Exhibit 10.1
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
between
THE NETWORK CONNECTION, INC.
and
KA INVESTMENTS LDC
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March 11, 1998
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of March 11, 1998 (this
"AGREEMENT"), between the Network Connection, a corporation organized under the
laws of the State of Georgia (the "COMPANY"), and KA Investments LDC, a
corporation organized under the laws of the Cayman Islands (the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase an aggregate principal amount of $2,200,000 of the Company's 4%
Convertible Debentures, due March 11, 2003 (the "DEBENTURES"), which are
convertible into shares of the Company's common stock, par value $.001 per share
(the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES
1.1 PURCHASE AND SALE. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Purchaser and the Purchaser
shall purchase the Debentures, in denominations of $50,000. The Debentures shall
be in the form of EXHIBIT A attached hereto
1.2 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchaser and
the Purchaser shall purchase the Debentures for a purchase price of $2,200,000
(the "PURCHASE PRICE"). The closing of the purchase and sale of the Debentures
(the "CLOSING") shall take place at the offices of Xxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxx & Xxxxxx LLP ("XXXXXXXX XXXXXXXXX"), 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, immediately following the execution hereof or such later
date as the parties shall agree. The date of the Closing is hereinafter
referred to as the "CLOSING DATE."
(ii) At the Closing, (a) the Company shall deliver to the
Purchaser (1) the Debentures registered in the name of the Purchaser, (2) the
legal opinion of Xxxxxxxxx Traurig Xxxxxxx Xxxxxx Xxxxx & Xxxxxxx, substantially
in the form attached hereto as EXHIBIT C, and (3) all other documents,
instruments and writings required to have been delivered at or prior to the
Closing by the Company pursuant to this Agreement, and (b) the Purchaser shall
deliver to the Company (1) $2,200,000, less the fees contemplated in Section
4.1, in United States dollars in immediately available funds by wire transfer to
an account designated in writing by the Company for such purpose on or prior to
the Closing Date, and (2) all documents, instruments and writings
required to have been delivered at or prior to the Closing by the Purchaser
pursuant to this Agreement.
For purposes of this Agreement, "AVERAGE PRICE," "CONVERSION PRICE,"
"ORIGINAL ISSUE DATE," "CONVERSION DATE," "TRADING DAY" and "PER SHARE MARKET
VALUE" shall have the meanings set forth in the Debentures.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Georgia, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of this Agreement, the Debentures or the Registration Rights Agreement, dated
the date hereof, between the Company and the Purchaser, attached hereto as
EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT" and, together with this Agreement
and the Debentures, the "TRANSACTION DOCUMENTS"), (y) have a material adverse
effect on the results of operations, assets, prospects, or financial condition
of the Company, taken as a whole, or (z) adversely impair the Company's ability
to perform fully on a timely basis its obligations under any Transaction
Document (any of the foregoing, a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed
by the Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
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application. The Company is not in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(C). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in SCHEDULE 2.1(C), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. To the knowledge of the Company, except as specifically
disclosed in the SEC Documents (as defined below) or SCHEDULE 2.1(C), no Person
(as defined below) beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) or has the right to acquire by agreement with or by obligation binding
upon the Company, beneficial ownership of in excess of 5% of the Common Stock.
Except as specified in Schedule 6(b) to the Registration Rights Agreement, there
are no agreements or arrangements under which the Company is obligated to
register the sale of any of their securities under the Securities Act of 1933,
as amended (the "SECURITIES ACT"). A "PERSON" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF DEBENTURES. The Debentures are duly authorized,
and, when issued in accordance with the terms hereof, shall be validly issued,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of first refusals of any kind (collectively, "LIENS"). The Company has
and at all times while the Debentures are outstanding will maintain an adequate
reserve of duly authorized shares of Common Stock to enable it to perform its
conversion and other obligations under this Agreement and the Debentures and in
no circumstances shall such reserved and available shares of Common Stock be
less than the sum of (i) the number of shares of Common Stock as would be
issuable upon conversion in full of the Debentures, assuming such conversion
were effected at a conversion price of $3.00, and (ii) the number of shares of
Common Stock as are issuable as payment of interest on the Debentures, PROVIDED,
HOWEVER, that the Company shall not be required to maintain a reserve in excess
of 20% of the number of shares of the Common Stock outstanding on the Original
Issue Date (the "ISSUABLE MAXIMUM"). The shares of Common Stock issuable upon
conversion of the Debentures, as payment of interest in respect thereof are
sometimes referred to herein as the "UNDERLYING SHARES," and the Debentures and
Underlying Shares are, collectively, the "SECURITIES." When issued in
accordance with the terms of the Debentures, the Underlying Shares will be duly
authorized, validly issued, fully paid and nonassessable, free and clear of all
Liens.
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(e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as specifically set forth in
SCHEDULE 2.1(F), the Company is not required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any court or
other Federal, state, local or other governmental authority or national
securities exchange or market on which the Common Stock may be listed or other
Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents other than (i) the filing of a registration
statement on Form S-3 promulgated under the Securities Act with the Securities
and Exchange Commission (the "COMMISSION") covering the resale by the Purchaser
of the Underlying Shares (the "UNDERLYING SECURITIES REGISTRATION STATEMENT"),
(ii) the application for the listing of the Underlying Shares on any national
securities exchange or market on which the Common Stock is then listed, and
(iii) in all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, could not have
or result in, individually or in the aggregate, a Material Adverse Effect
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in SCHEDULE 2.1(F), the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any of
its respective properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, state, county, local or foreign) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, individually
or in the aggregate, have or result in a Material Adverse Effect.
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(h) NO DEFAULT OR VIOLATION. The Company is not (i) in default
under or in violation of (and no event has occurred which has not been waived
which, with notice or lapse of time or both, would result in a default by the
Company), nor has the Company received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it or any
of its properties is bound, (ii) in violation of any order of any court,
arbitrator or governmental body, or (iii) in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or in
the aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the
representations and warranties of the Purchaser set forth herein, the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act.
(j) SEC DOCUMENTS. Except as set forth in SCHEDULE 2.1(J),
since May 11, 1995, the Company has filed all reports required to be filed by it
under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof
(such reports, the "SEC DOCUMENTS" and, together with the Schedules to this
Agreement and other documents and information furnished by or on behalf of the
Company at any time prior to the Closing, including, the Risk Factors annexed
hereto as EXHIBIT E, the "DISCLOSURE MATERIALS") on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
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. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997,
(a) there has been no event, occurrence or development that has had or that
could have or result in a Material Adverse Effect, (b) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements
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pursuant to GAAP, and (c) the Company has not altered its method of accounting
or the identity of its auditors. The Schedules to this Agreement furnished by
or on behalf of the Company do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for fees payable to Goodbody
International, Inc., no fees or commissions will be payable by the Company to
any broker, financial advisor, finder, investment banker, or bank with respect
to the transactions contemplated hereby. The Purchaser shall have no obligation
with respect to such fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless the Purchaser, its respective employees, officers,
directors, agents, and partners, and its respective Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), from and against
all claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees.
(m) SOLICITATION MATERIALS. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(n) EXCLUSIVITY. The Company shall not issue and sell
Debentures to any Person other than the Purchaser.
(o) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The
Company has not in the two years preceding the date hereof received written
notice from any stock exchange, market or trading facility on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing, maintenance or other requirements of such exchange,
market, trading or quotation facility. The Company has no reason to believe
that it does not now or will not in the future meet any such requirements.
(p) PATENTS AND TRADEMARKS. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are necessary
for use in connection with its business and which the failure to so have would
have a Material Adverse Effect (collectively, the "INTELLECTUAL PROPERTY
RIGHTS"). To the best knowledge of the Company, there is no existing
infringement of any of the Intellectual Property Rights.
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(r) DISCLOSURE. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser or
its respective representatives and counsel in connection with the transactions
contemplated hereby is true and correct in all material respects and does not
fail to state any material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. The Company confirms that it has not provided to the Purchaser or
any of its representatives, agents or counsel any information that constitutes
or might constitute material nonpublic information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representation in
effecting transactions in securities of the Company.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby makes the following representations and warranties to the Company.
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities by the Purchaser has been duly authorized by all necessary action on
the part of the Purchaser. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by the Purchaser and constitutes
the valid and legally binding obligation of the Purchaser, enforceable against
the Purchaser, in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to the Purchaser's right, subject
to the provisions of this Agreement and the Registration Rights Agreement, at
all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act and in
compliance with applicable state securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Debentures, it was, and at the date hereof, it is, and at the Closing Date, it
will be, an "accredited investor" as defined in Rule 501(a) under the Securities
Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. Purchaser
acknowledges that the Securities are speculative investments and involve a high
degree of risk and the Purchaser
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is able to bear the economic risk of an investment in the Securities, and, at
the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Debentures, and the merits and risks of
investing in the Debentures; (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials.
(g) RELIANCE. The Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is exempt from
the registration provisions of the Securities Act and (ii) the availability of
such exemption, depends in part on, and the Company will rely upon the accuracy
and truthfulness of, the foregoing representations and the Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements thereof. In connection with any
transfer of any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration under
the Securities Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register any transfer by the Purchaser to an Affiliate of the
Purchaser, or any transfers among any such Affiliates provided in such case the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring any
such Securities in accordance with the representation provided by the
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original Purchaser in Section 2.2(b). Each such transferee shall have the
rights of the Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON
CONVERSION SET FORTH IN SECTION 3.8 OF A SUBSCRIPTION AGREEMENT, DATED AS
OF MARCH 11, 1998, BETWEEN THE NETWORK CONNECTION, INC. (THE "COMPANY") AND
THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain any legend if conversion of
Debentures or other issuances of Underlying Shares as contemplated hereby, as
the case may be, occurs at any time while an Underlying Securities Registration
Statement is effective under the Securities Act or, in the event there is not an
effective Underlying Securities Registration Statement at such time, if in the
opinion of counsel to the Company such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company agrees that
it will provide each Purchaser, upon request, with a certificate or certificates
representing Underlying Shares, free from such legend at such time as such
legend is no longer required hereunder. The Company may not make any notation
on its records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in this Section 3.1(b).
3.2 ACKNOWLEDGEMENT OF DILUTION. The Company acknowledges that the
issuance of Underlying Shares upon conversion of the Debentures and as payment
of interest thereon may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue Underlying Shares in
accordance with the terms of the Debentures is unconditional and absolute
regardless of the effect of any such dilution.
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3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. If at any time prior to the date on which
the Purchaser may resell all of their Underlying Shares without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as
determined by counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent for the
benefit of and enforceable by the Purchaser) the Company is not required to file
reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare
and furnish to the Purchaser and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act in the time period that such filings would have been required to
have been made under the Exchange Act. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including the legal opinion referenced above in this Section.
Upon the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements. In connection with any future access or diligence of
the Company by the Purchaser, the Company agrees that it will not furnish to the
Purchaser any material non-public information unless it first discloses in
writing that such information is of such character and the Purchaser thereafter
agrees to receive such information and to meet such conditions as are deemed
reasonably necessary by counsel to the Company to avoid violations of the
Securities Act.
3.4 USE OF DISCLOSURE MATERIALS. The Company consents to the use of the
Disclosure Materials (which for purposes of the non-SEC Document Disclosure
Materials shall take into account any amendments and supplements thereto) and
any information provided by or on behalf of the Company pursuant to Section 3.3
by the Purchaser in connection with resales of the Securities other than
pursuant to an effective registration statement.
3.5 BLUE SKY LAWS. In accordance with and subject to the limitations
set forth in the Registration Rights Agreement, the Company shall qualify and
obtain exemptions for the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchaser may request and shall continue such
qualification or exemption at all times until the Purchaser notifies the Company
in writing that it no longer owns Securities; PROVIDED, HOWEVER, that the
Company shall not be required in connection therewith to qualify as a foreign
corporation where it is not now so qualified or to take any action that would
subject the Company to general service of process in any such jurisdiction where
it is not then so subject.
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3.6 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that no Affiliate shall sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3.7 INCREASE IN AUTHORIZED SHARES. At such time as the Company would
be, if a notice of conversion were to be delivered on such date, precluded from
converting the full outstanding principal amount of Debentures (and paying any
accrued but unpaid interest in respect thereof in shares of Common Stock) that
remain unconverted at such date due to the unavailability of a sufficient number
of shares of authorized but unissued or re-acquired Common Stock, the Board of
Directors of the Company shall promptly and in good faith (and in any case
within 30 business days from such date) prepare and mail to the shareholders of
the Company proxy materials requesting authorization to amend the Company's
certificate of incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchaser in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its conversion and reservation of shares obligations as set forth in this
Agreement and the Debentures. In connection therewith, the Board of Directors
shall (a) adopt proper resolutions authorizing such increase, (b) recommend to
and otherwise use its best efforts to promptly and duly obtain stockholder
approval to carry out such resolutions (and hold a special meeting of the
shareholders no later than the 60th day after delivery of the proxy materials
relating to such meeting) and (c) within 5 business days of obtaining such
shareholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase.
3.8 PURCHASER OWNERSHIP OF COMMON STOCK. The Purchaser agrees not to
convert Debentures to the extent such conversion would result in the Purchaser
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of the Debentures held by the Purchaser after application of this
Section. To the extent that the limitation contained in this Section applies,
the determination of whether Debentures are convertible (in relation to other
securities owned by the Purchaser) and of which portion of the principal amount
of such Debentures are convertible shall be in the sole discretion of the
Purchaser, and the submission of Debentures for conversion shall be deemed to be
the Purchaser's determination of whether such Debentures are convertible (in
relation to other securities owned by the Purchaser) and of which portion of
such Debentures are convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of the Purchaser to convert Debentures at such time
as such conversion will not violate the provisions of this Section. The
provisions of this Section may be waived by the Purchaser upon not less than 75
days prior notice to the Company, and the provisions of this Section shall
continue to apply until such 75th day (or later, if stated in the notice of
waiver).
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3.9 LISTING OF UNDERLYING SHARES. If the Common Stock hereafter is
listed for trading on the Nasdaq SmallCap Market (or on the Nasdaq National
Market, American Stock Exchange or New York Stock Exchange, or any other
national securities market or exchange), then the Company shall (1) take all
necessary steps to list the Underlying Shares thereon, including the preparation
of any required additional listing application therefor covering, up to the
Issuable Maximum, the sum of (i) the number of Underlying Shares as would be
issuable upon a conversion in full of the then outstanding principal amount of
Debentures, and (ii) the number of Underlying Shares are issuable as payment of
interest thereon, assuming all such interest were paid in shares of Common
Stock), and (2) provide to the Purchaser evidence of such listing, and the
Company shall thereafter maintain the listing of its Common Stock on such
exchange or market as long as Underlying Shares are issuable and/or outstanding.
3.10 CONVERSION PROCEDURES. EXHIBIT D sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchaser to exercise its right of conversion smoothly and
expeditiously which are not set forth in the Debentures.
3.11 PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR
DELISTED. If at any time while the Purchaser (or any assignee thereof) owns any
Securities, the Common Stock is delisted or suspended from trading on such
exchange, market or trading facility, other than as a result of the suspension
of trading in securities on such market or exchange generally, or temporary
suspensions pending the release of material information, for more than thirty
(30) business days, then, notwithstanding anything to the contrary contained in
any Transaction Document, at the Purchaser's option exercisable by five (5)
business days prior written notice to the Company, the Company shall repay the
entire principal amount of then outstanding Debentures (and all accrued and
unpaid interest thereon) and redeem all then outstanding Underlying Shares then
held by the Purchaser, at an aggregate purchase price equal to the sum of
(I) the aggregate outstanding principal amount of Debentures then held by the
Purchaser divided by the Conversion Price on (a) the day prior to the date of
such suspension or delisting, (b) the day of such notice or (c) the date of
payment in full of the repurchase price calculated under this Section, whichever
is less, and multiplied by the Average Price preceding (x) the day prior to the
date of such suspension or delisting, (y) the day of such notice and (z) the
date of payment in full of the repurchase price calculated under this Section,
whichever is greater, (II) the aggregate of all accrued but unpaid interest and
other non-principal amounts (including liquidated damages, if any) then payable
in respect of all Debentures to be repaid, (III) the number of Underlying Shares
then held by the Purchaser multiplied by the Average Price immediately preceding
(x) the day prior to the date of such suspension or delisting, (y) the date of
the notice or (z) the date of payment in full by the Company of the repurchase
price calculated under this Section, whichever is greater, and (IV) interest on
the amounts set forth in I - III above accruing from the 5th day after such
notice until the repurchase price under this Section is paid in full at the rate
of 15% per annum. If after the Original Issue Date the Common Stock shall be
listed for trading or quoted on the
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Nasdaq SmallCap Market or any other national securities exchange or market, this
provision shall similarly apply to any delistings or suspensions therefrom.
3.12 USE OF PROCEEDS. The Company shall use all of the proceeds from the
sale of the Securities for working capital purposes and not for the satisfaction
of Company debt or to redeem any equity or equity-equivalent securities of the
Company. Pending application of the proceeds of this placement in the manner
permitted hereby, the Company will invest such proceeds in interest bearing
accounts and/or short-term, investment grade interest bearing securities.
3.13 NOTICE OF BREACHES. The Company and the Purchaser shall give prompt
written notice to the other of any breach by it of any representation, warranty
or other agreement contained in any Transaction Document, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation or warranty or other agreement of such party, as the
case may be, contained in the Transaction Document to be incorrect or breached
as of such Closing Date. However, no disclosure by either party pursuant to
this Section shall be deemed to cure any breach of any representation, warranty
or other agreement contained in any Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall promptly
notify the Purchaser of any notice or claim (written or oral) that it receives
from any lender of the Company to the effect that the consummation of the
transactions contemplated by the Transaction Documents violates or would violate
any written agreement or understanding between such lender and the Company, and
the Company shall promptly furnish by facsimile to the holders of the Debentures
a copy of any written statement in support of or relating to such claim or
notice.
3.14 CONVERSION OBLIGATIONS OF THE COMPANY. The Company shall honor
conversions of the Debentures and shall deliver Underlying Shares in accordance
with the respective terms and conditions and time periods set forth in the
Debentures.
3.15 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS; CERTAIN CORPORATE
ACTIONS. (a) The Company shall not, directly or indirectly, without the prior
written consent of the Purchaser, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition) any of its or its Affiliates' equity or
equity-equivalent securities or any instrument that permits the holders thereof
to acquire Common Stock at any time over the life of the security or investment
at a price that is less than the market price of the Common Stock at the time of
issuance of such security or investment (a "SUBSEQUENT FINANCING") for a period
of 180 days after the Closing Date, except (i) the granting of options or
warrants to employees, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon exercise of any
currently outstanding warrants and upon conversion of any currently outstanding
convertible preferred stock in each case disclosed in SCHEDULE 2.1(C), (iii)
shares of Common Stock issued upon conversion of Debentures, as payment of
interest thereon, in accordance with their respective terms, unless (A) the
Company delivers to the Purchaser a
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written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom such Subsequent
Financing shall be affected, and attached to which shall be a term sheet or
similar document relating thereto and (B) the Purchaser shall not have notified
the Company by 5:00 p.m. (New York City time) on the tenth (10th) business day
after its receipt of the Subsequent Financing Notice of its willingness to cause
the Purchaser to provide (or to cause its sole designee to provide), subject to
completion of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Financing Notice. If the
Purchaser shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Financing substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Financing Notice; PROVIDED, that the
Company shall provide the Purchaser with a second Subsequent Financing Notice,
and the Purchaser shall again have the right of first refusal set forth above in
this paragraph (a), if the Subsequent Financing subject to the initial
Subsequent Financing Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Financing Notice within thirty (30)
business day after the date of the initial Subsequent Financing Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Financing
Notice.
(b) Except for Underlying Shares and other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, the Company
shall not, without the prior written consent of the Purchaser, (i) issue or sell
any of its or any of its Affiliates' equity or equity-equivalent securities
pursuant to Regulation S promulgated under the Securities Act, or (ii) register
for resale any securities of the Company for a period of not less than 90
business days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that the Purchaser
is unable to sell Underlying Shares under the Underlying Securities Registration
Statement shall be added to such 90 business day period for the purposes of (i)
and (ii) above.
(c) As long as there are Debentures outstanding, the Company
shall not, without the consent of the holders of the Debentures, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the holders of Debentures; (ii) repay, repurchase
or offer to repay, repurchase or otherwise acquire shares of its Common Stock
other than as to the Underlying Shares; or (iii) enter into any agreement with
respect to any of the foregoing.
3.16 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. (a) The Company
shall timely file with the Commission a Form D promulgated under the Securities
Act as required under Regulation D promulgated under the Securities Act and
provide a copy thereof to each Purchaser promptly after the filing thereof. The
Company shall file with the Commission (i) a press release disclosing the
transactions contemplated hereby, provided that if such press release shall
mention the Purchaser by name, the Purchaser shall have the right to review and
object to the contents
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thereof, and (ii) a Report on Form 8-K disclosing this Agreement and the
transactions contemplated hereby within ten (10) business days after the Closing
Date.
(b) In furtherance and in addition to the obligation of the Company
set forth in Section 3.19(a) above, the Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
IV. MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing the Company shall pay $8,000 to
the Purchaser for the legal fees and disbursements incurred by the Purchaser in
connection with the preparation and negotiation of the Transaction Documents.
Other than the amounts contemplated by the immediately preceding sentence, and
except as set forth in the Registration Rights Agreement, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Debentures pursuant hereto. The Purchaser shall be
responsible for its own tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this Agreement.
4.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto and the Debentures contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
4.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 4:30 p.m. (New York City
time) on a business day, (ii) the business day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 4:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
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If to the Company: The Network Connection, Inc.
0000 Xxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Facsimile No.:
Attn: Chief Financial Officer
With copies to: Xxxxxxxxx Xxxxxxx Xxxxxxx Xxxxxx
Xxxxx & Quentel
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx Xxxxxxxx
If to the Purchaser: KA Investments, LDC
c/o Tamarchan Capital Management
0000 Xxxxxxx Xxxxxxxxxx
Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx Xxxxxxxxx
With copies to: Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxxx
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchaser; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
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4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), the Purchaser may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and who is an intended beneficiary of the provisions of Section 3.15,
entitled to enforce such provisions against the parties hereto and permitted
assignees under Section 4.6, is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.
4.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and Federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court or that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 SURVIVAL. The representations, warranties, agreements and covenants
contained in this Agreement shall survive the Closing and the conversion of the
Debentures.
4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
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executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
THE NETWORK CONNECTION, INC.
By:
---------------------------
Name:
Title:
KA INVESTMENTS LDC
By:
---------------------------
Name:
Title:
