13
(a) Transfer Agent Instruction..................... 13
(b) Conversion Procedure........................... 14
6. CLOSING DATE............................................ 14
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND
ISSUE................................................. 14
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE........ 14
9. MISCELLANEOUS........................................... 15
(a) Governing Law.................................. 15
(b) Counterparts................................... 15
(c) Headings, etc.................................. 15
(d) Severability................................... 15
(e) Amendments..................................... 16
(f) Waivers........................................ 16
(g) Notices........................................ 16
(h) Assignment..................................... 16
(i) Survival of Representations and Warranties..... 16
(j) Entire Agreement............................... 17
(k) Termination.................................... 17
(l) Further Assurances............................. 17
(m) Public Statements, Press Releases, Etc......... 17
(n) Construction................................... 18
SCHEDULES
Schedule 3(b)-1 Certain Antidilution Adjustments
Schedule 3(b)-2 Certain Registration Rights
Schedule 3(c)-1 Certain Nasdaq Matters
ANNEXES
Annex I Form of Senior Secured Convertible Note due 2001
Annex II Form of Statement of Resolution
Annex III Form of Common Stock Purchase Warrant
Annex IV Joint Escrow Instructions
Annex V Form of Registration Rights Agreement
Annex VI Form of Transfer Agent Instruction
Annex VII Form of Notice of Conversion of Series D Convertible Preferred
Stock
Annex VIII Form of Opinion of Counsel to Be Delivered on Closing Date
Annex IX Form of Opinion of General Counsel
NOTE PURCHASE AND EXCHANGE AGREEMENT
THIS NOTE PURCHASE AND EXCHANGE AGREEMENT, dated as of July 31, 1998,
by and between EQUALNET COMMUNICATIONS CORP., a Texas corporation (the
"Company"), with headquarters located at 0000 Xxxx Xxxxxx Xxxx Xxxxx, Xxxxxxx,
Xxxxx 00000, and ADVANTAGE FUND LIMITED, a British Virgin Islands corporation
(the "Buyer").
W I T N E S S E T H:
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WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of non-voting, convertible preferred
stock of the Company which will be convertible into shares of Common Stock, $.01
par value (the "Common Stock"), of the Company and in connection therewith the
Company is to issue to the Buyer warrants to purchase shares of Common Stock as
provided in this Agreement;
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, in connection with this Agreement and the transactions
contemplated hereby, the Company is executing and delivering a Note Purchase
Agreement, dated as of the date hereof, with the buyer named therein (the "Note
Purchase Agreement"), pursuant to which, among other things, the Company has
agreed, upon the terms and subject to the conditions of the Note Purchase
Agreement, to sell a senior secured convertible note to such buyer and in
connection therewith to issue to such buyer warrants to purchase shares of
Common Stock (the "Other Warrants");
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. PURCHASE OF NOTE; AGREEMENT TO EXCHANGE.
(a) PURCHASE OF NOTE; ISSUANCE OF WARRANTS. The Buyer hereby agrees
to purchase from the Company a 6% Senior Secured Convertible Note due 2001 in
the principal amount set forth on the signature page of this Agreement, having
the terms and conditions in the form thereof attached hereto as ANNEX I (the
"Note") for the aggregate purchase price set forth on the signature page of this
Agreement (the "Purchase Price"). In connection with the purchase of the Note
by the Buyer, the Company shall issue to the Buyer at the closing on the Closing
Date (as defined herein) Common Stock Purchase Warrants in the form attached
hereto as ANNEX III (the "Warrants") to purchase a number of shares of Common
Stock equal to the quotient obtained by dividing (i) the quotient obtained by
dividing (x) the Purchase Price by (y) the
Purchase Price (as
defined in the Warrants) per share of Common Stock to be set forth in the
Warrants by (ii) 4.6666 (subject to adjustment after issuance of the Warrants as
provided in the Warrants).
(b) EXCHANGE. The Company and the Buyer hereby agree to exchange on
the Closing Date the number of shares (the "Preferred Shares") of Series D
Convertible Preferred Stock, $.01 par value (the "Preferred Stock"), of the
Company set forth on the signature page of this Agreement, having the terms and
conditions as set forth in the form of Statement of Resolution of Board of
Directors Establishing and Designating Series D Convertible Preferred Stock and
Fixing the Rights and Preferences of Such Series attached hereto as ANNEX II
(the "Statement of Resolution") for the number of outstanding shares of Common
Stock held by the Buyer and set forth on the signature page of this Agreement
(the "Exchange Shares") and in connection therewith and in consideration thereof
the Buyer shall pay to the Company an amount equal to $100,000.00.
(c) CERTAIN TERMS. The 6% Senior Secured Convertible Notes due 2001
issuable pursuant to Section 1.1 of the Note or such notes in payment of
interest on the Note and such notes are referred to herein as the "Interest
Notes." The shares of Preferred Stock issuable pursuant to Section 5 of the
Statement of Resolution as dividends on the Preferred Shares are referred to
herein as the "Dividend Shares." The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares." The
Warrant Shares and the shares of Common Stock issuable upon conversion of the
Notes, the Interest Notes, the Preferred Shares, and the Dividend Shares are
referred to herein collectively as the "Common Shares." The Common Shares, the
Preferred Shares and the Dividend Shares are referred to herein collectively as
the "Shares." The Shares, the Notes, the Interest Notes, and the Warrants are
referred to herein collectively as the "Securities."
(d) DELIVERIES AND FORM OF PAYMENT. The Buyer shall pay the Purchase
Price by delivering good funds in United States Dollars to the escrow agent (the
"Escrow Agent") identified in the Joint Escrow Instructions attached hereto as
ANNEX IV (the "Joint Escrow Instructions"). Such delivery of funds shall be
made against delivery by the Company of the Note and the certificate for the
Warrants, registered in the name of the Buyer. Promptly following payment by
the Buyer to the Escrow Agent of the Purchase Price, but in any event prior to
the Closing Date, the Company shall deliver the Note and the certificate for the
Warrants, registered in the name of the Buyer or its nominee, to the Escrow
Agent. The Buyer shall arrange for delivery of the certificates for the
Exchange Shares to the Company at the closing by delivering the certificates for
the Exchange Shares to the Escrow Agent. Such delivery of Exchange Shares shall
be made against delivery by the Company of the certificates for the Preferred
Shares, registered in the name of the Buyer. Promptly following the delivery of
the Exchange Shares by the Buyer to the Escrow Agent, but in any event prior to
the Closing Date, the Company shall deliver certificates for the Preferred
Shares, registered in the name of the Buyer or its nominee, to the Escrow Agent.
The certificates for the Preferred Shares shall be delivered by the Company to
the Escrow Agent on a delivery against payment basis at the closing. By signing
this Agreement, the Buyer and the Company each agrees to all of the terms
and conditions of, and becomes a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
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(e) METHOD OF PAYMENT. Payment of the Purchase Price shall be made by
wire transfer of funds to:
Citibank, N.A.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA#000000000
For credit to A/C#37179446
For credit to the account of Xxxxx X. Xxxxx Attorney Escrow Account
Reference: Advantage/Equalnet
Not later than 4:00 p.m., New York City time, on the date which is one Business
Day after the Company shall have accepted this Agreement and returned a signed
counterpart of this Agreement to the Buyer or its legal counsel, the Buyer shall
deposit with the Escrow Agent an amount equal to the Purchase Price. As used in
this Agreement, the term "Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Note and the
Preferred Shares and acquiring the Warrants for its own account for investment
only and not with a view towards the public sale or distribution thereof;
(b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
1933 Act by reason of Rule 501(a)(3);
(c) REOFFERS AND RESALES. All subsequent offers and sales of the
Securities by the Buyer shall be made pursuant to registration of the Securities
being offered and sold under the 1933 Act or pursuant to an exemption from
registration;
(d) COMPANY RELIANCE. The Buyer understands that the Note and the
Preferred Shares are being offered and sold, the Warrants are being issued, and
the Common Shares are being offered, in each case to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Note and the Preferred Shares and the Warrants and to
receive an offer of the Common Shares;
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(e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Note and the Preferred Shares and the issuance of the Warrants and the offer of
the Common Shares which have been requested by the Buyer; the Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received satisfactory answers to any such inquiries; without
limiting the generality of the foregoing, the Buyer has had the opportunity to
obtain and to review the Company's (1) Annual Report on Form 10-K for the fiscal
year ended June 30, 1997, as amended by Amendment No. 1 thereto on Form 10-K/A
filed with the SEC on September 30, 1997, Amendment No. 2 thereto on Form 10-K/A
filed with the SEC on October 28, 1997, Amendment No. 3 thereto filed with the
SEC on January 20, 1998, and Amendment No. 4 thereto on Form 10-K/A filed with
the SEC on January 30, 1998 (the "1997 10-K"), (2) Quarterly Reports on Form 10-
Q for the quarters ended September 30, 1997, December 31, 1997 and March 31,
1998, (3) definitive proxy statement for the Company's 1997 Annual Meeting of
Shareholders, (4) definitive proxy statement for a Special Meeting of
stockholders of the Company held on June 30, 1998, and (5) Current Reports on
Form 8-K dated July 10, 1997, July 23, 1997 and March 10, 1998, in each case as
filed with the SEC (collectively, the "SEC Reports"); and the Buyer understands
that its investment in the Securities involves a high degree of risk;
(f) ABSENCE OF APPROVALS. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities; and
(g) NOTE PURCHASE AND EXCHANGE AGREEMENT. This Agreement has been
duly and validly authorized, executed and delivered on behalf of the Buyer and
is a valid and binding agreement of the Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that as of August 31, 1998 except as otherwise specifically provided
herein:
(a) ORGANIZATION AND AUTHORITY. Each of the Company and its
subsidiaries listed in Exhibit 21 to the 1997 10-K (together with USC Telecom,
Inc. and Netco Acquisition Corp., the "Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority (i) to own, lease and operate its properties and to carry on its
business as now being conducted, and (ii) to execute, deliver and perform its
obligations under this Agreement, the Note, the Statement of Resolution, the
Warrants, the Registration Rights Agreement, the form of
which is attached hereto as ANNEX V (the "Registration Rights Agreement"), the
Transfer Agent Instruction, the form of which is attached hereto as ANNEX VI
(the "Transfer Agent Instruction"), and the other agreements to be executed and
delivered by the Company in connection herewith, and to consummate the
transactions contemplated hereby and thereby. Each of the Company and the
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Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary and
where failure so to qualify could have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole.
The Company has no equity investment in any person other than the Subsidiaries.
(b) CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 50,000,000 shares of Common Stock of which 21,393,070 shares
were outstanding on August 10, 1998, all of which are fully paid and
nonassessable; and (b) 5,000,000 shares of Preferred Stock, $.01 par value, of
which 2,000 shares have been designated Series A Convertible Preferred Stock and
of which 2000 shares are outstanding, 3,000 shares have been designated Series B
Senior Convertible Preferred Stock and of which 3,000 shares are outstanding, of
which 300,000 shares have been designated Series C Convertible Preferred Stock
(the "Series C Stock") and of which 195,073 shares are outstanding, and of which
6,500 shares will be designated as Series D Convertible Preferred Stock, of
which 5,000 shares will be issued pursuant to this Agreement and the other Note
Purchase and Exchange Agreements, dated as of the date hereof, being entered
into in connection herewith (the "Other Agreements"); and on the Closing Date
there will be (x) no material increase from August 10, 1998 in the number of
shares of Common Stock outstanding and (y) no issuances of preferred stock
except as issued pursuant to this Agreement and the Other Agreements. As of
August 10, 1998, the Company had outstanding options, warrants and similar
rights entitling the holders to purchase 14,563,462 shares of Common Stock.
Other than as set forth in the preceding sentence, the Company does not have
outstanding any material amount of securities (or obligations to issue any such
securities) convertible into, exchangeable for or otherwise entitling the
holders thereof to acquire shares of Common Stock, except as disclosed in the
SEC Reports. The Company has duly reserved from its authorized and unissued
shares of Common Stock the full number of shares required for (a) all options,
warrants, convertible securities and other rights to acquire shares of Common
Stock which are outstanding and (b) all shares of Common Stock and options and
other rights to acquire shares of Common Stock which may be issued or granted
under the stock option and similar plans which have been adopted by the Company
or any of the Subsidiaries. Each outstanding class or series of securities for
which any antidilution or similar adjustment arising by reason of the issuance
or conversion of the Note, the Interest Notes, the Preferred Shares, and the
Dividend Shares or the issuance or exercise of the Warrants or promissory notes
(the "Other Notes") and warrants to be issued pursuant to the Note Purchase
Agreement and the Other Agreements or the shares of Preferred Stock and warrants
to be issued pursuant to the Other Agreements will occur is identified on
SCHEDULE 3(b)-1 attached hereto, together with the amount of such antidilution
adjustment. The outstanding shares of Common Stock and outstanding options,
warrants and other securities convertible into, exchangeable for or otherwise
entitling the holder thereof to acquire shares of Common Stock have been duly
authorized and validly issued. None of such outstanding shares of Common Stock,
options, warrants and other securities has been issued in violation of the
preemptive rights of any securityholder of the Company. The offers and sales of
the outstanding shares of Common Stock and such options, warrants and other
securities were at all relevant times either registered under the 1933 Act and
applicable state securities laws or exempt from such requirements. No holder of
any of the Company's securities has any rights, "demand," "piggy-back" or
otherwise, to have such securities registered by reason of the
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intention to file, filing or effectiveness of the Registration Statement (as
defined in the Registration Rights Agreement), except as set forth on SCHEDULE
3(b)-2 attached hereto.
(c) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have been
duly authorized. The Preferred Shares, when issued and paid for in accordance
with this Agreement, the Dividend Shares, when issued as dividends on the
outstanding shares of Preferred Stock, and the Common Shares, when issued upon
conversion of the Notes, the Interest Notes, the Preferred Shares, or the
Dividend Shares or upon exercise of the Warrants, as the case may be, will be
duly and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder. There are
no preemptive or similar rights of any stockholder of the Company or any other
person to acquire any of the Securities. The Company has duly reserved
13,043,468 shares of Common Stock for conversion of the Note, the Interest
Notes, the Other Notes, and the shares of Preferred Stock and exercise of the
Warrants, the warrants issuable pursuant to the Other Agreements and the Other
Warrants, and such shares shall remain so reserved (subject to reduction from
time to time for shares of Common Stock issued upon conversion of the Note, the
Interest Notes, the Other Notes, and shares of Preferred Stock, redemption or
other permitted retirement of the Note, the Interest Notes, the Other Notes, and
shares of Preferred Stock and exercise of the Warrants, the warrants issuable
pursuant to the Other Agreements and the Other Warrants), and the Company shall
from time to time reserve such additional shares of Common Stock as shall be
required to be reserved pursuant to the Note, the Interest Notes, the Other
Notes and the Statement of Resolution, as long as the Note, the Interest Notes,
the Other Notes, and Preferred Stock are convertible, and pursuant to the
Warrants, as long as the Warrants are exercisable. The Common Stock is listed
for trading on the Nasdaq National Market ("Nasdaq") and (1) the Company and the
Common Stock meet the criteria for continued listing and trading on Nasdaq; (2)
except as set forth on SCHEDULE 3(c)-1 attached hereto, the Company has not been
notified since January 1, 1996 by Nasdaq of any failure or potential failure to
meet the criteria for continued listing and trading on Nasdaq and (3) no
suspension of trading in the Common Stock is in effect. The Company knows of no
reason that the Common Shares will not be eligible for listing on Nasdaq.
(d) NOTE PURCHASE AND EXCHANGE AGREEMENT AND OTHER TRANSACTION
DOCUMENTS. This Agreement, the Note, the Statement of Resolution, the
Registration Rights Agreement, the Warrants and the Transfer Agent Agreement and
the other agreements and instruments contemplated hereby and thereby have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the
Registration Rights Agreement, the Warrants and the Transfer Agent Instruction
and such other agreements, when executed and delivered by the Company, and the
Statement of Resolution, when executed by the Company and filed with the
Secretary of State of the State of Texas, each will be, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
(e) NON-CONTRAVENTION. The execution and delivery by the Company of
this Agreement and the other documents contemplated by this Agreement and the
consummation by the Company of
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the issuance of the Note, the Preferred Shares and the Warrants as contemplated
by this Agreement, and the other transactions contemplated by this Agreement,
the Note, the Statement of Resolution, the Registration Rights Agreement, the
Warrants and the Transfer Agent Instruction do not and will not, with or without
the giving of notice or the lapse of time, or both (i) result in any violation
of any terms of the Articles of Incorporation or By-laws of the Company or any
Subsidiary, (ii) conflict with or result in a breach by the Company or any
Subsidiary of any of the terms or provisions of, or constitute a default under,
or result in the modification, amendment, termination or cancellation of, result
in the acceleration of any obligation of the Company or any Subsidiary under, or
result in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any
Subsidiary pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of their respective properties or
assets is bound or affected, (iii) violate or contravene any applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any Subsidiary or any
of their respective properties or assets, including, without limitation, any law
of the State of New York or the State of Texas relating to usury or the maximum
rate chargeable with respect to indebtedness, or (iv) have any material adverse
effect on any permit, certification, registration, approval, consent, license or
franchise necessary for the Company or any Subsidiary to own or lease and
operate any of their respective properties or to conduct any of their respective
businesses or the ability of the Company or any Subsidiary to make use thereof.
(f) APPROVALS. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained or made by the Company for (1) the execution, delivery
and performance by the Company of this Agreement, the Registration Rights
Agreement, the Warrants, the Transfer Agent Instruction and the other agreements
and instruments contemplated hereby and thereby, (2) the execution and issuance
of the Note and the Interest Notes, (3) the execution, filing and performance by
the Company of the Statement of Resolution, (4) the issuance and sale of the
Note and the Preferred Shares, the issuance of the Interest Notes and the
Dividend Shares and the issuance of the Warrants as contemplated by this
Agreement, and (5) the issuance of Common Shares on conversion of the Note, the
Interest Notes, the Preferred Shares or the Dividend Shares or upon the exercise
of the Warrants or the issuance of Interest Notes in payment of interest on the
Note or Interest Notes or the issuance of Dividend Shares as dividends on shares
of Preferred Stock, other than (v) the filing of the Statement of Resolution
with the Secretary of State of the State of Texas, (w) listing of the Common
Shares on Nasdaq, (x) registration of the resale of the Common Shares under the
1933 Act as contemplated by the Registration Rights Agreement, (y) as may be
required under applicable state securities or "blue sky" laws and (z) filing of
one or more Forms D with respect to the Securities as required under Regulation
D.
(g) INFORMATION PROVIDED. The information provided by or on behalf of
the Company to the Buyer in connection with the transactions contemplated by
this Agreement, including, without limitation, the information referred to in
Section 2(e) of this Agreement, does not contain any
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untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, it being understood that, for purposes of
this Section 3(g), any statement contained in such information shall be deemed
to be modified or superseded for purposes of this Section 3(g) to the extent
that a statement in any document included in such information which was prepared
or filed with the SEC on a later date modifies or replaces such statement,
whether or not such later prepared or filed statement so states. The Company has
not filed any reports with the SEC under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), since June 30, 1997 other than the SEC Reports.
(h) ABSENCE OF CERTAIN CHANGES. Since March 31, 1998, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries, taken as a whole, except as
disclosed in the SEC Reports or in SCHEDULE 3(h) attached hereto. Except as and
to the extent disclosed, reflected or reserved against in the financial
statements of the Company and the notes thereto included in the SEC Reports,
neither the Company nor any Subsidiary has any material (individually or in the
aggregate) liabilities, debts or obligations whether accrued, absolute,
contingent or otherwise, and whether due or to become due. Subsequent to March
31, 1998, neither the Company nor any Subsidiary has incurred any liabilities,
debts or obligations of any nature whatsoever which are individually or in the
aggregate material to the Company and the Subsidiaries, taken as a whole, other
than those incurred in the ordinary course of their respective businesses or
disclosed in the SEC Reports.
(i) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the SEC
Reports or on SCHEDULE 3(i) attached hereto, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body or governmental agency (collectively, an "Action") pending or, to the
knowledge of the Company or any Subsidiary, threatened against the Company or
any Subsidiary, in any such case wherein an unfavorable decision, ruling or
finding would have a material adverse effect on the business, properties,
condition (financial or other), results of operations or prospects of the
Company and the Subsidiaries, taken as a whole, or the transactions contemplated
by this Agreement or any of the documents contemplated hereby or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of such
other documents; neither the Company or any Subsidiary nor any director or
officer thereof is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty; the Company does not have pending before the SEC any
request for confidential treatment of information and to the best of the
Company's knowledge no such request will be made by the Company prior to the
time the Registration Statement relating to the Common Shares which is
contemplated by the Registration Rights Agreement is first ordered effective by
the SEC; and there has not been, and to the best of the Company's knowledge
there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company.
(j) PROPERTIES. The Company and the Subsidiaries have good title to
all property real and personal (tangible and intangible) and other assets owned
by them, free and clear of all security
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interests, charges, mortgages, liens or other encumbrances, except those in
favor of RFC Capital Corporation or Greyrock Business Credit, Finova Capital
Corporation, Xxxxxx Group, LLC and Netco LLC and such as are described in the
SEC Reports or such as do not materially interfere with the use of such property
made, or proposed to be made, by the Company or any Subsidiary. The leases,
licenses or other contracts or instruments under which the Company and the
Subsidiaries lease, hold or are entitled to use any property, real or personal,
are valid, subsisting and enforceable with only such exceptions as do not
materially interfere with the use of such property made, or proposed to be made,
by the Company or any Subsidiary. Neither the Company nor any Subsidiary has
received notice of any material violation of any applicable law, ordinance,
regulation, order or requirement relating to its owned or leased properties. The
Company does not have any knowledge of, and the Company has not given or
received any notice of, any pending conflicts with or infringement of the rights
of others with respect to any Company Proprietary Rights (as defined herein) or
with respect to any license of Company Proprietary Rights. No action, suit,
arbitration, or legal, administrative or other proceeding or investigation is
pending, or, to the best knowledge of the Company, threatened, which involves
any Company Proprietary Rights. Neither the Company nor any Subsidiary is
subject to any judgment, order, writ, injunction or decree of any court or any
federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, or has entered into or is a party to any contract which restricts or
impairs the use of any such Company Proprietary Rights in a manner which would
have a material adverse effect on the use by the Company or any Subsidiary of
any of the Company Proprietary Rights. To the best knowledge of the Company, no
Company Proprietary Rights and no services or products sold by the Company or
any Subsidiary, conflict with or infringe upon any proprietary rights available
to any third party. Neither the Company nor any Subsidiary has received written
notice of any pending conflict with or infringement upon such third-party
proprietary rights. Neither the Company nor any Subsidiary has entered into any
consent, indemnification, forbearance to xxx or settlement agreement with
respect to Company Proprietary Rights other than in the ordinary course of
business. No claims have been asserted by any person with respect to the
validity of the Company's or any Subsidiary's ownership or right to use the
Company Proprietary Rights and, to the best knowledge of the Company, there is
no reasonable basis for any such claim to be successful. To the best knowledge
of the Company, the Company Proprietary Rights are valid and enforceable. No
registration relating to the Company Proprietary Rights has lapsed, expired or
been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all applications therefor are pending and are in
good standing, except for such lapses, expirations, abandonments, cancellations,
adversarial proceedings or failures to be in good standing which would not,
singly or in the aggregate, have a material adverse effect on the business,
properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole.
The Company and the Subsidiaries have complied, in all material respects, with
their respective contractual obligations relating to the protection of the
Company Proprietary Rights used pursuant to licenses. To the best knowledge of
the Company, no person is infringing on or violating the Company Proprietary
Rights. As used herein, the term "Company Proprietary Rights" means all patents,
patent applications, inventions, trademarks, trade names, applications for
registration of trademarks, service marks, service xxxx applications,
copyrights, know-how, manufacturing processes, formulae, trade secrets, licenses
and rights in any thereof and any other
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intangible property and assets which are material to the businesses of the
Company and the Subsidiaries as now conducted, as proposed to be conducted or as
described in this Agreement.
(k) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company or any Subsidiary, is imminent with respect to any of
the employees of the Company or any Subsidiary.
(l) SEC FILINGS. The Company has timely filed all required forms,
reports and other documents required to be filed with the SEC under the 1934 Act
since January 1, 1997. All of such forms, reports and other documents complied,
when filed, in all material respects, with all applicable requirements of the
1933 Act and the 1934 Act.
(m) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar
person is entitled to any commission, fee or other compensation in respect of
the transactions contemplated by this Agreement by reason of any action or
conduct of the Company or any Subsidiary or any person acting on behalf of any
of them, and the Company shall pay, and indemnify and hold harmless the Buyer
from, any claim made against the Buyer by any person for any such commission,
fee or other compensation.
(n) NO SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
person acting on behalf of the Company, in respect of or in connection with the
offer and sale of the Securities. Neither the Company nor, to its knowledge,
any person acting on behalf of the Company has, either directly or indirectly,
sold or offered for sale to any person any of the Note, the Preferred Shares or
the Warrants or, within the six months prior to the date hereof, any other
similar security of the Company except for the Series C Stock and as
contemplated by this Agreement, the Other Agreements and the Note Purchase
Agreement; and neither the Company nor any person authorized to act on its
behalf will sell or offer for sale any promissory notes, shares of Preferred
Stock or shares of Common Stock or Warrants, or solicit any offers to buy any
promissory notes, shares of Preferred Stock or shares of Common Stock or
Warrants, so as thereby to cause the issuance or sale of any of the Securities
to be in violation of Section 5 of the 1933 Act.
(o) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued any
shares of Common Stock or shares of any series of preferred stock or other
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire shares of Common Stock which are subject to Rule 4460(i) of Nasdaq
(or any successor, replacement or similar provision thereof or of any other
market on which the Common Stock is listed for trading) and which would be
integrated with the sale of the Note and the Preferred Shares to the Buyer,
Interest Notes in payment of interest on the Note or the Interest Notes or the
Dividend Shares in payment of dividends on the Preferred Stock or the issuance
of Common Shares upon conversion thereof or upon exercise of the Warrants for
purposes of such Rule 4460(i) (or any successor, replacement or similar
provision thereof or of any other market on which the Common Stock is listed for
trading).
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(P) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(A) TRANSFER RESTRICTIONS. The Company and the Buyer acknowledge and
agree that (1) the Note, Preferred Shares and the Warrants have not been and are
not being registered under the provisions of the 1933 Act and, except as
provided in the Registration Rights Agreement with respect to the resale of the
Common Shares, the Common Shares have not been and are not being registered for
resale under the 1933 Act, and the Securities may not be transferred unless (A)
subsequently registered for resale thereunder or (B) the Buyer shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any resale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any such resale of
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 4(d) hereof and pursuant to the Registration Rights
Agreement).
(B) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees that the
Note shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Note):
This Note has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"). The issuance to the holder of this Note of
the shares of Common Stock issuable upon conversion of this Note and
in payment of interest on this Note are not covered by a registration
statement under the 1933 Act. This Note has been acquired, and such
shares must be acquired, for investment only and may not be sold,
transferred or assigned in the absence of registration of the resale
thereof under the 1933 Act or an opinion of counsel reasonably
satisfactory in form, scope and substance to the Company that such
registration is not required.
(2) The Buyer acknowledges and agrees that the Preferred Shares shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the Preferred Shares):
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for
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the securities under the Securities Act of 1933, as amended, or an
opinion of counsel that registration is not required under said Act.
The number of shares constituting the portion of the Maximum Share
Amount, as defined in the Statement of Resolution of Series D
Convertible Preferred Stock (the "Statement of Resolution"), allocated
to the shares represented by this certificate for purposes of
conversion thereof is .
Section 10(b)(3)(a) of the Statement of Resolution permits a holder of
the securities represented by this certificate to convert such
securities in accordance with the Statement of Resolution without
being required to surrender this certificate to the Company unless all
of the securities represented hereby are so converted. Consequently,
following conversion of any of the securities represented by this
certificate, the number of shares represented by this certificate may
be less than the number of shares stated hereon. Upon request of any
proposed transferee of this certificate, the Company will provide
confirmation of the number of shares evidenced by this certificate.
(3) The Buyer further acknowledges and agrees that the Warrants
shall bear a restrictive legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the Warrants):
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the Securities Act of 1933, as
amended, or an opinion of counsel that registration is not required
under said Act.
(4) The Buyer further acknowledges and agrees that until such time
as the Common Shares have been registered for resale under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates for the
Common Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for the Common Shares):
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the Securities Act of 1933, as
amended, or an opinion of counsel that registration is not required
under said Act.
(5) Once the Registration Statement required to be filed by the
Company pursuant to Section 2 of the Registration Rights Agreement has been
declared effective, thereafter (1) upon request of the Buyer the Company will
substitute certificates without restrictive legend for certificates for any
Common Shares issued prior to the date such Registration Statement is declared
effective by the SEC which bear such restrictive legend and remove any stop-
transfer restriction relating thereto promptly, but in no event later than three
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trading days after surrender of such certificates by the Buyer and (2) the
Company shall not place any restrictive legend on certificates for Common Shares
issued on conversion of or as dividends on the Preferred Shares or upon exercise
of the Warrants or impose any stop-transfer restriction thereon.
(C) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into
the Registration Rights Agreement in the form attached hereto as ANNEX V on or
before the Closing Date.
(D) FORM D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. The Buyer agrees to cooperate with the Company
in connection with such filing and, upon request of the Company, to provide all
information relating to the Buyer reasonably required for such filing.
(E) AUTHORIZATION FOR TRADING; REPORTING STATUS. On or before the Closing
Date, the Company shall file a notification for listing of additional shares
with the Nasdaq relating to the Common Shares and shall provide evidence of such
filing to the Buyer. So long as the Buyer beneficially owns any of the Note, the
Interest Notes, the Preferred Shares, the Dividend Shares, the Warrants, or the
Common Shares, the Company shall file all reports required to be filed with the
SEC pursuant to Section 13 or 15(d) of the 1934 Act and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination.
(F) USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or has
any present intention of acquiring any "margin stock" as defined in Regulation G
(12 CFR Part 207) of the Board of Governors of the Federal Reserve System
("margin stock"). The proceeds of sale of the Note will be used for general
working capital purposes and in the operation of the Company's business. None of
such proceeds will be used, directly or indirectly (1) to make any loan to or
investment in any other person (other than financing the Company's subsidiaries
in the ordinary course of business) or (2) for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock or for the
purpose of maintaining, reducing or retiring any indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute the transactions
contemplated by this Agreement a "purpose credit" within the meaning of such
Regulation G. Neither the Company nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the transactions
contemplated hereby to violate Regulation G, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the 1934 Act, in each case as in effect now or as the same may hereafter be in
effect.
(G) BLUE SKY LAWS. On or before the Closing Date, the Company shall take
such action as shall be necessary to qualify, or to obtain an exemption for, the
Note and the Preferred Shares for sale to the Buyer and the Warrants for
issuance to the Buyer pursuant to this Agreement and the Common Shares for
issuance to the Buyer on conversion of the Note and the Preferred Shares under
such of the securities or "blue sky" laws of jurisdictions as shall be
applicable to the sale of the Note and the Preferred Shares and the issuance of
the Warrants pursuant to this Agreement and the issuance to the Buyer of Common
Shares on conversion of the Note and the Preferred
-17-
Shares and exercise of the Warrants. The Company shall furnish copies of all
filings, applications, orders and grants or confirmations of exemptions relating
to such securities or "blue sky" laws on or prior to the Closing Date.
(h) CERTAIN EXPENSES. Whether or not the closing occurs, the Company
shall pay or reimburse the Buyer for all reasonable expenses (including, without
limitation, legal fees and expenses of counsel to the Buyer) incurred by the
Buyer in connection with this Agreement and the transactions contemplated
hereby. The Company shall pay on demand all reasonable expenses incurred by the
Buyer, including reasonable attorneys' fees and expenses, as a consequence of,
or in connection with (1) the negotiation, preparation or execution of any
amendment, modification or waiver of this Agreement, the Note, the Statement of
Resolution, the Registration Rights Agreement, the Warrants, the Transfer Agent
Instruction and the other agreements and instruments contemplated hereby and
thereby requested by the Company, (2) any default or breach of any of the
Company's obligations set forth in any of such agreements or instruments and (3)
the enforcement or restructuring of any right of, including the collection of
any payments due, the Buyer under any of such agreements or instruments,
including any action or proceeding relating to such enforcement or any order,
injunction or other process seeking to restrain the Company from paying any
amount due the Buyer, in which the Buyer prevails.
(i) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company obtains the
Stockholder Approval (as defined in the Note and Statement of Resolution) or a
waiver thereof from the Nasdaq, the Company will not issue any shares of Common
Stock or shares of any other series of preferred stock or other securities
convertible into, exchangeable for, or otherwise entitling the holder to
acquire, shares of Common Stock which would be subject to the requirements of
Rule 4460(i) of Nasdaq (or any successor, replacement, or similar provision
thereof or of any other market on which the Common Stock is listed for trading)
and which would be integrated with the sale of the Note and the Preferred Shares
and issuance of the Warrants to the Buyer or the issuance of Common Shares upon
conversion of the Note, the Interest Notes, the Preferred Shares or the Dividend
Shares or upon exercise of the Warrants for purposes of Rule 4460(i) of Nasdaq
(or any successor, replacement or similar provision thereof or of any other
market on which the Common Stock is listed for trading).
(2) Subject to the restrictions in Section 4(i)(1), during the
period from the date of execution and delivery of this Agreement to the date
which is one year after the Closing Date, the Company shall not offer, sell,
contract to sell or issue (or engage any person to assist the Company in taking
any such action) any equity securities or securities convertible into,
exchangeable for or otherwise entitling the holder to acquire, any Common Stock
at a price below the market price of the Common Stock on the date of such
issuance or the date of conversion, exchange or other exercise thereof
(collectively, "Discounted Securities") without giving the Buyer the first right
to acquire all or any portion, as determined by the Buyer in its discretion, of
such Discounted Securities on the same terms as the Discounted Securities are to
be offered to other investors. In each instance of proposed issuance of
Discounted Securities the Company shall give notice to the Buyer of the detailed
terms of such Discounted Securities proposed to be issued and, promptly after
requested by the Buyer, such other information as requested by the Buyer. The
Buyer may, by notice to the Company, exercise such right of first
-18-
refusal at any time until the later of (x) ten Business Days after such notice
from the Company to the Buyer and (y) three Business Days after the Company
provides such additional information as shall have been requested by the Buyer.
(j) STOCKHOLDER APPROVAL. The Company shall seek and use its best efforts
to obtain, on or before the date which is 120 days after the Closing Date, the
Stockholder Approval of the issuance of the Note, the Interest Notes, the
Preferred Shares, the Dividend Shares, the Warrants and the Common Shares. The
Company shall call a meeting of stockholders to be held within 120 days after
the Closing Date, shall prepare and file with the SEC as promptly as practical,
but in no event later than 45 days after the Closing Date, preliminary proxy
materials which set forth a proposal to seek such Stockholder Approval and shall
recommend approval thereof by its stockholders. The Company shall provide the
Buyer an opportunity to review and comment on such proxy materials by providing
copies of such proxy materials and any revised preliminary proxy materials to
the Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer and its counsel a copy of its definitive
proxy materials for such meeting of stockholders and any amendments or
supplements thereto promptly after the same are mailed to stockholders or filed
with the SEC, shall inform the Buyer of the progress of solicitation of proxies
for such meeting and shall inform the Buyer of any adjournment of such meeting
and shall report the result of the vote of any stockholders on such proposition
on the day such vote is taken. If for any reason the Company fails to obtain
such Stockholder Approval, the Company shall be required to redeem the Note in
accordance with Sections 5.1 and 5.2 thereof and the Preferred Shares in
accordance with Section 11 of the Statement of Resolution. As used herein,
"Stockholder Approval" shall have the meaning to be provided or provided in the
Note and the Statement of Resolution.
(k) NASDAQ DETERMINATION. The Company shall promptly seek and use its
best efforts to obtain a written determination from Nasdaq that neither the
Warrants and the issuance of shares of Common Stock upon exercise of the
Warrants nor the Preferred Shares and the issuance of shares of Common Stock
upon conversion of the Preferred Shares need to be integrated with the Note and
the issuance of shares of Common Stock upon conversion of the Note for purposes
of Rule 4460(i) of the Nasdaq (or any successor, replacement or similar
provision thereof or of any other market on which the Common Stock is listed for
trading).
(l) OPINION. The Company shall deliver an opinion of Weil, Gotshal and
Xxxxxx, LLP, counsel for the Company, addressed to the Buyer, in substantially
the form set forth in ANNEX X attached hereto, on or before the date which is
seven (7) Business Days after the Closing Date.
(m) COMMERCIALLY REASONABLE EFFORTS. Each of the parties shall use its
commercially reasonable efforts timely to satisfy each of the conditions to the
other party's obligations to sell and purchase the Note and the Preferred Shares
set forth in Section 7 or 8, as the case may be, of this Agreement on or before
the Closing Date.
5. TRANSFER AGENT INSTRUCTION; CONVERSION PROCEDURE.
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(a) TRANSFER AGENT INSTRUCTION. Prior to the Closing Date, the Company
will (1) execute and deliver the Transfer Agent Instruction in the form attached
hereto as ANNEX VI and thereby irrevocably instruct, American Stock Transfer &
Trust Company, as Transfer Agent and Registrar (the "Transfer Agent"), to issue
certificates for the Common Shares from time to time upon conversion of the
Note, the Interest Notes, the Preferred Shares and the Dividend Shares and
exercise of the Warrants in such amounts as specified from time to time to the
Transfer Agent in the Notices of Conversion of 6% Senior Secured Convertible
Notes due 2001 in the form attached to the Note, the Notices of Conversion
surrendered in connection with conversions of Preferred Shares and referred to
in Section 5(b) of this Agreement and the Form of Subscription in the form
attached to the Warrants and (2) appoint the Transfer Agent the conversion agent
for the Note, the Interest Notes and the Preferred Stock and the exercise agent
for the Warrants. The certificates for the Common Shares may bear the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the resale of the Common Shares under the 1933 Act. The
certificates for the Common Shares shall be registered in the name of the Buyer
or its designee and in such denominations to be specified by the Buyer in
connection with each conversion of the Note, the Interest Notes, the Preferred
Shares or Dividend Shares or exercise of the Warrants. The Company warrants that
no instruction other than (x) such instructions referred to in this Section 5,
(y) stop transfer instructions to give effect to Section 4(a) prior to
registration of the resale of the Common Shares under the 1933 Act and (z) the
instructions required by Section 3(n) of the Registration Rights Agreement will
be given by the Company to the Transfer Agent and that the Common Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement. Nothing in this Section 5(a) shall
limit in any way the Buyer's obligations and agreement to comply with the
registration requirements of the 1933 Act upon resale of the Common Shares. If
the Buyer provides the Company with an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company and its legal counsel,
that registration of a resale by the Buyer of any of the Securities is not
required under the 1933 Act, the Company shall permit the transfer of such
Securities and, in the case of the Common Shares, in accordance with clause
(1)(B) of Section 4(a) of this Agreement, promptly instruct the Company's
transfer agent to issue upon transfer one or more share certificates in such
name and in such denominations as specified by the Buyer within three trading
days after receipt of such opinion. Nothing in this Section 5(a) shall limit the
obligations of the Company under Section 3(n) of the Registration Rights
Agreement.
(b) CONVERSION PROCEDURE. In connection with the exercise of conversion
rights relating to the Preferred Shares and the Dividend Shares, the Buyer or
any subsequent holder of the Preferred Shares (the Buyer and each such holder, a
"Holder") shall complete, sign and furnish to the Transfer Agent a Notice of
Conversion of Series D Convertible Preferred Stock duly acknowledged by the
Company in the form attached hereto as ANNEX VII (the "Preferred Conversion
Notice"), which shall be deemed to satisfy all requirements of the Statement of
Resolution.
(c) COMMON SHARES ISSUABLE UPON CONVERSION. As set forth in Section
10(b)(3) of the Statement of Resolution, the number of Common Shares to be
issued in connection with a particular conversion of Preferred Shares is,
absent manifest error, conclusively the number of
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Common Shares stated in the applicable Preferred Conversion Notice. If in
connection with a particular conversion of Preferred Shares the Company
determines that manifest error has been made by virtue of the conversion price
or other information set forth in the applicable Preferred Conversion Notice,
the Company shall have the right within one trading day after the Holder gives
such Preferred Conversion Notice to notify the Transfer Agent and such Holder of
such error, which notice shall state the number of Common Shares in dispute,
and, notwithstanding such notice from the Company, the Transfer Agent shall
issue and deliver the number of Common Shares not in dispute as and when
required by this letter. A Preferred Conversion Notice shall be deemed for all
purposes to be in proper form unless the Company otherwise notifies the Holder
by telephone line facsimile transmission within three trading days after a
Preferred Conversion Notice has been given (which notice from the Company shall
specify all defects in the Preferred Conversion Notice), and any Preferred
Conversion Notice containing any such defect shall nonetheless be effective on
the date given if the Holder promptly undertakes to correct all such defects
promptly. If the Company shall have notified the Transfer Agent and such Holder
of any such manifest error, and the Company and such Holder do not agree as to a
resolution of such manifest error on or before the date of such notice by the
Company of an error in such Preferred Conversion Notice, the Company shall on
the date such notice is given submit the dispute to Ernst & Young LLP or another
firm of independent public accountants of recognized national standing (the
"Auditors") for determination and shall instruct the Auditors to resolve such
dispute and to notify the Company, the Transfer Agent and such Holder within one
trading day after such dispute is submitted to the Auditors. Immediately after
receipt of timely notice of the Auditors' determination (but in any event within
three trading days after the applicable Preferred Conversion Notice is given to
the Transfer Agent), the Transfer Agent shall issue to the converting Holder any
additional Common Shares to which such Holder is entitled based on the
determination of the Auditors. The Transfer Agent is authorized and directed to
rely on the Auditors' determination. If the Auditors shall fail to notify the
Transfer Agent of their determination within three trading days after the
applicable Preferred Conversion Notice is given to the Transfer Agent, then the
Transfer Agent shall, within three trading days after receipt of the applicable
Preferred Conversion Notice, issue to the converting Holder any additional
shares of Common Stock to which such Holder is entitled based on the applicable
Preferred Conversion Notice. Such immediate and prompt action shall be taken by
all the parties hereto in order to assure that there shall be full compliance
with the Company's unqualified obligation that all Common Shares issuable upon
such conversion be issued by the due date therefor as provided herein and in the
Statement of Resolution.The provisions of this Section 5(c) shall be binding on
and inure to the benefit of the Company and each Holder.
6. CLOSING DATE.
Subject to the satisfaction or waiver of the conditions set forth
in Sections 7 and 8, the date and time of the issuance and sale of the Preferred
Shares (the "Closing Date") shall be 12:00 noon, New York City time, on or
before the date which is three Business Days after the date the Buyer has
deposited the Purchase Price with the Escrow Agent in accordance with Section
1(c), or such other mutually agreed to time. The closing shall occur on the
Closing Date at the Law Offices of Xxxxx X Xxxxx, Penthouse Suite, 00 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
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7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell the Note and
the Preferred Shares and issue the Warrants to the Buyer pursuant to this
Agreement is conditioned upon the satisfaction of the following conditions
precedent on or before the Closing Date (any or all of which may be waived by
the Company in its sole discretion):
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price in accordance with
Section 1(d) hereof and delivery of the Exchange Shares to the Escrow Agent;
and
(c) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the Note
and the Preferred Shares and acquire the Warrants on the Closing Date is
conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Buyer in its
sole discretion):
(a) Delivery by the Company to the Escrow Agent of the Note and the
certificates for the Preferred Shares and the Warrants in accordance with this
Agreement;
(b) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date and receipt by the Buyer of a certificate, dated the Closing
Date, of the Chief Executive Officer or the Chief Financial Officer of the
Company confirming such matters and such other matters as the Buyer may
reasonably request;
(c) The receipt by the Buyer of confirmation of the filing with the
Secretary of State of the State of Texas of the Statement of Resolution;
(d) The receipt by the Buyer of a certificate, dated the Closing Date, of
the Secretary of the Company certifying (1) the Articles of Incorporation and
By-Laws of the Company as in effect on the Closing Date, (2) all resolutions of
the Board of Directors (and
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committees thereof) of the Company relating to this Agreement and the
transactions contemplated hereby and (3) such other matters as reasonably
requested by the Buyer;
(e) The Transfer Agent shall have acknowledged receipt of the Transfer
Agent Instruction in the form attached hereto as ANNEX VI and shall not have
objected to or declined to follow the instructions contained therein;
(f) Receipt by the Buyer on the Closing Date of an opinion of Weil,
Gotschal & Xxxxxx, LLP, counsel for the Company, dated the Closing Date, in
form, scope and substance reasonably satisfactory to the Buyer, to the effect
set forth in ANNEX VIII attached hereto; and
(g) Receipt by the Buyer on the Closing Date of an opinion of Xxxx X.
Xxxxxx, Senior Vice President, General Counsel and Secretary of the Company,
dated the Closing Date in form, scope and substance reasonably satisfactory to
the Buyer, to the effect set forth in ANNEX IX attached hereto.
9. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York.
(b) COUNTERPARTS. This Agreement may be executed in counterparts and by
the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal
and binding on such party. Although this Agreement is dated as of the date
first set forth above, the actual date of execution and delivery of this
Agreement by each party is the date set forth below such party's signature
on the signature page hereof. Any reference in this Agreement or in any of
the documents executed and delivered by the parties hereto in connection
herewith to (1) the date of execution and delivery of this Agreement by the
Buyer shall be deemed a reference to the date set forth below the Buyer's
signature on the signature page hereof, (2) the date of execution and
delivery of this Agreement by the Company shall be deemed a reference to
the date set forth below the Company's signature on the signature page
hereof and (3) the date of execution and delivery of this Agreement or the
date of execution and delivery of this Agreement by the Buyer and the
Company shall be deemed a reference to the later of the dates set forth
below the signatures of the parties on the signature page hereof. The
Company and the Buyer hereby represent, warrant, covenant and agree that
this Agreement has been signed and delivered in the State of New York and
it is the intention of the Company and the Buyer that this Agreement shall
be construed accordingly for all purposes.
(c) HEADINGS, ETC.. The headings, captions and footers of this Agreement
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of
-23-
the remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction.
(e) AMENDMENTS. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(f) WAIVERS. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(g) NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be delivered personally (which shall include
telephone line facsimile transmission with answer back confirmation) or by
courier and shall be effective upon receipt, if delivered personally or by
courier, in the case of the Company addressed to the Company at its address
shown in the introductory paragraph of this Agreement, Attention: Chief
Executive Officer (telephone line facsimile transmission number (000) 000-0000
or, in the case of the Buyer, at its address or telephone line facsimile
transmission number shown on the signature page of this Agreement, with a copy
to Genesee International, Inc., 00000 X.X. 0xx Xxxxxx, Xxxxx 0000, Xxxxxxxx,
Xxxxxxxxxx 00000-0000 (telephone line facsimile transmission number
(000) 000-0000) or such other address or telephone line facsimile transmission
number as a party shall have provided by notice to the other party in accordance
with this provision. The Buyer hereby designates as its address for any notice
required or permitted to be given to the Buyer pursuant to the Note or the
Statement of Resolution the address shown on the signature page of this
Agreement, with a copy to: Advantage Fund Limited, x/x Xxxxxxx Xxxxxxxxxxxxx,
Xxx., 00000 X.X. 0xx Xxxxxx, Xxxxx 0000, Xxxxxxxx, Xxxxxxxxxx 00000-0000
(facsimile number (000) 000-0000), until the Buyer shall designate another
address for such purpose.
(h) ASSIGNMENT. Prior to the Closing Date, with the prior written consent
of the Company, which consent will not be unreasonably withheld, the Buyer shall
have the right to assign its rights and obligations under this Agreement with
respect to the purchase of all or any portion of the Note or the Preferred
Shares and the issuance of the related Warrants, provided any such assignee, by
written instrument duly executed by such assignee, assumes all obligations of
the Buyer hereunder with respect to the purchase of the portion of the Note or
the Preferred Shares and the acquisition of the Warrants so assigned and makes
the same representations and warranties with respect thereto as the Buyer makes
in this Agreement, whereupon the Buyer shall be relieved of any further
obligations, responsibilities and liabilities with respect to the purchase of
all or the portion of the Note or the Preferred Shares and acquisition of the
related Warrants the obligation for the purchase or acquisition of which has
been so assigned. In the case of any
-24-
such assignment, the Company shall agree in writing with such assignee to make
available to such assignee the benefits of the Registration Rights Agreement
with respect to the Common Shares issuable on conversion of the Note or the
Preferred Shares and exercise of the Warrants with respect to which the purchase
under this Agreement has been so assigned. Any transfer of the Note, the
Preferred Shares or the Warrants by the Buyer after the Closing Date shall be
made in accordance with Section 4(a). After the Closing Date, the Buyer shall
have the right to assign its rights and obligations under this Agreement in
connection with any transfer of the Buyer's rights under the Registration Rights
Agreement by compliance with the provisions of Section 9 of the Registration
Rights Agreement.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants and agreements of the Buyer and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of payment
for the Preferred Shares and shall remain in full force and effect regardless of
any investigation made by or on behalf of them or any person controlling or
advising any of them.
(j) ENTIRE AGREEMENT. This Agreement and its Schedule and Annexes set
forth the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
whether written or oral, with respect thereto.
(k) TERMINATION. (1) The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the Closing
Date if:
(A) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any of its
obligations hereunder;
(B) any other condition of the Buyer's obligations hereunder
is not fulfilled when required to be fulfilled; or/
(C) the closing shall not have occurred on a Closing Date on or
before September 5, 1998, other than solely by reason of a breach of this
Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by
the Buyer. Upon such termination, neither the Buyer nor the Company shall have
any further obligation hereunder or in connection herewith one to the other.
(2) The Company shall have the right to terminate this Agreement by giving
notice to the Buyer at any time at or prior to the Closing Date if:
(A) the Buyer shall have failed, refused, or been unable at or prior
to the date of such termination of this Agreement to perform any of its
obligations hereunder;
-25-
(B) any other condition of the Company's obligations hereunder is not
fulfilled when required to be fulfilled; or
(C) the closing shall not have occurred on a Closing Date on or
before September 5, 1998, other than solely by reason of a breach of this
Agreement by the Company.
Any such termination shall be effective upon the giving of notice thereof by
the Company. Upon such termination, neither the Company nor the Buyer shall
have any further obligation hereunder or in connection herewith one to the
other.
(l) FURTHER ASSURANCES. Each party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
(m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the Buyer
shall have the right to approve before issuance any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law or Nasdaq
regulation (although the Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
(n) CONSTRUCTION. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer and
the Company by their respective officers or other representatives thereunto duly
authorized on the respective dates set forth below.
PRINCIPAL AMOUNT OF NOTE: $
PURCHASE PRICE: $
NUMBER OF PREFERRED SHARES:
NUMBER OF EXCHANGE SHARES:
ADVANTAGE FUND LIMITED
By:
------------------------------------
X.X. Xxxxx
President
Date:
----------------------------------
Address: x/x XXXXX
Xxxx Xxxxxxxxx 0
Xxxxxxx, Xxxxxxxxxxx Antilles
Facsimile No.: 011-599-9732-2008
EQUALNET COMMUNICATIONS CORP.
By:
-------------------------------------
Name:
Title:
Date:
-----------------------------------
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SCHEDULE 3(b)-1
CERTAIN ANTIDILUTION ADJUSTMENTS
--------------------------------
[To come from the Company]
SCHEDULE 3(b)-2
CERTAIN REGISTRATION RIGHTS
-----------------------------
1. Holders of the Company's Series A Convertible Preferred Stock have
demand and piggyback registration rights.
2. Holders of Series C Preferred Stock have demand registration rights.
3. RFC Capital Corp. has demand and piggyback registration rights.
SCHEDULE 3(c)-1
CERTAIN NASDAQ MATTERS
-----------------------
[To come from the Company]
SCHEDULE 3(i)
CERTAIN LEGAL PROCEEDINGS
-------------------------
[To come from the Company]
