EXHIBIT A
LETTER OF CREDIT SECURITY COMMITMENT AGREEMENT
This Letter of Credit Security Commitment Agreement, dated as of September
18, 2001, is entered into among Internet America, Inc., a Texas corporation (the
"Company") and Xxxxxxx X. Xxxx (the "Holder"). The parties hereto agree as
follows:
RECITALS
A. The Company desires to appeal an adverse judgment rendered against the
Company in that certain lawsuit against the Company styled Xxxxx Xxxxxxxxx v.
Internet America, Inc., Xxxxxxx X. Xxxxxx and Xxxxxxx X. Xxxx (the "Lawsuit"),
and, in connection with such appeal, is required to post a bond in the amount of
$3,500,000.00 (the "Bond") with the Clerk for the District Court of Dallas
County, Texas, 14th Judicial District.
B. The Company desires that the Holder provides the security required by
Bank to issue a letter of credit in lieu of the Bond, and the Holder has agreed
to provide such security on behalf of the Company, subject to the terms and
conditions set forth in this Agreement.
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Agreement" means this agreement, as it may be amended or modified and in
effect from time to time.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the Chief Executive Officer, President,
any Vice President or Chief Financial Officer of the Company.
"Bank" means Chase National Bank, or such other financial institution as
may be agreed to by the Company and the Holder, that will issue the Letter of
Credit.
"Business Day" means a day (other than a Saturday or Sunday) on which banks
generally are open in Dallas for the conduct of substantially all of their
commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with GAAP.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Cash Equivalent Investments" means (i) short-term obligations of, or fully
guaranteed by, the United States of America, (ii) commercial paper rated A-1 or
better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts
maintained in the ordinary course of business, and (iv) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in
excess of $100,000,000; provided in each case that the same provides for payment
of both principal and interest (and not principal alone or interest alone) and
is not subject to any contingency regarding the payment of principal or
interest.
"Change in Control" means (i) the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of twenty percent (20%) or more of the outstanding shares of voting
stock of the Company (other than as a result of the conversion of the Notes as
set forth in Article V) ; (ii) the sale of all or substantially all of the
assets of the Company; or (iii) a merger or consolidation of the Company with
any other Person.
"Closing" is defined in Section 7.1.
"Closing Date" is defined in Section 7.1.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means the obligation of the Holder to provide security for the
Letter of Credit and to make Loans not exceeding the amount set forth opposite
its signature below, as such amount may be modified from time to time pursuant
to the terms hereof.
"Commitment Payment Date" means the last Business Day of each calendar
quarter during the period beginning on the Closing Date and ending on the
Commitment Termination Date.
"Commitment Termination Date" means the date on which the Letter of Credit
is either funded as a result of a Final Judgment or terminated at the request of
the Company as a result of a settlement of the Litigation.
"Common Stock" means the Company's common stock, par value $.01 per share,
or shares resulting from any subdivision or combination of such common stock or,
in the case of any reorganization , reclassification, merger, consolidation or
sale of the type referred to in Section 5.2 and 5.3, the stock or other
securities or property provided for in such Section.
"Company" means Internet America, Inc., a Texas corporation, and its
successors and assigns.
"Company SEC Documents" means all forms, reports, statements, schedules,
registration statements and other documents required to be filed with the United
States Securities and Exchange Commission.
"Company Stock Plans" means the Company's 1996 Nonqualified Stock Option
Plan, 1998 Nonqualified Stock Option Plan and Employee and Consultant Stock
Option Plan, and the Employee Stock Purchase Plan.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or the obligations of any such Person as general
partner of a partnership with respect to the liabilities of the partnership.
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"Controlled Group" means all members of a controlled group of corporations
or other business entities and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Conversion Price Per Share" means eighty-five percent (85%) of the
Weighted Average Closing Price,, as adjusted pursuant to Sections 5.2 and 5.3.
Notwithstanding the foregoing, the Conversion Price Per Share shall not be less
than $0.35 per share of Common Stock, nor greater than $0.65 per share of Common
Stock.
"Covad Indebtedness" means the amount of indebtedness owed by the Company
to Covad Communications Company ("Covad") under that certain Promissory Note
payable to Covad dated as of June 5, 2001, the amount of which is approximately
$650,000.
"Default" means an event described in Article XI.
"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability arising out of, relating to, based on
or resulting from (i) the presence, discharge, emission, release or threatened
release of any Hazardous Materials at any location, whether or not such property
is owned, leased or operated or (ii) circumstances forming the basis of any
violation or alleged violation of any Environmental Law or Environmental Permit
or (iii) otherwise relating to obligations or liabilities under any
Environmental Laws; provided, however, that the term "Environmental Claim" shall
not include any such claim, demand, action, suit, complaint, proceeding or other
communication under an insurance or reinsurance policy issued by the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"Environmental Permits" "Environmental Permits" means all permits,
licenses, registrations and other governmental authorizations required for an
entity and its facilities to conduct its business under Environmental Laws.
"Environmental Report" means any report, study, assessment, audit, or other
similar document that addresses any issue of noncompliance with, or liability
under, any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Excluded Taxes" means, in the case of the Holder, taxes imposed on its
overall net income, and franchise taxes imposed on it, by (i) the jurisdiction
under the laws of which the Holder is incorporated or organized or resides or
(ii) the jurisdiction in which the Holder's principal executive office is
located.
"Exhibit" refers to an exhibit to this Agreement, unless another document
is specifically referenced.
"Final Judgment" means a final, non-appealable judgment rendered in the
Litigation.
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"Financing Statements"" such financing statements and other instruments as
the Holder shall require in order to perfect and maintain the continued
perfection of the security interest created by the Security Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied in a manner consistent.
"Hazardous Materials" means any gasoline or petroleum (including crude oil
or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity,
and any other substances of any kind, whether or not any such substance is
defined as hazardous or toxic under any Environmental Law, that is regulated
pursuant to or could give rise to liability under any Environmental Law.
"Holder" means the Person (other than the Company) listed on the signature
page of this Agreement and its respective successors and assigns.
"Holder's Election Notice" is defined in Section 2.3.
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of Property or
services (other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade), (iii) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from Property now or hereafter owned or acquired by such Person, (iv)
obligations which are evidenced by notes, acceptances, or other instruments, (v)
obligations of such Person to purchase securities or other Property arising out
of or in connection with the sale of the same or substantially similar
securities or Property, (vi) Capitalized Lease Obligations and (vii) any other
obligation for borrowed money or other financial accommodation which in
accordance with GAAP would be shown as a liability on the consolidated balance
sheet of such Person.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stocks, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificate of deposit owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.
"Judgment" means the judgment rendered against the Company in the
Litigation, for so long as such judgment remains subject to appeal.
"Letter of Credit" means the letter of credit to be secured by the Holder
and issued by Bank on behalf of the Company in favor of the entity issuing the
Bond, to secure the Judgment while the Judgment is being appealed by the
Company.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Litigation" means the lawsuit styled Xxxxx Xxxxxxxxx v. Internet America,
Inc., Xxxxxxx X. Xxxxxx and Xxxxxxx X. Xxxx filed by Xxxxx Xxxxxxxxx against the
Company.
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"Loan" means, with respect to a Holder, the Holder's loan made pursuant to
Article III (or any conversion or continuation thereof).
"Loan Documents"" means this Agreement, any Notes issued pursuant to
Sections 3.1 and 3.2 and the Security Agreement and any agreements, instruments
and financing statements executed in accordance therewith.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Company and its Subsidiaries taken as a whole, (ii) the
ability of the Company to perform its obligations under the Loan Documents, or
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Holder thereunder. "Material Indebtedness" is any
Indebtedness in excess of $500,000, excluding the Covad Indebtedness.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Company or any member
of the Controlled Group is a party to which more than one employer is obligated
to make contributions.
"Note"" means any promissory note issued pursuant to Sections 3.1 and 3.2
in the form of Exhibit A.
"Obligations" means security provided by the Holder for the Letter of
Credit (if drawn upon), all commitment fees, unpaid principal of and accrued and
unpaid interest on the Loans, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Company to the Holder
under the Loan Documents.
"Other Taxes" is defined in Section 4.5.
"Original Issue Date" means the date on which the Loans are made (or deemed
to be made) by the Company to the Holder pursuant to Sections 3.1 or 3.2.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Liens" means those Liens described in Section 8.11.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Company or any member of the Controlled Group may have any
liability.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within
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30 days of the occurrence of such event, provided, however, that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section 302
of ERISA shall be a Reportable Event regardless of the issuance of any such
waiver of the notice requirement in accordance with either Section 4043(a) of
ERISA or Section 412(d) of the Code.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the security agreement securing the Company's
performance and payment of the Obligations in the form attached hereto as
Exhibit B.
"Schedule" refers to a specific schedule to this Agreement, unless another
document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Company.
"Substantial Portion" means, with respect to the Property of the Company
and its Subsidiaries, Property which (i) represents more than 10% of the
consolidated assets of the Company and its Subsidiaries as would be shown in the
consolidated financial statements of the Company and its Subsidiaries as at the
beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 10% of the
consolidated net sales or of the consolidated net income of the Company and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings, and any and all liabilities with respect to
the foregoing, but excluding Excluded Taxes.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Warrant" shall mean a warrant in the form attached hereto as Exhibit C,
issued to Holder in accordance with Section 4.3
"Weighted Average Closing Price" means the average of the closing bid and
asked prices of the Common Stock quoted in the over-the-counter market summary
or the last reported sale price of the Common Stock or the closing price quoted
on the Nasdaq National Market System or on any exchange on which the Common
Stock is listed, whichever is applicable, as published in The Wall Street
Journal for the ten-trading day period beginning September 18, 2001. In the
event quotations are not available for the Common Stock on the over-the-counter
market, and the Common Stock is not listed for trading on any established stock
exchange or a national market system, the Weighted Average Closing Price shall
be determined by the Company's Board of Directors in the good faith exercise of
its reasonable business judgment.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
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ARTICLE II
COMMITMENT
2.1 Letter of Credit Security Commitment. The Holder agree, on the terms
and conditions set forth in this Agreement and upon terms reasonably acceptable
to the Bank, to provide the security required by Bank in connection with its
issuance of the Letter of Credit, the form of which shall be reasonably
acceptable to the Holder. The security to be provided by the Holder to the Bank
shall be in the amount of the Holder's Commitment.
2.2 Commitment Fee. The Company agrees to pay to the Holder a commitment
fee of 8% per annum on the Holder's Commitment from the Closing Date to and
including the Commitment Termination Date, payable in arrears on each Commitment
Payment Date and on the Commitment Termination Date. All payments of the
commitment fee due under this Section 2.2 shall be made, without setoff,
deduction, or counterclaim, in immediately available funds to the Holder at the
address set forth below for the Holder, or at such other address specified in
writing by the Holder pursuant to Section 11.11, by noon (local time) on the
date when due.
2.3 Reduction in Commitment. Subject to Sections 3.1 and 3.2, the Company
may reduce the Commitment in whole, or in part, upon at least thirty (30) days'
prior written notice to the Holder, which notice shall specify the amount of any
such reduction. Upon any reduction in the Commitment, the Holder may elect to
purchase an aggregate number of shares of Common Stock from the Company, equal
to the amount of the proposed reduction of the Holder's Commitment (or any
lesser amount designated in writing by the Holder), divided by the Conversion
Price Per Share; provided, however, that if the Commitment is reduced by the
Company within the first six (6) months after the Closing Date, the Holder may
purchase only fifty percent (50%) of the Common Stock so purchasable as provided
above. Any election by the Holder to purchase shares of Common Stock pursuant to
this Section 2.3 must be in writing, delivered to the Company at the address set
forth below within ninety (90) days of the date of the effectiveness of the
reduction in the Holder's Commitment (the "Holder's Election Notice"). The
closing of any such purchase shall take place on the date specified in the
Holder's Election Notice, subject to the Company's receipt of the purchase
price, by wire transfer or other method designated in writing by the Company,
for such shares of Common Stock.
ARTICLE III
LOANS AND NOTES
3.1 Letter of Credit Funding. In the event the Letter of Credit is funded
by Bank, the Company shall immediately notify the Holder and the amount of such
funding shall be deemed to be a Loan by the Holder to the Company. If an Event
of Default occurs hereunder, the security provided by a Holder for the Letter of
Credit will, at the Holder's election by notice to the Company, be deemed to be
a Loan by the Holder to the Company. Upon such event or events, the Company
shall immediately issue to the Holder, a Note (or Notes as directed in writing
by the Holder) in the principal amount equal to the lesser of (a) the Holder's
Commitment, or (b) the portion of the Holder's Commitment that comprises the
amount of such funding. If the Letter of Credit is funded for less than the
Commitment, the Holder shall have the purchase rights set forth in Section 2.3
only with respect to the amount the Commitment exceeds the required funding
amount.
3.2 Settlement of Litigation. In the event the Litigation is settled before
a Final Judgment is rendered, the Company may terminate the Letter of Credit and
convert the Commitment, or a portion thereof, into a Loan from the Holder, the
proceeds of which shall be applied by the Company to, and only to, the
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settlement amount. Upon such event, the Company shall immediately issue to the
Holder, a Note (or Notes as directed in writing by the Holder) in the principal
amount equal to the lesser of (a) the Holder's Commitment, or (b) the portion of
the Holder's Commitment that comprises the amount of such Loan. If the amount of
the Commitment converted by the Company into a loan pursuant to this Section 3.2
is less than the Commitment, the Holder shall have the purchase rights set forth
in Section 2.3 only with respect to the amount the Commitment exceeds the
aggregate loan amount. Notwithstanding anything to the contrary herein, in no
event will the Holder be required to loan the Company the monies contemplated by
this Section 3.2 unless the Bank releases the Holder's security for the Letter
of Credit in an amount at least equal to the amount of such Loan.
ARTICLE IV
REPAYMENT OF THE NOTES
4.1 Interest Rates. Interest on the Notes shall be computed, at the rate of
twelve percent (12%) per annum, for the actual number of days elapsed and on the
basis of a year consisting of 360 days, unless the maximum legal interest rate
would thereby be exceeded, in which event, to the extent necessary to avoid
exceeding such maximum rate, interest shall be computed on the basis of the
actual number of days elapsed in the applicable calendar year in which it
accrued.
4.2 Repayment of the Notes. The Company covenants and agrees that upon
issuance of the Notes, it will repay to the Holder, accrued and unpaid interest
on the Notes in quarterly installments, beginning on the first Business Day of
the calendar quarter immediately following the Original Issue Date. The Company
further covenants and agrees to repay to the Holder the unpaid principal balance
of the Notes in full, together with all accrued and unpaid interest, fees and
other amounts due hereunder, in four (4) equal quarterly payments, payable on
the first Business Day of each calendar quarter immediately following the second
anniversary of the Original Issue Date..
4.3 Prepayment. The Company may prepay the Notes, in whole or in part, upon
thirty (30) days prior written notice to the Holder; provided that partial
prepayments may be made only in increments of $100,000. In the event of a
proposed prepayment by the Company, (a) prior to such prepayment, the Holder
shall have the right to convert the amount of the proposed prepayment into
shares of Common Stock in accordance with Section 5.1, regardless of the period
of time that the Notes have been outstanding, and (b) upon prepayment of the
Notes, to the extent Holder does not exercise its right to so convert, the
Holder shall receive a Warrant to purchase fifty percent (50%) of the number of
shares of Common Stock that the Holder would have been able to convert into
shares of Common Stock pursuant to Section 4.3(a). Any Warrant issued in
accordance with this Section 4.3 shall be immediately exercisable and will
remain effective until the second anniversary of the Original Issue Date. In the
event of a Change in Control, the Note shall become immediately due and payable.
4.4 Home Office Payment. The Company will pay all sums becoming due on
Notes for principal and interest to the Holder in cash (by check or wire
transfer to the account(s) designated in writing by the Holder) at the address
specified below for the Holder, or by such other method or at such other address
as the Holder shall have from time to time specified to the Company in writing
for such purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of the Company
made concurrently with or reasonably promptly after payment or prepayment in
full of any Note, the Holder of a Note shall surrender such Note for
cancellation, reasonably promptly after such request, to the Company at their
principal executive office.
4.5 Taxes. Any and all payments by the Company hereunder or under the Notes
or other Loan Documents that are made to or for the benefit of the Holder shall
be made free and clear of and without
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deduction for any and all Taxes. If the Company shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Notes or other Loan Documents to Holder, the sum payable shall be increased as
may be necessary so that after making all required deductions of Taxes
(including deductions of Taxes applicable to additional sums payable under this
paragraph), the Holder receives an amount equal to the sum it would have
received had no such deductions been made. The Company shall make such
deductions and the Company shall pay the full amount so deducted to the relevant
taxation authority or other authority in accordance with applicable law. In
addition, the Company agree to pay any present or future stamp, documentary,
excise, privilege, intangible or similar levies that arise at any time or from
time to time from any payment made under any and all Loan Documents or from the
execution or delivery by the Company or from the filing or recording or
maintenance of, or otherwise with respect to the exercise by the Holder of its
respective rights under any and all Loan Documents (collectively, "Other
Taxes"). The Company will indemnify the Holder for the full amount of Taxes
imposed on or with respect to amounts payable hereunder and Other Taxes, and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. Payment of this indemnification shall be made within thirty
(30) days from the date Holder provide the Company with a certificate certifying
and setting forth in reasonable detail the calculation thereof as to the amount
and type of such Taxes. Any such certificates submitted by the Holder in good
faith to the Company shall, absent manifest error, be final, conclusive and
binding on all parties. The obligation of the Company under this Section 4.5
shall survive the payment of the Notes and the termination of this Agreement.
Within thirty (30) days after the Company having received a receipt for payment
of Taxes and/or Other Taxes, the Company shall furnish to the appropriate
Holder, the original or certified copy of a receipt evidencing payment.
4.6 Maximum Lawful Rate. This Agreement, the Notes and the other Loan
Documents are hereby limited by this Section 4.6. In no event, whether by reason
of acceleration of the maturity of the amounts due hereunder or otherwise, shall
interest and fees contracted for, charged, received, paid or agreed to be paid
to Holder exceed the maximum amount permissible under such applicable law. If,
from any circumstance whatsoever, interest and fees would otherwise be payable
to the Holder in excess of the maximum amount permissible under applicable law,
the interest and fees shall be reduced to the maximum amount permitted under
applicable law. If from any circumstance, the Holder shall have received
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excess of interest shall be applied to the
reduction of the Aggregate Commitment or principal amount of the Notes, as the
case may be, in such manner as may be determined by the Holder, and not to the
payment of fees or interest, or if such excessive interest exceeds the unpaid
balance of the Aggregate Commitment or principal amount of the Notes, as the
case may be, such excess shall be refunded to the Company.
4.7 Certain Waivers. The Company unconditionally waive (i) any rights to
presentment, demand, protest or (except as expressly required hereby) notice of
any kind, and (ii) any rights of recession, setoff, counterclaim or defense to
payment under the Notes or otherwise that the Company may have or claim against
any Holder or any prior Holder.
ARTICLE V
CONVERSION OF NOTES
5.1 Conversion Rate. At any time, and from time to time, after the Original
Issue Date, but before the second anniversary of the Original Issue Date, the
Holder of the Note may convert the principal and accrued interest of the Note,
in whole or in part, into shares of the Common Stock at the Conversion Price Per
Share upon written notice to the Company.
5.2 Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares
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of Common Stock into a greater number of shares, the Conversion Price Per Share
in effect immediately prior to such subdivision will be proportionately
decreased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price Per Share in effect immediately
prior to such combination will be proportionately increased.
5.3 Reorganization, Reclassification, Consolidation, Merger or Sale. In
case at any time or from time to time, the Company shall (a) effect a capital
reorganization, reclassification or recapitalization, (b) consolidate with,
combine with or merge into any other Person, or (c) transfer all or
substantially all of its properties or assets to any other Person under any plan
or arrangement contemplating the dissolution of the Company, then in each such
case, the Holder, at any time after the consummation of such reorganization,
recapitalization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock (or
other securities) issuable upon conversion of the Notes, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if the Holder had so converted the Note immediately prior thereto
at the Conversion Price Per Share in effect immediately prior thereto, all
subject to further adjustment thereafter as provided in this Article V.
5.4 Surrender of Note for Conversion. As promptly as practicable after the
surrender, as herein provided, of the Note in proper form for conversion, the
Company shall deliver a certificate or certificates representing the number of
fully paid and nonassessable shares of the Common Stock into which the Note (or
portion thereto) has been converted in accordance with the provisions of this
Article V. Subject to the following provisions of this Article V, such
conversion shall be deemed to have been made immediately prior to the close of
business on the date that this Note shall have been surrendered for conversion,
accompanied by written notice, so that the rights of the Holder of this Note as
a holder thereof shall cease with respect to this Note (or the portion thereof
being converted) at such time, and the person or persons entitled to receive the
shares of the Common Stock upon conversion of this Note shall be treated for all
purposes as having become the record holder or holders of such shares of the
Common Stock at such time. Provided, however, that no such surrender on any date
when the stock transfer books of the Company shall be closed shall be effective
to constitute the person or persons entitled to receive the shares of the Common
Stock upon such conversion as the record holder or holders of such shares of the
Common Stock on such date, but such surrender shall be effective to constitute
the person or persons entitled to receive such shares of the Common Stock as the
record holder or holders thereof for all purposes immediately prior to the close
of the business on the next succeeding day on which such stock transfer books
are open.
5.5 Endorsement; Re-Issue. This Note, when surrendered for conversion,
shall be duly endorsed, or be accompanied by a written instrument of transfer in
a form satisfactory to the Company duly executed by the Holder of this Note. For
convenience, the conversion of all or a portion, as the case may be, of the
principal and accrued interest of this Note into the Common Stock is hereinafter
sometimes referred to as the conversion of this Note. In the event that this
Note is converted in part only, upon such conversion, the Company shall execute
and deliver to the Holder, without service charge, a new Note, of any authorized
denomination or denominations as requested by the Holder, in aggregate principal
amount equal to and in exchange for the unconverted portion of the Note so
surrendered.
5.6 Reclassification of Common Stock. In case of any reclassification or
change of outstanding shares of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or in case of any consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification or change of outstanding shares of the Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Holder of this
10
Note shall have the right thereafter to convert this Note into the kind and
amount of shares of stock of the Company or of such successor or purchasing
corporation and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale, or conveyance by a holder
of the number of shares of Common Stock of the Company into which this Note
might have been converted immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. The provisions of this Section shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, sales, or conveyances.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Holder that the statements
contained in the Article VI are true and correct, except as set forth in the
Schedules delivered by the Company to the Holder concurrently herewith.
6.1 Organization. Each of the Company and its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization. Each of the Company and its
Subsidiaries (i) is qualified or licensed in all jurisdictions where such
qualification or license is required to own and operate its properties and
conduct its business in the manner and at the places presently conducted; (ii)
holds all franchises, grants, licenses, certificates, permits, consents and
orders, all of which are valid and in full force and effect, from all applicable
United States and foreign regulatory authorities necessary to own and operate
its properties and to conduct its business in the manner and at the places
presently conducted; and (iii) has full power and authority (corporate and
other) to own, lease and operate its respective properties and assets and to
carry on its business as presently conducted and as proposed to be conducted,
except where the failure to be so qualified or licensed or to hold such
franchises, grants, licenses, certificates, permits, consents and orders or to
have such power and authority would not, when taken together with all other such
failures, reasonably be expected to have a Material Adverse Effect with respect
to the Company. Except as set forth in the Company SEC Documents, the Company
does not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
6.2 Capital Structure.
(a) As of July 31, 2001, the authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock. As of July 31, 2001, (i) 10,005,263 shares of Common Stock were issued
and outstanding, (ii) no shares of Common Stock were held in the treasury of the
Company, (iii) 2,459,689 shares of Common Stock were reserved for issuance under
outstanding Company Stock Plans, including stock appreciation rights,
performance units and stock units, and (iv) no shares of preferred stock were
issued or outstanding. All the outstanding shares of the Company's capital stock
are duly authorized, validly issued, fully paid and non-assessable. There are no
bonds, debentures, notes or other indebtedness having voting rights (or
convertible or exchangeable into securities having such rights) ("Company Voting
Debt") of the Company or any of its Subsidiaries issued and outstanding. The
shares of Common Stock issuable in accordance with Section 2.3 and upon
conversion of the Notes have been reserved for issuance and, when issued upon
payment therefor in accordance with Section 2.3 or upon conversion of the Notes
in accordance with the terms thereof, will be duly authorized, validly issued
and fully paid and nonassessable and not subject to preemptive rights. Except as
set forth above, as described in the Company SEC Documents and for the
transactions contemplated by this Agreement, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there are no
existing (A) options, warrants, calls, preemptive rights, subscriptions or other
rights, convertible or exchangeable securities, agreements, arrangements or
commitments of any character, relating to the issued
11
or unissued capital stock of the Company or any of its Subsidiaries, obligating
the Company or any of its Subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any shares of capital stock or Company Voting Debt
of, or other equity interest in, the Company or any of its Subsidiaries, (B)
securities convertible into or exchangeable for such shares or equity interests
or (C) obligations of the Company or any of its Subsidiaries to grant, extend or
enter into any such option, warrant, call, preemptive right, subscription or
other right, convertible security, agreement, arrangement or commitment.
(b) All of the outstanding shares of capital stock of each of the
Company's Subsidiaries are beneficially owned by the Company, directly or
indirectly, and all such shares have been validly issued and are fully paid and
nonassessable and are owned by either the Company or one of its Subsidiaries
free and clear of all Liens.
(c) There are no voting trusts, proxies or other agreements or
understandings to which the Company or any of its Subsidiaries is a party with
respect to the voting of the capital stock of the Company or any of its
Subsidiaries. Neither the Company nor its Subsidiaries is a party to any
agreement or obligation, contingent or otherwise, to redeem, repurchase or
otherwise acquire or retire shares of capital stock of the Company or any of its
Subsidiaries, whether as a result of the transactions contemplated by this
Agreement or otherwise.
(d) Except as set forth on Schedule 6.2(d), since April 1, 2000, the
Company has not (i) made or agreed to make any stock split or stock dividend, or
issued or permitted to be issued any shares of capital stock, or securities
exercisable for or convertible into shares of capital stock, of the Company
other than pursuant to the Company Stock Option Plan or any outstanding Company
Stock Option, (ii) repurchased, redeemed or otherwise acquired any shares of
capital stock of the Company or (iii) declared, set aside, made or paid to the
shareholders of the Company dividends or other distributions on the outstanding
shares of capital stock of the Company.
6.3 Authorization and Validity. The Company has the power and authority and
legal right to execute and deliver the Loan Documents and to perform its
obligations thereunder. The execution and delivery by the Company of the Loan
Documents and the performance of its obligations thereunder have been duly
authorized by proper corporate proceedings, and the Loan Documents constitute
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.
6.4 No Conflict; Government Consent. Neither the execution and delivery by
the Company of the Loan Documents, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will violate
(i) any law, rule, regulation, order, writ, judgment, injunction, decree or
award binding on the Company or any of its Subsidiaries or (ii) the Company's or
any Subsidiary's articles or certificate of incorporation or by-laws, or (iii)
the provisions of any indenture, instrument or agreement to which the Company or
any of its Subsidiaries is a party or is subject, or by which it, or its
Property, is bound, or conflict with or constitute a default thereunder, or
result in, or require, the creation or imposition of any Lien in, of or on the
Property of the Company or a Subsidiary pursuant to the terms of any such
indenture, instrument or agreement. No order, consent, adjudication, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of any governmental or public
body or authority, or any subdivision thereof, which has not been obtained by
the Company or any of its Subsidiaries, is required to be obtained by the
Company or any of its Subsidiaries in connection with the execution and delivery
of the Loan Documents, the receipt of the Loans under this Agreement, the
payment and performance by the Company of the Obligations or the legality,
validity, binding effect or enforceability of any of the Loan Documents.
12
6.5 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports, statements, schedules,
registration statements and other documents required to be filed with the SEC
since January 1, 2000 (the "Company SEC Documents"), each of which complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, or the Exchange Act and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. No Subsidiary of
the Company is required to file any form, report, statement, schedule,
registration statement or other document with the SEC. No Company SEC Document,
when filed (or, if amended or superseded by a filing prior to the Closing Date,
on the date of such filing) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) Each of the audited and unaudited consolidated financial statements
of the Company (including any related notes thereto) included in the Company SEC
Documents have been prepared in accordance with United States generally accepted
accounting principles ("GAAP"), applied on a consistent basis during the
relevant periods (except as may be disclosed in the notes thereto), and present
fairly the consolidated financial position and consolidated results of
operations and changes in cash flows of the Company and its Subsidiaries as of
the respective dates or for the respective periods reflected therein, except, in
the case of the unaudited interim financial statements, for normal and recurring
year-end adjustments that are not material.
(c) Except as set forth in Schedule 6.5(c) and on the consolidated
balance sheet of the Company and its Subsidiaries as of March 31, 2001 included
in the Company SEC Documents (the "Latest Balance Sheet"), or in the notes
thereto, neither the Company nor any of its Subsidiaries has any liabilities,
debts, claims or obligations of any nature (whether accrued, absolute, direct or
indirect, contingent or otherwise, whether due or to become due), and there is
no existing condition or set of circumstances which would reasonably be
expected, individually or in the aggregate, to result in such a liability,
except for liabilities or obligations incurred in the ordinary course of
business consistent with past practice since March 31, 2001, none of which
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to the Company.
6.6 Material Adverse Change. Except as set forth on Schedule 6.6, since
March 31, 2001 there has been no change in the business, Property, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect.
6.7 Taxes. Except as set forth on Schedule 6.7, the Company and its
Subsidiaries have filed all United States federal tax returns and all other tax
returns which are required to be filed and have paid all taxes due pursuant to
said returns or pursuant to any assessment received by the Company or any of its
Subsidiaries, except such taxes, if any, as are being contested in good faith
and as to which adequate reserves have been provided in accordance with GAAP and
as to which no Lien exists. Except as set forth on Schedule 6.7, no tax liens
have been filed and no claims are being asserted with respect to any such taxes.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of any taxes or other governmental charges are adequate.
6.8 Litigation and Contingent Obligations. Except as set forth on Schedule
6.8, there is no litigation, arbitration, governmental investigation, proceeding
or inquiry pending or, to the knowledge of any of their officers, threatened
against or affecting the Company or any of its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect or which seeks to
prevent, enjoin or delay the
13
making of any Loans. Other than any liability incident to any litigation,
arbitration or proceeding that could not reasonably be expected to have a
Material Adverse Effect, the Company has no material contingent obligations not
provided for or disclosed in the financial statements referred to in Section
6.5.
6.9 Labor and Employment. The Company and its Subsidiaries are and each of
their Plans are in compliance in all material respects with those provisions of
ERISA, the Code, the Age Discrimination in Employment Act, and the regulations
and published interpretations thereunder which are applicable to the Company or
its Subsidiaries or any such Plan. As of the date hereof, no Reportable Event
has occurred with respect to any Plan as to which any of the Company or its
Subsidiaries are or were required to file a report with the PBGC. No Plan has
any material amount of unfunded benefit liabilities (within the meaning of
Section 4001(a)(18) of ERISA) or any accumulated funding deficiency (within the
meaning of Section 302(a)(2) of ERISA), whether or not waived, and neither the
Company nor any member of the Controlled Group has incurred or expects to incur
any material withdrawal liability under Subtitle E of Title IV of ERISA to a
Multiemployer Plan. The Company is in compliance in all material respects with
all labor and employment laws, rules, regulations and requirements of all
applicable domestic and foreign jurisdictions. There are no pending or
threatened labor disputes, work stoppages or strikes.
6.10 Accuracy of Information. No information, exhibit or report furnished
by the Company or any of its Subsidiaries to any Holder in connection with the
negotiation of, or compliance with, the Loan Documents contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein not misleading.
6.11 Material Agreements.
(a) All of the contracts of the Company and its Subsidiaries that are
required to be described in the Company SEC Documents or to be filed as exhibits
thereto (the "Company Material Contracts") are described in the Company SEC
Documents or filed as exhibits thereto. Neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company, any other party thereto has
violated any provision of, or committed or failed to perform any act which with
or without notice, lapse of time or both would constitute a default under the
provisions of any Company Material Contract, except for such defaults that would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company.
(b) Except as set forth on Schedule 6.11(b), neither the Company nor
any of its Subsidiaries is party to any agreement containing any provision or
covenant limiting in any material respect the ability of the Company or any of
its Subsidiaries to (i) sell any products or services of or to any other person,
(ii) engage in any line of business in any geographical area or (iii) compete
with or obtain products or services from any person or limiting the ability of
any person to provide products or services to the Company or any of its
Subsidiaries.
(c) Neither the Company nor any of its Subsidiaries is a party to or
bound by any contract, agreement or arrangement which would cause the rights or
obligations of any party thereto to change upon the consummation of the
transactions contemplated by the Loan Documents.
6.12 Compliance With Laws. The Company and its Subsidiaries have complied
with all applicable statutes, rules, regulations, orders and restrictions of any
domestic or foreign government or any instrumentality or agency thereof having
jurisdiction over the conduct of their respective businesses or the ownership of
their respective Property except for any failure to comply with any of the
foregoing which could not reasonably be expected to have a Material Adverse
Effect.
14
6.13 Ownership of Properties. On the date of this Agreement, the Company
and its Subsidiaries will have good title, free of all Liens other than
Permitted Liens, to all of the Property and assets reflected in the Company's
most recent consolidated financial statements included in the Company SEC
Documents.
6.14 Intellectual Property; Licenses. Each of the Company and its
Subsidiaries possesses all proprietary rights necessary to conduct their
business and operations as heretofore conducted or as proposed to be conducted
by it. All proprietary rights registered in the name of the Company and
applications therefor filed by the Company are listed on Schedule 6.14. No event
has occurred that permits, or after notice or lapse of time or both would
permit, the revocation or termination of any of the foregoing, which taken in
isolation or when considered with all other such revocations or terminations
could have a Material Adverse Effect. The Company does not have any notice or
knowledge of any facts or any past, present or threatened occurrence that could
preclude or impair the Company's ability to retain or obtain any authorization
necessary for the operation of its business.
6.15 Environmental Matters. Except to the extent that any inaccuracy in any
of the representations set forth in this Section 6.15, individually or in the
aggregate with any other inaccuracy under the respective representations set
forth in this Section 6.15, would not reasonably be expected to have a Material
Adverse Effect with respect to the Company, each of the Company and each of its
Subsidiaries is in compliance with all Environmental Laws applicable to the
properties, assets or businesses of the Company and its Subsidiaries, and
possesses and complies with and has possessed and complied with all
Environmental Permits required under such laws. None of the Company and its
Subsidiaries has received any Environmental Claim with respect to their
respective properties, assets or businesses, and to the knowledge of Company and
its Subsidiaries there are no threatened Environmental Claims or any
Environmental Claims pending or threatened against any entity for which the
Company or any of its Subsidiaries may be responsible. None of the Company and
its Subsidiaries has assumed, contractually or by operation of law, any known
liabilities or obligations under any Environmental Laws. To the knowledge of the
Company, there are no present or past events, conditions, circumstances,
practices, plans or legal requirements that would reasonably be expected to (i)
result in liability to the Company or any of its Subsidiaries under
Environmental Laws, or (ii) prevent, or reasonably be expected to increase the
burden on, the Company or any of its Subsidiaries in complying with
Environmental Laws or in obtaining, renewing, or complying with all
Environmental Permits required to be obtained by the Company and its
Subsidiaries under such laws. To the knowledge of the Company, there have been
no Hazardous Materials or other conditions at or from any property owned,
operated or otherwise used by the Company or any of its Subsidiaries now or, to
the best knowledge of the Company, in the past that would reasonably be expected
to give rise to liability of the Company or any of its Subsidiaries under any
Environmental Law. The Company has provided to the Holder all Environmental
Reports with respect to the properties, assets or businesses of the Company and
its Subsidiaries in the possession or control of the Company or any of its
Subsidiaries.
6.16 Investment Company Act. Neither the Company nor any Subsidiary is an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
6.17 Public Utility Holding Company Act. Neither the Company nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
6.18 Broker's or Finder's Commissions. No broker's or finder's or placement
fee or commission will be payable to any broker or agent engaged by the Company
or any of their officers, directors or agents with respect to the issue of the
Notes, or the transactions contemplated by this Agreement. The Company
15
agrees to indemnify the Holder and hold them harmless from and against any
claim, demand or liability for broker's or finder's or placement fees or similar
commissions, whether or not payable by the Company, alleged to have been
incurred in connection with such transactions, other than any broker's or
finder's fees payable to Persons engaged by the Holder without the knowledge of
the Company.
ARTICLE VII
CONDITIONS
7.1 Closing. The closing of the transactions contemplated under this
Agreement (the "Closing") shall take place at the offices of Xxxxxxx Xxxxxx,
LLP, 000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx Xxxxx, 00000 on September 13, 2001 , or
such other date as mutually agreed to by the parties (the "Closing Date")
7.2 Holders Conditions. The obligation of the Holder to consummate the
transactions contemplated under this Agreement is subject to the satisfaction,
prior to or at the Closing, of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Company contained in Article VI hereof shall be true and
correct in all material respects at and as of the Closing Date as though then
made, except to the extent of changes caused by the transactions expressly
contemplated herein.
(b) Security Agreement. The Company and the Holder shall have entered
into the Security Agreement, and the Company shall have executed and delivered
the Financing Statements to the Holder. The Holder shall have received reports
of filings with appropriate government agencies showing that there are no Liens
on the assets of the Company other than Permitted Liens.
(c) Closing Documents. The Company will have delivered or caused to be
delivered to the Holder all of the following documents in form and substance
satisfactory to the Holder:
(i) a certificate of the secretary or assistant secretary of the
Company, certifying as to the names and true signatures of the officers of the
Company authorized to sign this Agreement and the other documents to be
delivered by the Company hereunder;
(ii) copies of the resolutions unanimously and duly adopted by
the Company's board of directors authorizing the execution, delivery and
performance by the Company of this Agreement and each of the other Loan
Documents, and the consummation of all of the other transactions hereunder and
thereunder, certified as of the Closing Date by the secretary or assistant
secretary of the Company;
(iii) a certificate dated as of the Closing Date from an officer
of the Company stating that the conditions specified in this Section 7.1 have
been fully satisfied or waived by the Holder;
(iv) the Registration Rights Agreement substantially in the form
of Exhibit D, executed by the Company;
(v) an opinion of Xxxxxxx Xxxxxx, LLP, counsel to the Company, in
the form of Exhibit E;
(vi) the shareholder consent in the form of Exhibit F, signed by
Xxxxxxx Xxxxx; and
16
(vii) such other documents relating to the transactions
contemplated by this Agreement as the Holder may reasonably request.
(d) Fees and Expenses. On the Closing Date, the Company shall have paid
the fees and expenses of the Holder, payable by the Company pursuant to Section
13.7 hereof.
(e) Company's Fairness Opinion. The Company shall have received an
opinion from its financial advisors to the effect that, as of the date of such
opinion, the transactions contemplated hereunder are fair, from a financial
point of view, to the Company.
(f) Proceeding. All proceedings taken or required to be taken in
connection with the transactions contemplated hereby to be consummated at or
prior to the Closing and all documents incident thereto will be reasonably
satisfactory in form and substance to the Holder.
7.3 Company's Conditions. The obligation of the Company to consummate the
transactions contemplated under this Agreement is subject to the satisfaction,
prior to or at the Closing, of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Holder contained in Section 9.2 hereof shall be true and
correct in all material respects at and as of the Closing Date as though then
made, except to the extent of changes caused by the transactions expressly
contemplated herein.
(b) Letter of Credit. The Holder shall have arranged with Bank to
provide the security necessary for the Bank to issue the Letter of Credit.
(c) Company's Fairness Opinion. The Company shall have received an
opinion from its financial advisors to the effect that, as of the date of such
opinion, the transactions contemplated hereunder are fair, from a financial
point of view, to the Company.
ARTICLE VIII
POST COVENANTS
After the Closing and until the later of (a) the Commitment Termination
Date or (b) the time that the Notes have been paid in full, unless the Holder
shall otherwise consent in writing:
8.1 Financial Reporting. The Company will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with generally accepted accounting principles, and furnish to the Holder:
(a) Within 90 days after the close of each of its fiscal years, an
unqualified (except for qualifications relating to changes in accounting
principles or practices reflecting changes in generally accepted accounting
principles and required or approved by the Company's independent certified
public accountants) audit report certified by independent certified public
accountants acceptable to the Holder, prepared in accordance with GAAP on a
consolidated and consolidating basis (consolidating statements need not be
certified by such accountants) for itself and its Subsidiaries, including
balance sheets as of the end of such period, related profit and loss and
reconciliation of surplus statements, and a statement of cash flows, accompanied
by any management letter prepared by said accountants.
17
(b) Within 45 days after the close of the first three quarterly periods
of each of its fiscal years, for itself and its Subsidiaries, consolidated and
consolidating unaudited balance sheets as at the close of each such period and
consolidated and consolidating profit and loss and reconciliation of surplus
statements and a statement of cash flows for the period from the beginning of
such fiscal year to the end of such quarter, all certified by its chief
financial officer.
(c) As soon as possible and in any event within 10 days after the
Company knows that any Reportable Event has occurred with respect to any Plan, a
statement, signed by the chief financial officer of the Company, describing said
Reportable Event and the action which the Company proposes to take with respect
thereto.
(d) Promptly upon the furnishing thereof to the shareholders of the
Company, copies of all financial statements, reports and proxy statements so
furnished.
(e) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports which the
Company or any of its Subsidiaries files with the Securities and Exchange
Commission.
(f) Such other information (including non-financial information) as any
Holder may from time to time reasonably request.
8.2 Notice of Default. The Company will, and will cause each Subsidiary to,
give prompt notice in writing to the Holder of the occurrence of any Event of
Default or Unmatured Default and of any other development, financial or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
8.3 Conduct of Business. The Company will, and will cause each Subsidiary
to, carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducted and do
all things necessary to remain duly incorporated or organized, validly existing
and in good standing in its jurisdiction of incorporation or organization and
maintain all requisite authority to conduct its business in each jurisdiction in
which its business is conducted. Without limiting the generality of the
foregoing, the Company will not, and will not permit any of its Subsidiaries to:
(a) take any action to change the members of its board of directors or
executive management;
(b) declare, pay or set aside for payment any dividend or other
distribution payable in cash, stock, property or otherwise in respect of its
capital stock; or directly or indirectly redeem, purchase, repurchase or
otherwise acquire any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock;
(c) other than the Loans and other Indebtedness in existence on the
date hereof and disclosed in the Company SEC Documents, (A) incur or assume any
debt or issue any debt securities, (B) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person, (C) make any loans or advances to any
person, other than with respect to extensions of credit to their respective
customers in the ordinary course of business consistent with past practice, (D)
pledge or otherwise encumber shares of capital stock of any of its Subsidiaries,
or (E) mortgage or pledge any of its assets, tangible or intangible, or create
any material Lien thereupon, except in the case of subsections (A) and (B) where
such do not constitute Material Indebtedness;
18
(d) enter into any new lines of business or otherwise make material
changes to the operation of its business;
(e) sell (whether by merger, consolidation or otherwise), lease,
encumber, transfer or dispose of any material assets, or enter into any material
commitment or transaction outside the ordinary course of business consistent
with past practices; or
(f) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would make any representation or
warranty in Article VI hereof materially untrue or incorrect.
8.4 Taxes. The Company will, and will cause each Subsidiary to, timely file
complete and correct United States federal and applicable foreign, state and
local tax returns required by law and pay when due all taxes, assessments and
governmental charges and levies upon it or its income, profits or Property,
except those which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been set aside in accordance
with GAAP.
8.5 Insurance. The Company will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, and the Company will furnish to any Holder upon request
full information as to the insurance carried.
8.6 Compliance with Laws. The Company will, and will cause each Subsidiary
to, comply with all laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject including, without
limitation, all Environmental Laws.
8.7 Maintenance of Properties. The Company will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
8.8 Merger. The Company will not, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person, except that a Subsidiary may
merge into the Company.
8.9 Sale of Assets. The Company will not, nor will it permit any Subsidiary
to, lease, sell or otherwise dispose of its Property to any other Person,
except:
(a) Sales of inventory in the ordinary course of business;
(b) Leases, sales or other dispositions of its Property that, together
with all other Property of the Company and its Subsidiaries previously leased,
sold or disposed of (other than inventory in the ordinary course of business) as
permitted by this Section during the twelve-month period ending with the month
in which any such lease, sale or other disposition occurs, do not constitute a
Substantial Portion of the Property of the Company and its Subsidiaries;
(c) Any transfer of an interest in accounts or notes receivable on a
limited recourse basis, provided that such transfer qualifies as a sale under
GAAP and that the amount of such financing does not exceed $100,000 at any one
time outstanding.
19
8.10 Investments and Acquisitions. The Company will not, nor will it permit
any Subsidiary to, make or suffer to exist any Investments (including without
limitation, loans and advances to, and other Investments in, Subsidiaries), or
commitments therefor, or to create any Subsidiary or to become or remain a
partner in any partnership or joint venture, or to make any Acquisition of any
Person, except:
(a) Cash Equivalent Investments; and
(b) Existing Investments in Subsidiaries and other Investments in
existence on the date hereof and described in the Company SEC Documents.
8.11 Liens. The Company will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Company or any of its Subsidiaries, except:
(a) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or thereafter can
be paid without penalty, or are being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books;
(b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books;
(c) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation;
(d) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with the use
thereof in the business of the Company or its Subsidiaries;
(e) Liens on the Company's accounts receivable in favor of Covad
Communications Company granted pursuant to that certain Security Agreement dated
as of June 5, 2001;
(f) Liens in favor of the Holder, granted pursuant to the Security
Agreement.
8.12 Settlement of the Litigation. The Company will seek, in good faith and
subject to the approval of its Board of Directors, to settle the Litigation and
release the Letter of Credit.
8.13 Dilution of Ownership. As to any securities pledged under the Security
Agreement as Collateral (as defined therein) (other than securities of a class
which are publicly traded), the Company will not consent to or approve of the
issuance of, and will cause its Subsidiaries not to issue, (a) any additional
shares of any class of securities of such issuer, (b) any instrument convertible
voluntarily by the holder thereof or automatically upon the occurrence or
non-occurrence of any event or condition into, or exchangeable for, any such
securities, or (c) any warrants, options, contracts or other commitments
entitling any third party to purchase or otherwise acquire any such securities.
8.14 Voting Rights. As long as no Event of Default shall have occurred
under this Agreement, any voting rights incident to any stock or other
securities pledged as Collateral may be exercised by the
20
Company; provided, however, that the Company will not exercise, or cause to be
exercised, any such voting rights, without the prior written consent of the
Holder, if the direct or indirect effect of such vote will result in an Event of
Default under this Agreement.
ARTICLE IX
PREEMPTIVE RIGHTS
9.1 Preemptive Right. From the Closing Date until the third anniversary of
the Original Issue Date, the Holder shall have the right to purchase a pro rata
portion (based upon the number of shares of Common Stock the Holder would
receive upon conversion of the Note or exercise of the Warrant on the date of
the Preemptive Rights Notice in relation to the number of shares of Common Stock
outstanding on such date, on a fully diluted basis) of any securities issued by
the Company for a price per share less than the Conversion Price Per Share at
the time of such issuance. The Holders preemptive rights shall not apply to (a)
securities issued in connection with an acquisition approved by the Company's
board of directors, (b) securities issued to employees, consultants, officers or
directors pursuant to any Company Stock Plan, (c) securities issued in
connection with any borrowings, including any type of loan or payment evidenced
by any type of non-convertible debt instrument, (d) securities issued in
connection with a public offering, (e) securities issued in connection with any
stock split, stock dividend, or recapitalization, (f) any right, option or
warrant to acquire any security convertible into the securities listed in (a)
through (f) above and (g) any security issued or issuable upon the conversion of
any convertible security or upon the exercise of any right, option or warrant.
9.2 Notice of Issuance. Prior to any proposed issuance of securities at a
price less than the Conversation Price, the Company shall provide the Holder
with written notice of the terms of such proposed issuance (the "Preemptive
Rights Notice") and the Holder shall have ten (10) days after its receipt of the
Preemptive Rights Notice to elect, in writing delivered to the Company, to
exercise such rights. If the Holder does not elect to exercise its preemptive
rights with respect to such issuance, the Company may issue such securities upon
the terms set forth in the Preemptive Rights Notice. In the event the Company
fails to issue such securities within one hundred and twenty (120) days of the
Preemptive Rights Notice, the Company must deliver a new Preemptive Rights
Notice to the Holder and comply with the provisions of this Article IX prior to
issuing such securities.
ARTICLE X
TRANSFERS
10.1 Restricted Securities. The Holder acknowledges that the Notes will not
be registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, and that, except as set forth in the Registration
Agreement attached hereto as Exhibit C, the Company is not required to register
the Notes.
10.2 Legends; Holder's Representations. The Holder hereby represents and
warrants to the Company that it is an "accredited investor" within the meaning
of Rule 501 (a) under the Securities Act and is acquiring the Notes for
investment for its own account, with no present intention of dividing its
participation with others or reselling or otherwise distributing the same in
violation of the Securities Act or any applicable state securities laws. The
Company may place an appropriate legend on the Notes owned by the Holder
concerning the restrictions set forth in this Article X. Upon the assignment or
transfer by the Holder or any of its successors or assignees of all or any part
of the Notes, the term "Holder" as used herein shall thereafter mean, to the
extent thereof, the then holder or holders of such Notes, or portion thereof.
21
10.3 Transfer of Notes. Subject to Section 10.2 hereof, a holder of a Note
may transfer such Note to a new holder, or may exchange such Note for Notes of
different denominations (but in no event of denominations of less than $100,000
in original principal amount), by surrendering such Note to the Company duly
endorsed for transfer or accompanied by a duly executed instrument of transfer
naming the new holder (or the current holder if submitted for exchange only),
together with written instructions for the issuance of one or more new Notes
specifying the respective principal amounts of each new Note and the name of
each new holder and each address therefor. The Company shall simultaneously
deliver to such holder or its designee such new Notes and shall xxxx the
surrendered Notes as canceled. In lieu of the foregoing procedures, a holder may
assign a Note (in whole but not in part) to a new holder by sending written
notice to the Company of such assignment specifying the new holder's name and
address; in such case, the Company shall promptly acknowledge such assignment in
writing to both the old and new holder. The Company shall not be required to
recognize any subsequent holder of a Note unless and until the Company has
received reasonable assurance that all applicable transfer taxes have been paid.
10.4 Replacement of Lost Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the mutilation, destruction, loss or theft of any
Notes and the ownership thereof, the Company shall, upon the written request of
the holder of such Notes, execute and deliver in replacement thereof new
Securities in the same form, in the same original principal amount and dated the
same date as the Notes so mutilated, destroyed, lost or stolen; and such Notes
so mutilated, destroyed, lost or stolen shall then be deemed no longer
outstanding hereunder. If the Notes being replaced have been mutilated, they
shall be surrendered to the Company; and if such replaced Notes have been
destroyed, lost or stolen, such holder shall furnish the Company with an
indemnity in writing to save it harmless in respect of such replaced Note.
10.5 No Other Representations Affected. Nothing contained in this Article X
shall limit the full force or effect of any representation, agreement or
warranty made herein or in connection herewith to Holder.
ARTICLE XI
DEFAULT
11.1 Events of Default. An Event of Default shall mean the occurrence of
one or more of the following described events:
(a) the Company shall default in the payment of the commitment fee set
forth in Section 2.2 or principal of or interest on the Notes when due, whether
at maturity, upon any scheduled payment date or by acceleration or otherwise and
such failure shall continue for a period of five (5) days after the Company's
receipt of written notice from the Holder of such failure;
(b) the Company shall default under any agreement under which any
Indebtedness in an aggregate principal amount of $500,000, excluding the Covad
Indebtedness, or more is created in a manner entitling the holder of such
Indebtedness to accelerate the maturity of such Indebtedness, and such default
shall not be remedied to the Holders reasonable satisfaction for a period of
thirty (30) days from the earlier of (i) written notice from a Holder of such
default or (ii) actual knowledge by the Company of such default;
(c) any representation or warranty herein made by the Company, or any
certificate or financial statement furnished pursuant to the provisions hereto
shall prove to have been false or misleading in any material respect as of the
time made or furnished or deemed made or furnished;
(d) the Company shall default in the performance of any other covenant,
condition or provision of this Agreement, the Notes or the other Loan Documents,
and such default shall not be remedied
22
to the Holders reasonable satisfaction for a period of thirty (30) days from the
earlier of (i) written notice from a Holder of such default or (ii) actual
knowledge by the Company of such default;
(e) a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
the Company in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, "trustee, sequestrator (or similar
official) of the Company or for any substantial part of its property, or for the
winding-up or liquidation of their affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of sixty (60) days;
(f) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or for any substantial part of their property,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay their debts as they become due, or shall take any action in
furtherance of any of the foregoing;
(g) both the following events shall occur; (i) a Reportable Event, the
occurrence of which would have a Material Adverse Effect which could cause the
imposition of a Lien under Section 4068 of ERISA, shall have occurred with
respect to any Plan or Plans; and (ii) the aggregate amount of the then "current
liability" (as defined in Section 412(l)(7) of the Internal Revenue Code of
1986, as amended) of all accrued benefits under such Plan or Plans exceeds the
then current value of the assets allocable to such benefits by more than
$500,000 at such time; and
(h) a final judgment which, with other undischarged final judgments
against any the Company, exceeds an aggregate of $500,000 (excluding the Final
Judgment and other judgments to the extent the Company is fully insured or the
deductible or retention limit does not exceed $500,000 and with respect to which
the insurer has assumed responsibility in writing), shall have been entered
against the Company if, within thirty (30) days after the entry thereof, such
judgment shall not have been discharged or execution thereof stayed pending
appeal, or if, within thirty (30) days after the expiration of any such stay,
such judgment shall not have been discharged.
11.2 Consequences of Event of Default.
(a) Bankruptcy. If an Event of Default specified in paragraphs (e) or
(f) of Section 11.1 hereof shall occur, the unpaid balance of the Notes and
interest accrued thereon and all other Loans or liabilities of the Company to
the holders thereof hereunder and thereunder shall be immediately due and
payable, without presentment, demand, protest or (except as expressly required
hereby) notice of any kind, all of which are hereby expressly waived.
(b) Other Defaults. If any other Event of Default shall occur, the
Holder may at its option, by written notice to the Company, declare the entire
unpaid balance of the Notes, and interest accrued thereon and all other
liabilities of the Company hereunder and thereunder to be forthwith due and
payable, and the same shall thereupon become immediately due and payable,
without presentment, demand, protest or (except as expressly required hereby)
notice of any kind, all of which are hereby expressly waived; provided, that in
the case of a default specified in paragraph (a) of Section 11.1 hereof shall
occur, any holder of a Note may declare the entire unpaid balance of such Note
and other amounts due hereunder and thereunder with regard to such Note to
become immediately due and payable.
23
(c) Penalty Interest. Following the occurrence and during the
continuance of any Event of Default, the holders of the Notes shall be entitled
to receive, to the extent permitted by applicable law, interest on the
outstanding principal of, and overdue interest, if any, on, the Notes at a rate
per annum equal to the highest rate permitted by applicable law.
11.3 Security. Payments of principal of, and premium, if any, and interest
on, the Notes and all other obligations of the Company under this Agreement or
the Notes are secured pursuant to the terms of the Security Agreement.
ARTICLE XII
OTHER AGREEMENTS
12.1 Indemnification Regarding the Lawsuit. The Company hereby agrees to
indemnify and hold the Holder, its heirs, assigns, attorneys and representatives
harmless against all losses, claims, damages, penalties, judgments, liabilities
and expenses (including, without limitation, all expenses of litigation or
preparation therefor) which the Holder may pay or incur arising out of or
relating to the Lawsuit; and the Board of Directors of the Company, by approving
this Agreement, acknowledges and agrees that (a) such indemnification has been
approved by the Board of Directors of the Company, and (b) the Holder has met
the standard required under the TBCA in order for the Holder to be entitled to
receive such indemnification.
12.2 Indemnification Regarding this Agreement. The Company hereby further
agrees to indemnify the Holder, its heirs, assigns, attorneys and
representatives against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including, without limitation, all expenses of
litigation or preparation therefor whether or not the Holder is a party thereto)
which the Holder may pay or incur arising out of or relating to this Agreement,
the other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Loan
hereunder; and the Board of Directors of the Company, by approving this
Agreement, acknowledges and agrees that (a) such indemnification has been
approved by the Board of Directors of the Company, and (b) the Holder has met
the standard required under the TBCA in order for the Holder to be entitled to
receive such indemnification.
ARTICLE XIII
GENERAL PROVISIONS
13.1 Survival of Representations. All representations and warranties of the
Company contained in this Agreement and the indemnification obligations of the
Company set forth in Article XII shall survive the making of the Loans herein
contemplated.
13.2 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Holder shall be obligated to extend credit to the
Company in violation of any limitation or prohibition provided by any applicable
statute or regulation.
13.3 Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
13.4 Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Company and the Holder and supersede all prior
agreements and understandings among the Company and the Holder relating to the
subject matter thereof.
24
13.5 Benefits of this Agreement. This Agreement shall not be construed so
as to confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
13.6 Amendment. No amendment or modification to this Agreement or any of
the Loan Documents shall be effective, unless in writing and signed by all the
parties to the Loan Documents:
13.7 Expenses. The Company shall reimburse the Holder for any costs,
internal charges and out-of-pocket expenses (including reasonable attorneys'
fees and time charges of attorneys) paid or incurred by the Holder in connection
with the preparation, negotiation, execution, delivery, review, amendment,
modification, and administration of the Loan Documents and securitizing the
Letter of Credit. The Company also agrees to reimburse the Holder for any costs
and out-of-pocket expenses (including reasonable attorneys' fees) paid or
incurred by any Holder in connection with the collection and enforcement of the
Loan Documents.
13.8 Severability. Any provision in any Loan Document that is held to be
inoperative, unenforceable, or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable, or invalid without affecting the
remaining provisions in that jurisdiction or the operation, enforceability, or
validity of that provision in any other jurisdiction, and to this end the
provisions of all Loan Documents are declared to be severable.
13.9 Nonliability of Holder. The relationship between the Company on the
one hand and the Holder on the other hand shall be solely that of borrower and
lender. The Holder shall not have any fiduciary responsibilities to the Company.
The Holder does not undertake any responsibility to the Company to review or
inform the Company of any matter in connection with any phase of the Company's
business or operations. The Company agrees that the Holder shall have no
liability to the Company (whether sounding in tort, contract or otherwise) for
losses suffered by the Company in connection with, arising out of, or in any way
related to, the transactions contemplated and the relationship established by
the Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined in a final non-appealable judgment by a court
of competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. The Holder shall
not have any liability with respect to, and the Company hereby waives, releases
and agrees not to xxx for, any special, indirect or consequential damages
suffered by the Company in connection with, arising out of, or in any way
related to the Loan Documents or the transactions contemplated thereby.
13.10 Confidentiality. The Holder agrees to hold any confidential
information which it may receive from the Company pursuant to this Agreement in
confidence, except for disclosure (i) to legal counsel, accountants, and other
professional advisors to the Holder, (ii) to regulatory officials, (iii) to any
Person as requested pursuant to or as required by law, regulation, or legal
process, (iv) to any Person in connection with any legal proceeding to which the
Holder is a party, (v) to the Holder's direct or indirect contractual
counterparties in swap agreements or to legal counsel, accountants and other
professional advisors to such counterparties.
13.11 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including electronic transmission, facsimile
transmission or similar writing) and shall be given to such party at (a) its
address or facsimile number set forth on the signature pages hereof or (b) such
other address or facsimile number as such party may hereafter specify. Each such
notice, request or other communication shall be effective (i) if given by
facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii)
25
if given by any other means, when delivered (or, in the case of electronic
transmission, received) at the address specified in this Section.
13.12 Choice Of Law. THE LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CHOICE OF
LAWS PROVISIONS.
13.13 Venue. THE EXCLUSIVE JURISDICTION FOR ANY CLAIM OR CONTROVERSY
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS SHALL BE IN THE STATE AND
FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS AND EACH PARTY HERETO IRREVOCABLY
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM.
13.14 Waiver Of Jury Trial. THE COMPANY AND EACH HOLDER HEREBY WAIVE TRIAL
BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED
THEREUNDER.
13.15 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart.
IN WITNESS WHEREOF, the Company and the Holder has executed this Agreement
as of the date first above written.
INTERNET AMERICA, INC.
By: /s/ Xxxx X. Xxxxx
-------------------------------------
Title: Chief Executive Officer
Address: One Dallas Centre
000 X. Xx. Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxx
Telephone:
------------------------------
Fax:
------------------------------------
/s/ Xxxxxxx X. Xxxx
-----------------------------------------
Xxxxxxx X. Xxxx
Address: 00000 Xxxxx Xxxx Xxxxx
Xxxxxx, Xxxxx 00000
Telephone:
------------------------------
Fax:
------------------------------------
Commitment Amount: $3,300,000.00
26
EXHIBIT A
INTERNET AMERICA, INC.
CONVERTIBLE NOTE
$ , 2001
--------------- -------
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. WITHOUT SUCH
REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO INTERNET AMERICA, INC. (THE
"COMPANY") OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY
OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO IT TO THE EFFECT THAT ANY SUCH
TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE OR FOREIGN SECURITIES LAWS OR ANY RULE OR REGULATION
PROMULGATED THEREUNDER. THIS NOTE WAS ORIGINALLY ISSUED ON __________, 200_
THIS NOTE WAS ISSUED PURSUANT TO A LETTER OF CREDIT SECURITY COMMITMENT
AGREEMENT, DATED AS OF SEPTEMBER 18, 2001 (AS FROM TIME TO TIME AMENDED, THE
"COMMITMENT AGREEMENT"), BETWEEN THE COMPANY AND XXXXXXX X. XXXX, A RESIDENT OF
THE STATE OF TEXAS, AND IS ENTITLED TO THE BENEFITS THEREOF. ALL TERMS USED
HEREIN UNLESS OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM
IN THE COMMITMENT AGREEMENT. EACH HOLDER OF THIS NOTE WILL BE DEEMED, BY ITS
ACCEPTANCE HEREOF, TO HAVE AGREED TO THE TERMS AND CONDITIONS SET FORTH IN THE
COMMITMENT AGREEMENT.
INTERNET AMERICA, INC., a Texas corporation (the "Company"), for value
received hereby promises to pay to _______________, or registered assigns (the
"Holder"), the principal amount of $___________ with interest on the unpaid
principal of this Note, from the date hereof, at the rate of twelve percent
(12%) per annum, except as otherwise may be provided herein. All payments
hereunder are payable in lawful money of the United States of America at the
place the Holder may designate in writing to the Company.
Interest on this Note shall be computed for the actual number of days
elapsed and on the basis of a year consisting of 360 days, unless the maximum
legal interest rate would thereby be exceeded, in which event, to the extent
necessary to avoid exceeding such maximum rate, interest shall be computed on
the basis of the actual number of days elapsed in the applicable calendar year
in which it accrued. It is the intention of the Company and the Holder to
conform strictly to applicable usury laws. It is therefore agreed that (i) the
aggregate of all interest and other charges constituting interest under
applicable law and contracted for, chargeable or receivable under this Note or
otherwise in connection with this loan transaction, shall never exceed the
maximum amount of interest, nor produce a rate in excess of the maximum contract
rate of interest the Holder may charge the Company under applicable law and in
regard to which the Company may not successfully assert the claim or defense of
usury, and (ii) if any excess interest is provided for, it shall be deemed a
mistake and the same shall be refunded to the Company or credited on the unpaid
principal balance hereof and this Note shall be automatically deemed reformed so
as to permit only the collection of the maximum legal contract rate and amount
of interest.
Interest on this Note shall be payable in quarterly installments, beginning
on the first Business Day of the calendar quarter immediately following the date
of this Note, until the second
A-1
anniversary of the Original Issue Date. Thereafter, the unpaid principal and
accrued interest of this Note shall be due and payable in four (4) equal
quarterly installments of $_____________ on the first Business Day of each
calendar quarter.
The Company may prepay this Note, in whole or in part, upon thirty (30)
days prior written notice to the Holder; provided that partial prepayments be
made only in increments of $100,000. In the event of a proposed prepayment by
the Company, (a) prior to such prepayment, the Holder shall have the right to
convert into shares of Common Stock the amount of the proposed prepayment in
accordance with Section 5.1 of the Commitment Agreement, regardless of the
period of time that this Note has been outstanding, and (b) upon prepayment of
this Note, to the extent Holder does not exercise its right to so convert, the
Holder shall receive a warrant, to purchase one-half (1/2) of the number of
shares of Common Stock that the Holder would have been able to convert into
shares of Common Stock pursuant to subsection (a) of this paragraph. In the
event of a Change in Control, this Note shall become immediately due and
payable.
If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or any other day on which national banks are not open for
business, such payment shall be made on the next succeeding Business Day.
Any check, draft, money order or other instrument given in payment of all
or any portion of this Note may be accepted by the Holder or any other holder
hereof and handled in collection in the customary manner, but the same shall not
constitute payment hereunder or diminish any rights of the Holder or any other
holder hereof, except to the extent that actual cash proceeds of such instrument
are unconditionally received by the Holder or any other holder hereof and
applied to the indebtedness as herein provided.
At any time and from time to time on or after the Original Issue Date, but
before the second anniversary of the Original Issue Date, the Holder of this
Note may convert all or any part of the principal and accrued interest of this
Note into shares of Common Stock. Any portion of this Note so converted into
shares of Common Stock shall be converted at the Conversion Price, as adjusted
as provided in the Commitment Agreement.
This Note, when surrendered for conversion, shall be duly endorsed, or be
accompanied by a written instrument of transfer in a form satisfactory to the
Company duly executed by the Holder of this Note. For convenience, the
conversion of all or a portion, as the case may be, of the principal of this
Note into Common Stock is hereinafter sometimes referred to as the conversion of
this Note. In the event that this Note is converted in part only, upon such
conversion, the Company shall execute and deliver to the Holder, without service
charge, a new Note, of any authorized denomination or denominations as requested
by the Holder, in aggregate principal amount equal to and in exchange for the
unconverted portion of the principal of this Note so surrendered.
No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of this Note. If the conversion of this Note results
in a fraction, in lieu of such fractional share of Common Stock, the Company
shall pay to the Holder in cash an amount equal to such fraction multiplied by
the Weighted Average Closing Price.
A-2
If an Event of Default as defined in the Commitment Agreement occurs and is
continuing, the unpaid principal and accrued interest of this Note may be
declared or otherwise immediately become due and payable in the manner, at the
price, including all costs of enforcement (including reasonable attorneys' fees)
and with the effect provided in the Commitment Agreement.
Except as provided herein, the Company waives all demands for payment,
presentations for payment, notices of intention to accelerate maturity, notices
of acceleration of maturity, protests, notices of protest, grace, and diligence
in the collection of this Note, and in filing suit hereon, and agrees that its
liability for the payment hereof shall not be affected or impaired by any
release or change in the security or by any extension or extensions of time of
payment.
The undersigned hereby agrees to pay all expenses incurred by the Holder,
including reasonable attorneys' fees, all of which shall become a part of the
principal hereof, if this Note is placed in the hands of an attorney for
collection, or if it is collected by suit or through any probate, bankruptcy or
any other legal proceedings.
If this Note is not paid at maturity, however maturity may be brought
about, all principal due on the date of such maturity shall bear interest from
the date of such maturity at the maximum contract rate of interest which the
Holder may charge the Company under applicable law.
No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the times, places and rates, and in the coin or
currency, herein prescribed.
Payments of principal and interest on this Note and all costs of
enforcement are secured pursuant to the terms of the Security Agreement.
This Note and the rights and obligations of the parties hereto shall be
deemed to be contracts under the laws of the State of Texas and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said State, except for its rules relating to the conflict of laws.
IN WITNESS WHEREOF, the Company has duly executed this Note as of the date
first above written.
INTERNET AMERICA, INC.
By:
-------------------------------------
Xxxx X. Xxxxx, President
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EXHIBIT B
SECURITY AGREEMENT
This Security Agreement (this "Agreement"), dated as of September 18, 2001,
by and between Internet America, Inc., a Texas corporation ("Internet America"),
and Xxxxxxx X. Xxxx, a resident of the State of Texas (the "Secured Party"), is
made with reference to the following:
WHEREAS, in order to induce the Secured Party to enter into the Letter of
Credit Security Commitment Agreement dated as of the date hereof (the
"Commitment Agreement") and to secure the Letter of Credit (as defined in the
Commitment Agreement) and commit to loan money to Internet America, the Secured
Party requires that Internet America grant to the Secured Party a security
interest in the Collateral (as defined below) as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and other agreements hereinafter contained, in order to induce the Secured Party
to undertake its obligations under the Commitment Agreement, Internet America
hereby agrees with the Secured Party for its benefit as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the meanings set forth below. Capitalized
terms used, but not otherwise defined herein shall have the meanings ascribed to
them in the Commitment Agreement.
"Additional Property" shall mean and include the following property, which
Internet America becomes entitled to receive or shall receive in connection with
any other Collateral:
(a) any stock certificate, including, without limitation, any
certificate representing a stock dividend or any certificate in connection with
any recapitalization, reclassification, merger, consolidation, conversion, sale
of assets, combination of shares, stock split or spin-off;
(b) any option, warrant, subscription or right, whether as an addition
to or in substitution of any other Collateral;
(c) any dividends or distributions of any kind whatsoever, whether
distributable in cash, stock or other property;
(d) any interest, premium or principle payments; and
(e) any conversion or redemption proceeds.
"Charges" shall mean all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
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security, unemployment, excise, severance, stamp, occupation and property taxes,
custom duties, fees, assessments, liens, claims and charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing or other authority, domestic or
foreign, upon the Collateral, Internet America or any of its Affiliates.
"Collateral" shall mean and include:
(a) all Equipment;
(b) all General Intangibles;
(c) all Inventory;
(d) all Investment Property;
(e) all of Internet America's right, title and interest in and to (i)
its respective goods and other property including, but not limited to, all
merchandise returned or rejected by Customers, relating to or securing any of
the Receivables; (ii) all of Internet America's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor, including
stoppage in transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) other property, including warranty claims, relating to any goods securing
this Agreement (other than Receivables); (iv) all of Internet America's contract
rights, rights of payment which have been earned under a contract right, letter
of credit rights, instruments, documents, chattel paper, warehouse receipts,
deposit accounts, money and securities (other than Receivables); (v) if and when
obtained by Internet America, all real and personal property of third parties in
which Internet America has been granted a lien or security interest, except
where such security interest secures the payment or enforcement of Receivables;
and (vii) any other goods, personal property or real property now owned or
hereafter acquired in which Internet America has expressly granted a security
interest or may in the future grant a security interest to the Secured Party
hereunder, or in any amendment or supplement hereto or thereto, or under any
other agreement between the Secured Party and Internet America;
(f) all of Internet America's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software, computer programs, tapes, disks and documents relating to (a), (b),
(c), (d), (e), (f) or (g) of this Paragraph;
(g) all proceeds and products of (a), (b), (c), (d), (e), (f) or (g) in
whatever form, including, but not limited to: cash, deposit accounts (whether or
not comprised solely of proceeds), certificates of deposit, insurance proceeds
(including hazard, flood and credit insurance), negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements,
documents, eminent domain proceeds, condemnation proceeds and tort claim
proceeds; and
(h) all Additional Property.
"Customer" shall mean and include the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Internet America,
pursuant to which Internet America is to deliver any personal property or
perform any services.
"Equipment" shall mean and include all of Internet America's goods (other
than Inventory) whether now owned or hereafter acquired and wherever located
including, without limitation, all
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equipment, machinery, apparatus, fittings, furniture, furnishings, fixtures,
parts, accessories, improvements, repairs and all replacements and substitutions
therefor or accessions thereto.
"General Intangibles" shall mean and include all of Internet America's
general intangibles, whether now owned or hereafter acquired including, without
limitation, all payment intangibles, choses in action, commercial tort claims,
causes of action, corporate or other business records, inventions, designs,
patents, patent applications, equipment formulations, manufacturing procedures,
quality control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs and computer software, all
claims under guaranties, security interests or other security held by or granted
to Internet America except where such security interest or security secures
payment of any of the Receivables by a Customer, all rights of indemnification
and all other intangible property of every kind and nature (other than
Receivables).
"Inventory" shall mean and include all of Internet America's now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in Internet America's business or used in selling or furnishing such
goods, merchandise and other personal property, all other inventory of Internet
America, and all documents of title or other documents representing them.
"Investment Property" shall mean and include all of Internet America's now
owned or hereafter acquired securities (whether certificated or uncertificated),
securities entitlements, securities accounts, commodities contracts, commodities
accounts, stocks, mutual fund shares, money market shares and U.S. Government
Securities, including, without limitation, all capital stock of all Internet
America's subsidiaries.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including, without limitation, any conditional sale or other
title retention agreement, any lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
condition, operations, assets, business or prospects of Internet America taken
as a whole, (b) Internet America's ability to pay the Obligations in accordance
with the terms thereof, (c) the value of the Collateral, or the Secured Party's
Liens on the Collateral or the priority of any such Lien or (d) the practical
realization of the benefits of the Secured Party's rights and remedies under
this Agreement and the Other Documents.
"Obligations" shall mean all financial obligations of Internet America
under the Commitment Agreement, including but not limited to, those under the
Letter of Credit and the Notes.
"Permitted Encumbrances" shall mean (a) Liens for taxes, assessments or
other
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governmental charges not delinquent or being contested in good faith and by
appropriate proceedings and with respect to which proper reserves have been
taken by Internet America; provided, that, the Lien shall have no effect on the
priority of the Liens in favor of the Secured Party or the value of the assets
in which the Secured Party has such a Lien and a stay of enforcement of any such
Lien shall be in effect; (b) judgment Liens that have been stayed or bonded and
mechanics', workers', materialmen's or other like Liens arising in the ordinary
course of Internet America's business with respect to obligations which are not
due or which are being contested in good faith by Internet America; and (c)
other Liens incidental to the conduct of Internet America's business or the
ownership of its property and assets which were not incurred in connection with
the borrowing of money or the obtaining of advances or credit, and which do not
in the aggregate materially detract from the Secured Party's rights in and to
the Collateral or which do not materially impair the use thereof in the
operation of Internet America's business.
"Receivables" shall mean and include all of Internet America's accounts
(including, without limitation, all health-care insurance receivables), contract
rights, instruments (including those evidencing indebtedness owed to Internet
America by its Affiliates), documents, chattel paper, general intangibles
relating to accounts, drafts and acceptances, and all other forms of obligations
owing to Internet America arising out of or in connection with the sale, lease
or other disposition of Inventory or the rendition of services, all guarantees
and other security therefor, whether secured or unsecured, now existing or
hereafter created, and whether or not specifically sold or assigned to the
Secured Party hereunder.
"Termination Date" shall mean the date on which the Obligations are paid in
full.
"Uniform Commercial Code" shall mean the Uniform Commercial Code in effect
in the State of Texas.
ARTICLE II
SECURITY INTEREST
2.1 Security Interest in the Collateral. To secure prompt payment and
performance to the Secured Party of the Obligations, Internet America hereby
assigns, pledges and grants to the Secured Party for the benefit of the Secured
Party a continuing security interest in and to all of its Collateral, whether
now owned or existing or hereafter acquired or arising and wheresoever located.
Internet America shall xxxx its books and records as may be necessary or
appropriate to evidence, protect and perfect the Secured Party's security
interest and shall cause its financial statements to reflect such security
interest.
2.2 Perfection of Security Interest.
(a) Internet America shall take all action that may be necessary or
desirable, or that the Secured Party may request, so as at all times to maintain
the validity, perfection, enforceability and priority of the Secured Party's
security interest in the Collateral and to enable the Secured Party to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to, (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) delivering to the Secured Party, endorsed or accompanied by
such instruments of assignment as the Secured Party may specify, and stamping or
marking, in such manner as the Secured Party may specify, any and all chattel
paper, instruments, letters of credits and advices thereof and documents
evidencing or forming a part of the Collateral, and (iii) executing and
delivering financing statements, instruments of pledge, mortgages, notices and
assignments, in each case in form and substance satisfactory to the Secured
Party, relating to the creation, validity, perfection, maintenance or
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continuation of the Secured Party's security interest under the Uniform
Commercial Code or other applicable law.
(b) The Secured Party and Internet America hereby agree as follows:
(i) The Secured Party may at any time and from time to time file
financing statements, continuation statements and amendments thereto that
describe the Collateral and which contain any other information required for the
sufficiency or filing office acceptance of any financing statements,
continuation statements or amendments. Such financing statements, continuation
statements and amendments thereto may include generic descriptions of the
Collateral and may be filed by Secured Party without Internet America's
signature thereon. Internet America agrees to furnish any such information to
the Secured Party promptly upon request. Any such financing statements,
continuation statements or amendments may be signed by the Secured Party on
behalf of Internet America.
(ii) Internet America shall, at any time and from time to time
take such steps as the Secured Party may reasonably request to insure the
continued perfection and priority of the Secured Party's security interest in
any of the Collateral for the benefit of the Secured Party and of its rights
therein, in any jurisdiction.
(iii) Nothing contained herein shall be construed to narrow the
scope of the Secured Party's security interest in any of the Collateral or the
perfection or priority thereof or to impair or otherwise limit any of the
rights, powers, privileges or remedies of the Secured Party except (and then
only to the extent) mandated by applicable law.
(c) Contemporaneously herewith, Internet America covenants and agrees
to deliver to the Secured Party any certificates, documents or instruments
representing or evidencing any securities pledged as Collateral, with Internet
America's endorsement thereon and/or accompanied by proper instruments of
transfer and assignment duly executed in blank, all in form and substance
satisfactory to the Secured Party.
(d) All charges, expenses and fees the Secured Party may incur in doing
any of the foregoing, and any local taxes relating thereto, shall be added as
additional principal to the Notes, or, at the Secured Party's option, shall be
paid to the Secured Party for the ratable benefit of the Secured Party
immediately upon demand.
2.3 Disposition of Collateral. Internet America will safeguard and protect
all Collateral for the Secured Party's general account and make no disposition
thereof whether by sale, lease or otherwise except (a) the sale of Inventory in
the ordinary course of business and (b) the disposition or transfer of obsolete
and worn-out Equipment in the ordinary course of business.
2.4 Preservation of Collateral. Following the occurrence of an Event of
Default under the Commitment Agreement or the Notes, in addition to the rights
and remedies set forth in the Commitment Agreement, the Secured Party: (a) may
at any time take such steps as the Secured Party deems necessary to protect the
Secured Party's interest in and to preserve the Collateral, including the hiring
of such security guards or the placing of other security protection measures as
the Secured Party may deem appropriate; (b) may employ and maintain at Internet
America's and its subsidiaries' premises a custodian who shall have full
authority to do all acts necessary to protect the Secured Party's interests in
the Collateral; (c) may lease warehouse facilities to which the Secured Party
may move all or part of the Collateral; (d) may use Internet America's and its
subsidiaries' owned or leased lifts, hoists, trucks and other facilities or
equipment for
B-5
handling or removing the Collateral; and (e) shall have, and is hereby granted,
a right of ingress and egress to the places where the Collateral is located, and
may proceed over and through Internet America's and its subsidiaries' owned or
leased property. Internet America shall, and shall cause its subsidiaries to,
cooperate fully with all of the Secured Party's efforts to preserve the
Collateral and will, and will cause its subsidiaries to, take such actions to
preserve the Collateral as the Secured Party may direct. All of the Secured
Party's expenses of preserving the Collateral, including any expenses relating
to the bonding of a custodian, shall be added as additional principal to the
Notes.
2.5 Ownership of Collateral. With respect to the Collateral, at the time
the Collateral becomes subject to the Secured Party's security interest: (a)
Internet America shall be the sole owner of and fully authorized and able to
sell, transfer, pledge and/or grant a first priority security interest in each
and every item of its respective Collateral to the Secured Party; and, except
for Permitted Encumbrances the Collateral shall be free and clear of all Liens
and encumbrances whatsoever; (b) each document and agreement executed by
Internet America or delivered to the Secured Party in connection with this
Agreement shall be true and correct in all respects; (c) all signatures and
endorsements of Internet America that appear on such documents and agreements
shall be genuine and Internet America shall have full capacity to execute same;
and (d) Internet America's Inventory shall be located at the address set forth
in the Commitment Agreement for notices to Internet America and shall not be
removed from such location(s) without the prior written consent of the Secured
Party except with respect to the sale of Inventory in the ordinary course of
business and Equipment to the extent permitted in Section 2.3 hereof.
2.6 The Additional Property. All Additional Property received by Internet
America shall be received in trust for the benefit of the Secured Party. All
Additional Property and all certificates or other written instruments or
documents evidencing and/or representing the Additional Property that is
received by Internet America, other than any cash that constitutes Additional
Property, together with such instruments of transfer as the Secured Party may
request, shall immediately be delivered to or deposited with the Secured Party
and held by the Secured Party as Collateral under the terms of this Agreement.
If the Additional Property received by Internet America shall be shares of stock
or other securities, such shares of stock or other securities shall be duly
endorsed in blank or accompanied by proper instruments of transfer and
assignment duly executed in blank, all in form and substance satisfactory to the
Secured Party. The Secured Party shall be deemed to have possession of any
Collateral in transit to the Secured Party or its agents.
2.7 Defense of the Secured Party's Interests. Until (a) payment in full of
all of the outstanding Obligations and (b) termination of this Agreement, the
Secured Party's interests in the Collateral shall continue in full force and
effect. During such period Internet America shall not, without the Secured
Party's prior written consent, pledge, sell (except Inventory in the ordinary
course of business and Equipment to the extent permitted in Section 2.3 hereof),
assign, transfer, create or suffer to exist a Lien upon or encumber or allow or
suffer to be encumbered in any way except for Permitted Encumbrances, any part
of the Collateral. Internet America shall defend the Secured Party's interests
in the Collateral against any and all Persons whatsoever. At any time following
demand by the Secured Party for payment of all Obligations, the Secured Party
shall have the right to take possession of the indicia of the Collateral and the
Collateral in whatever physical form contained, including without limitation:
labels, stationery, documents, instruments and advertising materials. If the
Secured Party exercise this right to take possession of the Collateral, Internet
America shall, upon demand, assemble it in the best manner possible and make it
available to the Secured Party at a place reasonably convenient to the Secured
Party. In addition, with respect to all Collateral, the Secured Party shall be
entitled to all of the rights and remedies set forth herein and further provided
by the Uniform Commercial Code or other applicable law. Internet America shall,
and each of the Secured Party may, at its option, instruct all suppliers,
carriers, forwarders, warehouses or others receiving or holding cash, checks,
Inventory, documents or instruments in which the Secured Party holds a security
interest to deliver same to the Secured Party and/or subject to the Secured
Party's order and if they shall come into Internet America's possession, they,
and each of them, shall be held by Internet America in trust as the Secured
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Party's trustee, and Internet America will immediately deliver them to the
Secured Party in their original form together with any necessary endorsement.
2.8 Compliance with Laws. Internet America shall comply with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to the Collateral or any part thereof or to the
operation of Internet America's business the non-compliance with which could
reasonably be expected to have a Material Adverse Effect. Internet America may,
however, contest or dispute any acts, rules, regulations, orders and directions
of those bodies or officials in any reasonable manner, provided that any related
Lien is inchoate or stayed and sufficient reserves are established to the
reasonable satisfaction of the Secured Party to protect the Secured Party's Lien
on or security interest in the Collateral. The Collateral at all times shall be
maintained in accordance with the requirements of all insurance carriers which
provide insurance with respect to the Collateral so that such insurance shall
remain in full force and effect.
2.9 Inspection of Premises. At all reasonable times the Secured Party shall
have full access to and the right to audit, check, inspect and make abstracts
and copies from Internet America's books, records, audits, correspondence and
all other papers relating to the Collateral and the operation of Internet
America's business. The Secured Party and its agents may upon reasonable advance
notice, enter upon Internet America's and its subsidiaries' premises at any time
during business hours and at any other reasonable time, and from time to time,
for the purpose of inspecting the Collateral and any and all records pertaining
thereto and the operation of Internet America's business, provided, however, the
Secured Party shall conduct such inspections no more than one (1) time per year
unless an Event of Default shall have occurred and be continuing, in which event
there shall be no restrictions on the number of inspections the Secured Party
may charge Internet America.
2.10 Insurance. Internet America shall bear the full risk of any loss of
any nature whatsoever with respect to the Collateral. At Internet America's own
cost and expense in amounts and with carriers reasonably acceptable to the
Secured Party, Internet America shall (a) keep all its insurable properties and
properties in which Internet America has an interest insured against the hazards
of fire, flood, sprinkler leakage, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to Internet America's including,
without limitation, business interruption insurance; (b) maintain a bond in such
amounts as is customary in the case of companies engaged in businesses similar
to Internet America insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of such
Internet America either directly or through authority to draw upon such funds or
to direct generally the disposition of such assets; (c) maintain all such
worker's compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which Internet America is engaged in business; (d)
furnish the Secured Party with (i) copies of all policies and evidence of the
maintenance of such policies by the renewal thereof at least thirty (30) days
before any expiration date, and (ii) appropriate loss payable endorsements in
form and substance satisfactory to the Secured Party, naming the Secured Party
as a co-insured and loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a) and (b) above, and providing (A)
that all proceeds thereunder shall be payable to the Secured Party, (B) no such
insurance shall be affected by any act or neglect of the insured or owner of the
property described in such policy, and (C) that such policy and loss payable
clauses may not be cancelled, amended or terminated unless at least thirty (30)
days' prior written notice is given to the Secured Party. In the event of any
loss thereunder, the carriers named therein hereby are directed by the Secured
Party and Internet America to make payment for such loss that would ordinarily
be made payable to Internet America rather than to a third party to the Secured
Party and not to Internet America and the Secured Party jointly. If any
insurance losses are paid by check, draft or other instrument payable to
Internet America and the Secured Party jointly, the Secured Party may endorse
Internet America's name thereon and do such other things as the Secured Party
may deem advisable to reduce the same to cash. The Secured Party is hereby
authorized to adjust and compromise claims under insurance coverage referred to
in
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clauses (a) and (b) above. All loss recoveries received by the Secured Party
upon any such insurance may be applied to the Obligations, in such order as the
Secured Party in its sole discretion shall determine. Any surplus shall be paid
by the Secured Party to Internet America or applied as may be otherwise required
by law. Any deficiency thereon shall be paid by Internet America to the Secured
Party, on demand.
2.11 Failure to Pay Insurance. If Internet America fails to obtain
insurance as hereinabove provided, or to keep the same in force, the Secured
Party, if the Secured Party so elect, may obtain such insurance and pay the
premium therefor and such expenses so paid shall be part of the Obligations.
2.12 Payment of Taxes. Internet America will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon Internet America
or any of the Collateral including, without limitation, real and personal
property taxes, assessments and charges and all franchise, income, employment,
social security benefits, withholding, and sales taxes. If any tax by any
governmental authority is or may be imposed on or as a result of any transaction
between Internet America and the Secured Party which the Secured Party may be
required to withhold or pay or if any taxes, assessments, or other Charges
remain unpaid after the date fixed for their payment, or if any claim shall be
made which, in the Secured Party's opinion, may possibly create a valid Lien on
the Collateral, the Secured Party may without notice to Internet America pay the
taxes, assessments or other Charges and Internet America hereby indemnifies and
holds the Secured Party harmless in respect thereof. The Secured Party will not
pay any taxes, assessments or Charges to the extent that Internet America has
contested or disputed those taxes, assessments or Charges in good faith, by
expeditious protest, administrative or judicial appeal or similar proceeding
provided that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of the Secured Party to protect the
Secured Party's security interest in or Lien on the Collateral. The amount of
any payment by the Secured Party under this Section 2.11 shall be added to the
Obligations and, until Internet America shall furnish the Secured Party with an
indemnity therefor (or supply the Secured Party with evidence satisfactory to
the Secured Party that due provision for the payment thereof has been made), the
Secured Party may hold without interest any balance standing to Internet
America's credit and the Secured Party shall retain its security interest in any
and all Collateral held by the Secured Party.
2.13 Exculpation of Liability. Nothing herein contained shall be construed
to constitute the Secured Party as Internet America's agent for any purpose
whatsoever, nor shall the Secured Party be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof. The
Secured Party, whether by anything herein or in any assignment or otherwise,
does not assume Internet America's obligations under any contract or agreement
assigned to the Secured Party, and the Secured Party shall not be responsible in
any way for the performance by Internet America of any of the terms and
conditions thereof.
2.14 Financing Statements. No financing statement covering any of the
Collateral or any proceeds thereof is on file in any public office.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Internet America represents and warrants as follows:
3.1 Internet America has full power, authority and legal right to grant to
the Secured Party a security interest in the Collateral pursuant to this
Agreement, and the execution and delivery of this Agreement has been duly
authorized by Internet America;
3.2 No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the grant by Internet America to the
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Secured Party of a security interest in the Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by
Internet America, or (ii) for the exercise by the Secured Party of rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement;
3.3 The grant by Internet America of a security interest in the Collateral
pursuant to this Agreement creates a valid security interest in the Collateral
in favor of the Secured Party, securing the payment of the Obligations;
3.4 No part of the Collateral is used or was bought for personal, family or
household purposes;
3.5 The Inventory consists of items of a quality and quantity useable and
saleable in the ordinary course of business by Internet America without markdown
or discount, all of which are merchantable and fit for their particular purpose,
except for obsolete and slow moving items and items below standard quality
(which in any event do not exceed normal commercial standards in amount, and all
of which have been written down on the books of Internet America to the lower of
cost or net realizable market value or have been provided for by adequate
reserves. No items included in the Inventory are held by Internet America on
consignment from others. The amount of the Inventory shown on Internet America's
financial statements is based on quantities and valued at the lower of cost
(determined on a first-in, first-out basis) or market value and on a basis
consistent with that of prior years;
3.6 Internet America has exclusive possession of all of the Collateral, and
all of the Collateral is maintained at Internet America's principal place of
business or such other place(s) as are set forth in the Commitment Agreement;
and
3.7 No restrictions or conditions exist with respect to the transfer or
voting of any securities pledged as Collateral, except for those restrictions
under state and federal securities laws or as has otherwise been disclosed to
the Secured Party in writing. To the best of Internet America's knowledge, no
issuer of such securities (other than securities of a class which are publicly
traded) has any outstanding stock rights, rights to subscribe, options, warrants
or convertible securities outstanding or any other rights outstanding entitling
any party to have issued to such party capital stock of such issuer, except as
has been disclosed to the Secured Party in writing.
ARTICLE IV
LIABILITY AND INDEMNIFICATION
Internet America agrees to indemnify and to hold the Secured Party harmless
from and against all losses, liabilities, claims, damages, costs and expenses
(including actual attorneys' fees and disbursements) with respect to (i) any
action taken or any omission by the Secured Party with respect to this
Agreement, provided that the Secured Party's conduct does not constitute willful
misconduct or gross (not mere) negligence, and (ii) any claims arising out of
Internet America's ownership of the Collateral or the Secured Party's security
interest therein.
ARTICLE V
SECURITY INTEREST ABSOLUTE
All rights of the Secured Party and security interests hereunder, and all
obligations of Internet America hereunder, shall be absolute and unconditional
irrespective of:
5.1 any lack of validity or enforceability of the Commitment Agreement or
any other agreement or instrument relating thereto;
B-9
5.2 any other amendment or waiver of or any consent to any departure from
the Commitment Agreement or any other agreement or instrument relating thereto;
5.3 any exchange or non-perfection of any other Collateral, or any
amendment or waiver of or consent to departure from any guaranty for all or any
of the Obligations; or
5.4 any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Internet America other than a release of the
Secured Party's rights and security interests or the payment in full of the
Obligations; provided however that if at any time any payment, or any portion of
a payment, to the Secured Party is recaptured or required to be disgorged under
applicable bankruptcy or insolvency laws or otherwise, then the recaptured or
disgorged payment shall thereafter be deemed an Obligation hereunder; Internet
America agrees to take any all acts reasonably requested by the Secured Party to
give effect to this Section 5.
ARTICLE VI
CONTINUING SECURITY INTEREST, ASSIGNMENT OF OBLIGATIONS
6.1 This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until payment in full
of the Obligations, (b) be binding upon Internet America, its successors and
assigns, (c) inure, together with the rights and remedies of the Secured Party
hereunder, to the benefit of the Secured Party and its successors, transferees
and assigns, (d) constitute, along with the Commitment Agreement and the other
agreements and instruments relating thereto, the entire agreement between
Internet America and the Secured Party, and (e) be severable in the event that
one or more of the provisions herein is determined to be illegal or
unenforceable. Upon the payment in full of the Obligations, the Secured Party,
at the request and expense of Internet America, shall release the security
interests in the Collateral granted herein and execute such termination
statements as may be necessary therefor, to the extent that such Collateral
shall not have been sold or otherwise applied pursuant to the terms hereof.
ARTICLE VII.
RETURN OF COLLATERAL
Subject to any duty imposed by law or otherwise to the holder of any
subordinate lien on the Collateral known to the Secured Party, and subject to
the direction of a court of competent jurisdiction, upon the payment in full of
the Obligations, Internet America shall be entitled to the return of all
Collateral in the possession of the Secured Party, provided, however, that (a)
the Secured Party shall not be obligated to return to Internet America or
deliver to the holder of any subordinate lien any such Collateral until they are
satisfied that all amounts with respect to the Obligations are no longer subject
to being recaptured under applicable bankruptcy or insolvency laws or otherwise
and (b) if the Secured Party determines not to return Collateral in its
possession (pursuant to clause (a) of this Article VII), the Secured Party shall
turn over such possessory Collateral, upon the reasonable request of Internet
America and upon Internet America's grant of a second priority security interest
in the possessory Collateral, to a replacement lender which requires a first
priority interest in the possessory Collateral. Any return or turn over of
Collateral, however effected, shall be without recourse to the Secured Party,
and the Secured Party shall be entitled to receive appropriate documentation to
such effect. The return of Collateral shall be affected without representation
or warranty and shall not entitle Internet America to any right to any
endorsement.
B-10
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment; Waiver. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Internet America herefrom shall in any
event be effective unless the same shall be in writing and signed by the Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
8.2 Expenses. Internet America will upon demand pay to the Secured Party
the amount of any and all reasonable expenses actually incurred, including the
fees and expenses of its counsel and of any experts and agents, which the
Secured Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Secured Party hereunder, and (iv) the
failure by Internet America to perform or observe any of the provisions hereof.
8.3 Private Sale of Securities. Internet America recognizes that the
Secured Party may be unable to effect a public sale of all or any part of the
securities pledged as Collateral because of restrictions in applicable federal
and state securities laws and that the Secured Party may, therefore, determine
to make one or more private sales of any such securities to a restricted group
of purchasers who will be obligated to agree, among other things, to acquire
such securities for their own account, for investment and not with a view to the
distribution or resale thereof. Internet America acknowledges that any such
private sale may be at prices and other terms less favorable than what might
have been obtained at a public sale and, notwithstanding the foregoing, agrees
that each such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Secured Party shall have no obligation to delay
the sale of any such securities for the period of time necessary to permit the
issuer to register such securities for public sale under any federal or state
securities laws.
8.4 Notices. All notices, demands and requests of any kind which either
party may be required or desires to serve upon the other hereunder shall be in
writing and shall be delivered and be effective in accordance with the notice
provision of the Commitment Agreement.
8.5 Governing Law, Terms. This Agreement shall be governed by, and
construed in accordance with, the law of the State of Texas without regard to
its choice of laws principles. Unless otherwise defined herein or in the
Commitment Agreement, terms defined in the Uniform Commercial Code are used
herein as therein defined.
8.6 Trial By Jury. INTERNET AMERICA HEREBY WAIVES, AND COVENANTS THAT IT
WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER
HEREOF, ANY DOCUMENT RELATING HERETO OR ANY SECURED OBLIGATION, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR IN TORT OR
OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
B-11
INTERNET AMERICA, INC.
By:
--------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Xxxxxxx X. Xxxx
B-12
EXHIBIT C
WARRANT TO PURCHASE
SHARES OF COMMON STOCK OF
INTERNET AMERICA, INC.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE OR OTHER JURISDICTION. WITHOUT SUCH REGISTRATION, SUCH SECURITIES
MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT UPON
DELIVERY TO INTERNET AMERICA, INC. (THE "COMPANY") OF AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER
OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY
TO IT TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE OR FOREIGN SECURITIES
LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
THIS WARRANT WAS ISSUED PURSUANT TO A LETTER OF CREDIT SECURITY COMMITMENT
AGREEMENT, DATED AS OF SEPTEMBER 18, 2001 (AS FROM TIME TO TIME AMENDED, THE
"COMMITMENT AGREEMENT"), BETWEEN THE COMPANY AND XXXXXXX X. XXXX, A RESIDENT OF
THE STATE OF TEXAS, AND IS ENTITLED TO THE BENEFITS THEREOF. ALL TERMS USED
HEREIN UNLESS OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM
IN THE COMMITMENT AGREEMENT. EACH HOLDER OF THIS WARRANT WILL BE DEEMED, BY ITS
ACCEPTANCE HEREOF, TO HAVE AGREED TO THE TERMS AND CONDITIONS SET FORTH IN THE
COMMITMENT AGREEMENT.
This certifies that __________ (the "HOLDER"), or assigns, is entitled to
purchase from Internet America, Inc., a Texas corporation (the "COMPANY"),
subject to the terms set forth below, a maximum of __________ fully paid and
nonassessable shares (subject to adjustment as provided herein) (the "WARRANT
SHARES") of the Company's common stock, $.01 par value per share Common Stock
("COMMON STOCK") for cash at a price per share equal to the Conversion Price Per
Share (the "EXERCISE PRICE") (subject to adjustment as provided herein) at any
time or from time to time up to and including 5:00 p.m. (Central Time) on the
second anniversary of the Original Issue Date (the "EXPIRATION DATE") upon
surrender to the Company at its principal office (or at such other location as
the Company may advise the Holder in writing) of this Warrant properly endorsed
with the Form of Subscription attached hereto duly filled in and signed and upon
payment in cash or by check of the aggregate Exercise Price for the number of
shares for which this Warrant is being exercised determined in accordance with
the provisions hereof. The Exercise Price and Warrant Shares are subject to
adjustment as provided in Section 3 of this Warrant. This Warrant is issued
subject to the following terms and conditions:
2. EXERCISE, ISSUANCE OF CERTIFICATES, REDUCTION IN NUMBER OF WARRANT
SHARES.
2.1 GENERAL. This Warrant is exercisable at the option of the Holder of
record hereof on or prior to the Expiration Date, at any time or from time to
time following its issuance, for all or any part of the Warrant Shares (but not
for a fraction of a share) which may be purchased hereunder, as that number may
be adjusted pursuant to Section 3 of this Warrant. The Company agrees that the
Warrant Shares purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed and executed Form of Subscription delivered,
and payment made for such Warrant Shares. Certificates for the Warrant Shares so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense as soon as practicable after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the Warrant Shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver to the Holder hereof
within a reasonable time
C-1
a new Warrant or Warrants of like tenor for the balance of the Warrant Shares
purchasable under the Warrant surrendered upon such purchase. Each stock
certificate so delivered shall be registered in the name of such Holder.
2.2 NET ISSUE EXERCISE OF WARRANT. Notwithstanding any provisions
herein to the contrary, if the FAIR MARKET VALUE (AS DEFINED HEREIN) of one
share of Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
Holder may elect to receive shares of Common Stock equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Form of Subscription in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
X= Y (A-B)
A
Where X= the number of shares of Common Stock to be issued to Holder;
Y= the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at the
date of such calculation);
A= the Fair Market Value of one share of Common Stock (at the
date of such calculation); and
B= Exercise Price (as adjusted to the date of such
calculation).
For purposes of the above calculation and elsewhere in this Warrant, the "FAIR
MARKET VALUE" of one share of Common Stock shall be the average of the closing
bid and asked prices of Common Stock quoted in the over-the-counter market
summary or the last reported sale price of Common Stock or the closing price
quoted on the NASDAQ National Market System or on any established stock exchange
or other national market system on which Common Stock is listed, as published in
The Wall Street Journal for the trading day immediately prior to the date of
determination of fair market value. In the event the Common Stock is not listed
on an established stock exchange or other national market system, the Fair
Market Value of a share of Common Stock shall be determined by the Company's
Board of Directors in the good faith exercise of its reasonable business
judgment.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all Warrant Shares, will, upon issuance and, if applicable,
payment of the applicable Exercise Price, EITHER IN CASH OR BY NET ISSUE
PURSUANT TO SECTION 1.2, be duly authorized, validly issued, fully paid and
nonassessable, and free of all preemptive rights, liens and encumbrances, except
for restrictions on transfer provided for herein or under applicable federal and
state securities laws. The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares granted
pursuant to this Warrant, such number of shares of Common Stock as shall, from
time to time, be sufficient therefore.
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.
4.1 ADJUSTMENT OF WARRANT SHARES AND EXERCISE PRICE. In order to
prevent dilution of the rights granted under this Warrant, the number of Warrant
Shares and the Exercise Price therefor shall be subject to adjustment from time
to time as provided in Sections 5.2, 5.3 and 5.6 of the Commitment Agreement,
which shall apply mutatis mutandis.
4.2 NOTICES. Immediately upon any adjustment of the Warrant Shares and
Exercise Price, the Company will give written notice thereof to the Holders,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
C-2
5. NO VOTING OR DIVIDEND RIGHTS. Nothing contained in this Warrant shall be
construed as conferring upon the holder hereof the right to vote or to consent
to receive notice as a shareholder of the Company on any other matters or any
rights whatsoever as a shareholder of the Company. No dividends or interest
shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
6. COMPLIANCE WITH SECURITIES ACT: TRANSFERABILITY OF WARRANT, DISPOSITION
OF SHARES OF COMMON STOCK.
6.1 COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the Warrant Shares to be issued
upon exercise hereof are being acquired for investment and that it will not
offer, sell, or otherwise dispose of this Warrant or any Warrant Shares except
under circumstances which will not result in a violation of the Act or any
applicable state securities laws. This Warrant and all Warrant Shares (unless
registered under the Securities Act of 1933, as amended (the "Act")) shall be
stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). ANY TRANSFER OF SUCH
SECURITIES SHALL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE
ACT IS IN EFFECT AS TO SUCH TRANSFER OR SUCH REGISTRATION IS
UNNECESSARY FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
6.2 WARRANT TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws under which this Warrant was purchased, this Warrant
and all rights hereunder are transferable, in whole or in part, without charge
to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed.
6.3 DISPOSITION OF WARRANT SHARES AND COMMON STOCK. With respect to any
offer, sale, or other disposition of the Warrant or any Warrant Shares, the
Holder hereof and each subsequent Holder of this Warrant agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof and
indicating whether or not under the Act certificates for such Warrant or Warrant
Shares to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Act. Promptly upon receiving such written notice, the Company, as promptly
as practicable, shall notify such Holder that such Holder may sell or otherwise
dispose of such Warrant or Warrant Shares, all in accordance with the terms of
the notice delivered to the Company. Notwithstanding the foregoing, such Warrant
or Warrant Shares may be offered, sold or otherwise disposed of in accordance
with Rule 144 under the Act, provided that the Company shall have been furnished
with such information as the Company may request to provide reasonable assurance
that the provisions of Rule 144 have been satisfied. Each certificate
representing the Warrant or Warrant Shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Act, unless such legend
is not required in order to insure compliance with the Act. The Company may
issue stop transfer instructions to its transfer agent in connection with such
restrictions.
7. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
8. NOTICES. Any notice, request, or other document required or permitted to
be given or delivered to the Holder hereof or the Company shall be delivered by
hand or messenger or shall be sent by certified mail, postage prepaid, or by
overnight courier to each such Holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant or such other address as either may from time to time
provide to the other. Each such notice or other communication shall be treated
as effective or having been given (i) when delivered if delivered personally,
(ii) if sent by registered or certified mail, at the earlier of its receipt or
three business days after the same has been registered or certified as
aforesaid, or (iii) if sent by overnight courier, on the next business day after
the same has been deposited with a nationally recognized courier service.
C-3
9. OTHER NOTICES. If at any time:
(1) the Company shall declare any cash dividend upon its Common Stock;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other rights;
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
or
(5) there shall be a voluntary or involuntary dissolution, liquidation,
or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (a) at least 10 days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least 10
days' prior written notice of the date when the same shall take place; provided,
however, that the Holder shall use its best commercial efforts to respond to
such notice as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution, or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto. Any notice given in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or conversion, as the case may be.
10. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Texas, without regard to its choice of laws principles.
11. LOST OR STOLEN WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation, upon surrender and cancellation of such Warrant, the
Company, at its expense, will make and deliver a new Warrant, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant.
12. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the Holder entitled to such fraction a sum in cash equal to such fraction
(calculated to the nearest 1/100th of a share) multiplied by the then effective
Exercise Price on the date the Form of Subscription is received by the Company.
13. NO IMPAIRMENT. The Company will not, by charter amendment or by
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Upon the request of the Holder, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continued validity of this Warrant
and the Company's obligations hereunder.
C-4
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its officer, thereunto duly authorized as of this ____ day of _________, 200_.
INTERNET AMERICA, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
C-5
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: INTERNET AMERICA, INC.
[Please xxxx one box]
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, _____________ shares of Common
Stock of Internet America, Inc. (the "COMPANY") and herewith makes payment
of $_________ therefor.
The undersigned, the holder of the attached Common Stock Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, ________________ shares of Common
Stock of the Company and herewith elects to pay for such shares by reducing
the number of shares issuable thereunder in accordance with Section 1.2
thereof. The undersigned hereby authorizes the Company to make the required
calculation under Section 1.2 of the Warrant.
The undersigned represents that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof. The undersigned requests that certificates for such shares
be issued in the name of, and delivered to: whose address is:
DATED:
-----------------------------
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
Name:
------------------------------------
Title:
-----------------------------------
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT ("Agreement"), is dated as of September
18, 2001, among INTERNET AMERICA, INC., a Texas corporation (the "Company"), and
XXXXXXX X. XXXX (the "Holder"Holder).
RECITALS:
A. The Holder and the Company are parties to that certain Letter of Credit
Security Commitment Agreement (the "Commitment Agreement") pursuant to which,
among other things, the Holder will provide security for a letter of credit to
be issued on behalf of the Company (the "Letter of Credit").
B. In the event the Letter of Credit is funded or reduced by the Company,
the Company may be required to issue to Holder shares of the Company's common
stock, par value $0.01 per share (the "Common Stock") pursuant to the terms of
the Commitment Agreement or a Convertible Note or Warrant Agreement issued by
the Company in connection with the Commitment Agreement or in accordance with
certain preemptive rights granted to Holder under the Commitment Agreement
(collectively, the "Shares").
C. For good and valuable consideration, the receipt of which is hereby
acknowledged, the Company is willing to grant the registration rights set forth
in this Agreement. NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
Affiliate: the meaning set forth in Rule 12b-2 under the Exchange Act.
Commitment Agreement: is defined in the Recitals.
Effectiveness Period: is defined in Section 5.1(b).
Exchange Act: the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Incidental Registration: is defined in Section 3.1.
Loan: is defined in the Recitals.
Note: is defined in the Recitals.
D-1
Piggy-Back Request: is defined in Section 3.1.
Prospectus: the prospectus included in any Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all materials incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: the Shares and any other securities issued or
issuable with respect to the Shares by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise, provided that any particular
shares of such Registrable Securities shall cease to be Registrable Securities
when (i) a Registration Statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such Registration Statement, (ii) such
shares shall have become eligible to be sold to the public by the Holder
pursuant to Rule 144(k) under the Securities Act, (iii) subsequent disposition
of such shares shall not require registration or qualification of them under the
Securities Act or of any similar state law then in force; or (iv) such shares
shall have ceased to be outstanding.
Registration: a registration of securities (including Registrable
Securities) under the Securities Act.
Registration Expenses: any and all expenses incident to performance of or
compliance with this Agreement by the Company and its subsidiaries, including,
without limitation (i) all SEC, stock exchange, NASDAQ and other registration,
listing and filing fees (other than fees and expenses incurred in connection
with compliance with state securities or blue sky laws); (ii) all fees and
expenses incurred in connection with compliance with the rules for trading
securities on the NASDAQ or on any stock exchange on which the Common Stock is
traded (including reasonable fees and disbursements of counsel to the
underwriters in connection with such compliance and the preparation of a Blue
Sky Memorandum and legal investment survey), (iii) all expenses of printing,
distributing, mailing and delivering, any Registration Statement, any
Prospectus, any underwriting agreements, transmittal letters, securities sales
agreements, securities certificates and other documents relating to the
performance of or compliance with this Agreement, (iv) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any "cold comfort" letters
required by or incident to such performance and compliance, (v) the fees and
expenses of any trustee, transfer agent, registrar, escrow agent or custodian,
(vi) the expenses customarily borne by the issuer incurred in connection with
making road show presentations, if any, to facilitate the distribution and sale
of Registrable Securities, and (vii) all internal expenses of the Company
D-2
(including all salaries and expenses of officers and employees performing legal
or accounting duties).
Registration Request: is defined in Section 2.
Registration Statement: any registration statement of the Company that
covers any Registrable Securities filed or to be filed pursuant to this
Agreement in connection with a Registration of Registrable Securities pursuant
to Sections 2 or 3, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144(k): Rule 144(k) (or any successor provision) under the Securities
Act.
SEC: the Securities and Exchange Commission. Securities Act: the Securities
Act of 1933, as amended, and the rules and regulations of the SEC promulgated
thereunder.
Underwritten Registration or Underwritten Offering: a Registration in which
securities of the Company (including Registrable Securities) are sold to an
underwriter for reoffering to the public.
SECTION 2. Registration Upon Demand.
2.1 At any time during the term of this Agreement, the Holder of a majority
of the Registrable Securities then outstanding may deliver to the Company one,
and only one, written request that all, or a portion, of the Registrable
Securities be registered (in an underwritten public offering or otherwise)
pursuant to the terms of this Agreement (a "Demand Registration Request").
2.2 In addition to the registration rights provided in Section 2.1 above,
at any time, and from time to time, during the term of this Agreement if at any
time the Company is eligible to use SEC Form S-3 (or any successor form) for
registration of secondary sales of Registrable Securities, the Holder of a
majority of the Registrable Securities then outstanding may deliver to the
Company a written request that all, or a portion, of the Registrable Securities
be registered (in an underwritten public offering or otherwise) on such form (an
"S-3 Registration Request, and together with a Demand Registration Request, a
"Registration Request"). The Company will use its best commercial efforts to
qualify and maintain its qualification for eligibility to use Form S-3 for such
purposes.
2.3 Within 31 days after a Registration Request, the Company shall prepare
and file a Registration Statement on the appropriate SEC form to effect the
Registration of all Registrable Securities which the Company has been requested
to register pursuant to the Registration Request, to the extent requisite to
permit the public disposition of such Registrable Securities.
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The Company shall use its best commercial efforts to cause the Registration
Statement that is the subject of this Section 2 to be declared effective by the
SEC upon the earlier to occur of (a) 90 days after the date of the Registration
Request, (ii) 60 days following the filing of the Registration Statement, or
(iii) five business days after receipt of a "no review" or similar letter from
the SEC. Should the Registration Statement not relate to the entire number of
Registrable Securities requested by the Holder in the Registration Request, the
Company shall be required to promptly file a separate Registration Statement
(utilizing Rule 462 promulgated under the Exchange Act, where applicable)
relating to such Registrable Securities that then remain unregistered. The
provisions of this Agreement shall relate to such separate Registration
Statement as if it were an amendment to the Registration Statement filed
pursuant to the Registration Request.
2.4 Notwithstanding the foregoing, if the Company furnishes to the Holder a
certificate signed by the President or Chief Executive Officer of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for a Registration Upon Demand to be effected at such time, then, the Company
shall have the right to defer the filing of the Registration Upon Demand for a
period of not more than one hundred twenty (120) days after receipt of the
Registration Request under Section 2.1.
SECTION 3. Incidental Registration Rights.
3.1 Requests for Incidental Registration. If the Company proposes to
register any of its equity securities (other than pursuant to a Registration on
Form S-4 or S-8 or any successor form) and the Registration form to be used may
be used for Registration of the Registrable Securities, it will give prompt
written notice to the Holder of its intention to effect such Registration (the
"Incidental Registration"). Within ten business days of receiving such written
notice of an Incidental Registration, the Holder may make a written request (the
"Piggy-Back Request") that the Company include in the proposed Incidental
Registration all, or a portion, of the Registrable Securities owned by the
Holder (which Piggy-Back Request shall set forth the Registrable Securities
intended to be disposed of by the Holder and the intended method of disposition
thereof).
3.2 Obligation to Effect Incidental Registration..
(a) The Company will use its best commercial efforts to include in any
Incidental Registration all Registrable Securities which the Company has been
requested to register pursuant to any timely Piggy-Back Request to the extent
required to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered.
(b) Notwithstanding the preceding Sections 3.1 and 3.2(a):
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(i) the Company shall not be obligated pursuant to this Section 3
to effect a Registration of Registrable Securities requested pursuant to a
timely Piggy-Back Request if the Company discontinues the related
Incidental Registration at any time prior to the effective date of any
Registration Statement filed in connection therewith; and
(ii) if a Registration pursuant to this Section 3 involves an
underwritten offering, and the managing underwriter (or, in the case of an
offering that is not underwritten, an investment banker) shall advise the
Company that, in its opinion, the number of securities requested and
otherwise proposed to be included in such Registration exceeds the number
which can be sold in such offering without adversely affecting the
marketability of the offering, the Company will include in such
Registration to the extent of the number which the Company is so advised
can be sold in such offering, first, the securities the Company proposes to
sell for its own account in such Registration and second, the Registrable
Securities of the Holder requesting to be included in such Registration and
all other securities requested to be included in such Registration on a pro
rata basis.
SECTION 4. Underwriters.
4.1 Underwritten Offers. The provisions of this Section 4 do not establish
additional registration rights but instead set forth procedures applicable, in
addition to those set forth in Sections 2, 3 and 5, to any Registration which is
an underwritten offering.
4.2 Selection of Underwriters. If a Registration of Registrable Securities
is being effected pursuant to Section 3 and such securities are to be
distributed by or through one or more underwriters, the Company shall have the
right to select one or more underwriters to administer the offering.
4.3 Participation in Underwritten Registrations. A Holder may not
participate in any underwritten Registrations hereunder unless the Holder agrees
to sell the Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Company.
4.4 Holdback Agreement of the Holder. If and whenever the Company proposes
to register any of its equity securities under the Securities Act for its own
account (other than on Form S-4 or S-8 or any successor form) or is required to
use reasonable efforts to effect the Registration of any Registrable Securities
under the Securities Act pursuant to Section 3, each of the Holder agrees not to
effect any public sale or distribution, including any sale pursuant to Rule 144,
of any Registrable Securities, of any other equity securities of the Company, or
of any securities convertible into or exchangeable for any equity securities of
the Company, within 15 days prior to and 90 days (unless advised in writing by
the managing underwriter that a longer period, not to exceed 180 days, is
required) after the effective date of the Registration Statement relating to
such Registration, except as part of such Registration or with the prior written
consent of the Company and the managing underwriter, if any.
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SECTION 5. Registration Procedures.
5.1 Obligations of the Company. If and whenever the Company is required
pursuant to Section 2 or Section 3 to effect a Registration of Registrable
Securities, the Company shall, subject to the provisions of Section 2 or Section
3:
(a) prepare and file with the SEC a Registration Statement covering
such Registrable Securities and use commercially reasonable efforts to cause
such Registration Statement to become effective and remain effective as provided
herein;
(b) use commercially reasonable efforts to prepare and file with the
SEC such amendments and supplements to such Registration Statement as may be
necessary to keep such Registration Statement and Prospectus used in connection
therewith effective at least until the earlier of (i) 90 days after the
effective date of such Registration Statement, and (ii) the completion of the
distribution by the Holder of all of the Registrable Securities covered by such
Registration Statement (the "Effectiveness Period");
(c) use commercially reasonable efforts to register or qualify the
Registrable Securities covered by such Registration Statement under the
securities or blue sky laws of such states within the United States as the
Company determines, provided that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
state wherein it is not so qualified, subject itself to taxation in any state
wherein it is not so subject, or take any action which would subject it to
general service of process in any state wherein it is not so subject; and
(d) (i) notify the Holder of Registrable Securities covered by such
Registration Statement if, to its knowledge, such Registration Statement, at the
time it or any amendment thereto became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and, as
promptly as practicable, prepare and file with the SEC a post-effective
amendment to such Registration Statement and use commercially reasonable efforts
to cause such post-effective amendment to become effective such that such
Registration Statement, as so amended, shall not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) notify the
Holder of Registrable Securities covered by such Registration Statement, at any
time when a Prospectus relating thereto is required to be delivered under the
Securities Act, if, to its knowledge, the Prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and, as promptly as practicable, prepare
and furnish to the Holder a reasonable number of copies of a supplement to or an
amendment of such Prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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The Holder agrees that upon receipt of any notice from the Company
pursuant to Section 5.1(d), the Holder will promptly discontinue the Holder's
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until the Holder shall have received notice
from the Company that such Registration Statement has been amended and/or copies
of the supplemented or amended Prospectus contemplated by Section 5.1(d) have
been furnished. If so directed by the Company, the Holder of Registrable
Securities will deliver to the Company all copies, other than permanent file
copies, in the Holder's possession of the Prospectus covering such Registrable
Securities at the time of receipt of such notice.
5.2 Seller Information. The Company may require the Holder of any
Registrable Securities as to which any Registration is being effected to furnish
to the Company such information regarding the Holder and the distribution of
such Registrable Securities as the Company may from time to time reasonably
request and as shall be required by law in connection therewith. The Holder
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by the Holder not materially false or misleading.
SECTION 6. Registration Expenses. The Company shall pay all Registration
Expenses arising from or incidental to the performance of, or compliance with,
this Agreement, provided that the Holder requesting such Registration shall bear
any transfer taxes applicable to its Registrable Securities registered
thereunder, customary (both as to type and amount) commissions, discounts or
other compensation payable to the underwriters (including fees and expenses of
underwriters' counsel), selling brokers, managers or other similar persons
engaged in the distribution of any of the Registrable Securities, and the fees
and expenses of the Holder's own counsel.
SECTION 7. Indemnification.
7.1 Indemnification by the Holder of Registrable Securities. The Company
may require, as a condition to including any Registrable Securities in any
Registration Statement filed pursuant to this Agreement that the Company shall
have received an undertaking satisfactory to it from the Holder to indemnify,
defend and hold harmless, the Company, its directors and officers and each
person, if any, who controls (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) the Company from and against any and all
losses, claims, damages and liabilities, joint or several, to which any of the
foregoing may become subject, under the Securities Act or otherwise, based upon
or arising out of any untrue statement or alleged untrue statement of a material
fact in a Registration Statement, any preliminary prospectus, final Prospectus
or summary Prospectus, or any amendment or supplement thereto, or omission or
alleged omission to state therein any material fact required to be stated
therein or necessary to make the statements therein not misleading, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Holder expressly for use in the preparation of such
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Registration Statement, preliminary prospectus, final Prospectus, summary
Prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling person and shall survive the
transfer of such Registrable Securities by the Holder.
7.2 Indemnification by the Holder of Registrable Securities. The Company
shall indemnify, defend and hold harmless, the Holder, its its heirs, assigns,
attorneys and representatives from and against any and all losses, claims,
damages and liabilities, joint or several, to which any of the foregoing may
become subject, under the Securities Act or otherwise, based upon or arising out
of any untrue statement or alleged untrue statement of a material fact in a
Registration Statement, any preliminary prospectus, final Prospectus or summary
Prospectus, or any amendment or supplement thereto, or omission or alleged
omission to state therein any material fact required to be stated therein or
necessary to make the statements therein not misleading, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished by the Company expressly for
use in the preparation of such Registration Statement, preliminary prospectus,
final Prospectus, summary Prospectus, amendment or supplement. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Holder and shall survive the transfer of such Registrable
Securities by the Holder.
7.3 Indemnification Payments. Any indemnification required to be made by an
indemnifying party pursuant to this Section 7 shall be made by periodic payments
to the indemnified party during the course of the action or proceeding, as and
when bills are received by such indemnifying party with respect to an
indemnifiable loss, claim, damage, liability or expense incurred by such
indemnified party.
7.4 Other Remedies. If for any reason the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, other
than by reason of the exceptions provided therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities, actions, proceedings or
expenses in such proportion as is appropriate to reflect the relative benefits
to and faults of the indemnifying party on the one hand and the indemnified
party on the other in connection with the offering of Registrable Securities
(taking into account the portion of the proceeds of the offering realized by
each such party) and the statements or omissions or alleged statements or
omissions which resulted in such loss, claim, damage, liability, action,
proceeding or expense, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party shall
be determined by reference to, among other things, whether the untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statements or omissions. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. No party shall be liable for
contribution under this Section 7.3 except to the extent and under such
circumstances as such party would have been
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liable to indemnify under this Section 7 if such indemnification were
enforceable under applicable law.
SECTION 8. Miscellaneous.
8.1 Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
8.2 Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election and unless notice is otherwise
given to the Company by the record owner, be treated as the Holder of such
Registrable Securities for purposes of any request or other action by the Holder
pursuant to this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
8.3 Term. This Agreement shall be effective as of the date hereof and shall
continue in effect thereafter until the earlier of (a) its termination by the
consent of the parties hereto or their respective successors in interest and (b)
the date on which no Registrable Securities remain outstanding, and (c) the date
on which the Holder may resell all of the Registrable Securities under Rule
144(k); provided, however, that the parties' obligations under Section 7 shall
survive the termination of this Agreement.
8.4 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram:
(i) If to the Holder, at:
Xxxxxxx X. Xxxx
00000 Xxxxx Xxxx Xxxxx
Xxxxxx, Xxxxx 00000
with a copy to:
Xxxxxx & Xxxxxx L.L.P.
0000 Xxxxxxxx Xxxx Xxxxxx
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx Xxxxx
X-0
(ii) If to the Company, at:
Internet America, Inc.
One Dallas Centre
000 X. Xx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxx
with a copy to:
Xxxxxxx Xxxxxx L.L.P.
000 Xxxx Xxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx Xxxxxxx
or, in each case, at such other address as may be specified in writing to the
other parties hereto. All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (w) if by personal delivery
on the day after such delivery, (x) if by certified or registered mail, on the
seventh business day after the mailing thereof, (y) if by next-day or overnight
mail or delivery, on the day delivered, (z) if by telecopy or telegram, on the
next day following the day on which such telecopy or telegram was sent, provided
that a copy is also sent by certified or registered mail.
8.5 Amendments; Waivers; etc. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies that any party may otherwise have at
law or in equity.
8.6 Severability. If any provision of this Agreement, including any phrase,
sentence, clause, Section or subsection is inoperative or unenforceable for any
reason, such circumstances shall not have the effect of rendering the provision
in question inoperative or unenforceable in any other case or circumstance, or
of rendering any other provision or provisions herein contained invalid,
inoperative, or unenforceable to any extent whatsoever.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
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8.8 Successors, Assigns and Transferees. This Agreement shall be assignable
or otherwise transferable by the Holder upon written notice to the Company of
such assignment or transfer. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
8.9 No Third Party Beneficiaries. Except as provided in Section 8 with
respect to indemnification of certain third parties hereunder, nothing in this
Agreement shall confer any rights upon any person or entity other than the
parties hereto and their respective heirs, successors and permitted assigns.
8.10 Headings. The headings contained in this Agreement are for purposes of
convenience only and shall not affect the meaning or interpretation of this
Agreement.
8.11 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original and all of which shall together
constitute one and the same instrument.
8.12 Confidentiality. The Holder shall treat as confidential and shall not
use confidential information of the Company acquired from the Company pursuant
to this Agreement except in accordance with the terms and provisions of this
Agreement and the Holder's rights and obligations hereunder, and will not
disclose the same or any part thereof to any third party without the prior
written approval of the Company; provided, however, that nothing contained
herein shall in any way restrict or impair a Holder's right to use, disclose, or
otherwise deal with any information of the Company which:
(a) at the time of the disclosure is generally available to the public or
thereafter becomes generally available to the public by publication or otherwise
through no act of the Holder;
(b) was in the Holder's possession prior to the time of disclosure
hereunder and was not acquired directly or indirectly from the Company;
(c) is independently made available to the Holder as a matter of right by a
third party, or
(d) was developed independent of the confidential information obtained from
the Company.
*********
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
INTERNET AMERICA, INC.
By:
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Name:
------------------------------------
Title:
-----------------------------------
-----------------------------------------
Xxxxxxx X. Xxxx
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