EXHIBIT 10.39
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement, dated as of September 24, 1999,
between American TeleSource International, Inc., a Delaware corporation with
principal executive offices located at 00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx
Xxxxxxx, Xxxxx 00000 (the "Company"), and The Shaar Fund Ltd. ("Buyer").
Whereas, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 500 shares of the Company's 6% Series C
Cumulative Convertible Preferred Stock, par value $0.001 per share
(collectively, the "Preferred Shares"), and (ii) its Common Stock Purchase
Warrants or Warrant in the form attached hereto as Exhibit A (collectively, the
"Warrants");
Whereas, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of 6% Series C
Cumulative Convertible Preferred Stock in the form attached hereto as Exhibit B
(the "Certificate of Designation"), the Preferred Shares are convertible into
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock");
Whereas, the Warrants, upon the terms and subject to the conditions in
the Warrants, will for a period of five (5) years be exercisable to purchase
20,000 shares of Common Stock;
Whereas, upon the terms and subject to the conditions of the
Certificate of Designation, the Preferred Stock may be redeemed by the Company
at a redemption price including, without limitation, the issuance of its Common
Stock Purchase Warrants having the same terms and conditions as the Warrants and
exercisable to purchase an additional 20,000 shares of Common Stock (the
"Redemption Warrants");
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. Purchase and Sale of Preferred Shares and Warrants
A. Transaction. Buyer hereby agrees to purchase from the Company,
and the Company has offered and hereby agrees to issue and sell to the Buyer in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants to purchase 20,000 shares of Common Stock.
B. Purchase Price; Form of Payment. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$500,000 (the "Purchase
Price"). Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "Escrow Agent") identified in those
certain Escrow Instructions of even date herewith, a copy of which is attached
hereto as Exhibit C (the "Escrow Instructions"). Simultaneously with the
execution of this Agreement and against receipt by the Escrow Agent of the
Purchase Price, the Company shall deliver one or more duly authorized, issued
and executed certificates (I/N/O Buyer or, if the Company has been notified
otherwise, I/N/O Buyer's nominee) evidencing the Preferred Shares and the
Warrants which the Buyer is purchasing, to the Escrow Agent or its designated
depository. By executing and delivering this Agreement, Buyer and the Company
each hereby agree to observe the terms and conditions of the Escrow
Instructions, all of which are incorporated herein by reference as if fully set
forth herein.
C. Method of Payment. Payment into escrow of the Purchase Price
shall be made by wire transfer of immediately available funds to:
The Bank of New York
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
ABA No.: 000000000
For the Account of: Cadwalader, Xxxxxxxxxx & Xxxx
Trust Account XXXX Fund
Account No.: 0902061070
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants.
II. Buyer's Representations, Warranties; Access to
Information; Independent Investigation
Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the
Redemption Warrants, if any, the Common Stock issuable upon exercise of the
Warrants and the Redemption Warrants, if any, (the "Warrant Shares") and the
shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion Shares" and, collectively with the Preferred Shares, the Warrants,
the Redemption Warrants and the Warrant Shares, the "Securities") for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and sold
by the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
E. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission and that the foregoing authorities have not reviewed
any documents or instruments in connection with the offer and sale to Buyer of
the Securities and have not confirmed or determined the adequacy or accuracy of
any such documents or instruments.
F. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against Buyer in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
G. Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or position
with respect to the Common Stock and neither Buyer nor any of its affiliates nor
any person acting on its or their behalf will at any time use shares of Common
Stock acquired pursuant to this Agreement to settle any put option, short
position or other similar instrument or position that may have been entered into
prior to the execution of this Agreement.
H. Neither Buyer nor any of its affiliates is a broker-dealer
registered as such with the Commission.
III. The Company's Representations, Warranties and Covenants
The Company represents and warrants to and convenants and agrees with
Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists of: (i)
100,000,000 shares of Common Stock, of which 48,685,287 shares are issued
and outstanding on the date hereof, and (ii) 10,000,000 shares of "blank
check" preferred stock, par value $0.001 per share, of which (x) 50,000
shares have been designated
10% Series A Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock"), of which 24,146 shares have been issued and are
outstanding and (y) 2,000 shares have been designated 6% Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"), of
which 2,000 shares have been issued and are outstanding. All of the issued
and outstanding shares of Common Stock, Series A Preferred Stock and Series
B Preferred Stock have been duly authorized and validly issued and are
fully paid and nonassessable. As of the date hereof, the Company has
outstanding vested stock options to purchase 3,933,000 shares of Common
Stock and non-vested stock options to purchase 2,204,467 shares of Common
Stock, in each case pursuant to its 1997 and 1998 Stock Option Plans, and
warrants to purchase 4,203,925 shares of Common Stock. The Conversion
Shares and Warrant Shares have been duly and validly authorized and
reserved for issuance by the Company, and when issued by the Company upon
conversion of, or in lieu of accrued dividends on, the Preferred Shares and
on exercise of the Warrants and the Redemption Warrants, if any, will be
duly and validly issued, fully paid and nonassessable and will not subject
the holder thereof to personal liability by reason of being such holder.
There are no preemptive, subscription, "call" or other similar rights to
acquire the Common Stock (including the Conversion Shares and Warrant
Shares) that have been issued or granted to any person, except as disclosed
on Schedule III.A.1. hereto or otherwise previously disclosed in writing to
Buyer.
2. Except as disclosed on Schedule III.A.2. hereto, the Company
does not own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, unincorporated
business organization, association, trust or other business entity.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is duly qualified as a foreign corporation in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or
results of operations of the Company or on the consummation of any of the
transactions contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting
obligations under Section 13(a) or 15(d), as applicable, of the Exchange
Act for the 12-month period immediately preceding the date hereof. The
Common Stock is traded on the OTC Bulletin Board service of the National
Association of Securities Dealers, Inc. (the "OTCBB") and the Company has
not received any notice regarding, and to its knowledge there is no threat
of, the termination or discontinuance of the eligibility of the Common
Stock for such trading.
C. Authorized Shares. The Company has duly and validly authorized
and reserved for issuance 1,250,000 shares of Common Stock sufficient in number
for the conversion
of the Preferred Shares and the exercise of the Warrants and the Redemption
Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Preferred Shares and Warrant
Shares upon conversion of the Preferred Shares and exercise of the Warrants and
Redemption Warrants, respectively. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares
and Warrant Shares upon exercise of the Warrants or Redemption Warrants, if any,
in accordance with this Agreement, the Certificate of Designation, the Warrants
and the Redemption Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. (S) 101 et seq. (the "Bankruptcy Code"). In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. (S)
362 in respect of the conversion of the Preferred Shares and the exercise of the
Warrants or Redemption Warrants, if any. The Company agrees, without cost or
expense to Buyer, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. (S) 362. Schedule III.C. hereto sets forth (i)
all issuances and sales by the Company since July 31, 1998 of its capital stock,
and other securities convertible, exercisable or exchangeable for capital stock
of the Company, (ii) the amount of such securities sold, including any
underlying shares of capital stock, (iii) the purchaser thereof, and (iv) the
amount paid therefor.
D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the Redemption Warrants and the issuance
and reservation for issuance of the Conversion Shares and Warrant Shares), has
been duly authorized by all necessary corporate action on the part of the
Company. Each of the Documents has been duly and validly executed and delivered
by the Company, the Certificate of Designation has been duly filed with the
Delaware Secretary of State's office by the Company, and each instrument
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally. For purposes of
this Agreement, the term "Documents" means (i) this Agreement; (ii) the
Registration Rights Agreement of even date herewith between the Company and
Buyer, a copy of which is annexed hereto as Exhibit D (the "Registration Rights
Agreement"); (iii) the Certificate of Designation; (iv) the Warrants; and (v)
the Escrow Instructions.
E. Authorization of the Securities. The authorization, issuance,
sale and delivery of the Preferred Shares, the Warrants and the Redemption
Warrants has been duly authorized by all requisite corporate action on the part
of the Company. As of the Closing Date, the Preferred Shares and the Warrants,
and the Conversion Shares and Redemption Warrants and the Warrant Shares upon
their issuance in accordance with the Preferred Shares and the Warrants,
respectively, will be validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights, rights of first refusal
or other similar rights.
F. Non-contravention. The execution and delivery by the Company of
the Documents, the issuance of the Securities, and the consummation by the
Company of the other transactions contemplated hereby and thereby, including,
without limitation, the filing of the Certificate of Designation with the
Delaware Secretary of State's office, do not and will not conflict with or
result in a breach by the Company of any of the terms or provisions of, or
constitute a default (or an event which, with notice, lapse of time or both,
would constitute a default) under (i) the articles of incorporation or by-laws
of the Company or (ii) any indenture, mortgage, deed of trust or other material
agreement or instrument to which the Company is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over the Company or any of the Company's properties or assets, except as to
clause (ii) above such conflict, breach or default which would not have a
Material Adverse Effect.
G. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (and the
Redemption Warrants, the Conversion Shares and Warrant Shares) to Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents as have been obtained by the Company prior to the date hereof.
H. Commission Filings. None of the Company's reports and documents
filed with the Commission pursuant to the Securities Act or the Exchange Act
(collectively, the "Commission Filings") prior to the date hereof contained at
the time they were filed any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
I. Absence of Certain Changes. Except as set forth on Schedule
III.I., since the Balance Sheet Date (as defined in Section III.M.), there has
not occurred any change, event or development in the business, financial
condition, prospects or results of operations of the Company, and there has not
existed any condition, having or reasonably likely to have a Material Adverse
Effect.
J. Full Disclosure. There is no fact known to the Company (other
than general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably could
be expected to have a Material Adverse Effect or (ii) reasonably could be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to the Documents.
K. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. Absence of Events of Default. No "Event of Default" (as defined
in any agreement or instrument to which the Company is a party) and no event
which, with notice, lapse of time or both, would constitute an Event of Default
(as so defined), has occurred and is continuing, which could have a Material
Adverse Effect.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
July 31, 1997 and July 31, 1998 and the related audited statements of operations
and cash flows for the three fiscal years ended July 31, 1998 including the
related notes and schedules thereto (collectively, the "Financial Statements"),
and all management letters, if any, from the Company's independent auditors
relating to the dates and periods covered by the Financial Statements. Each of
the Financial Statements is complete and correct in all material respects, has
been prepared in accordance with United States General Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim Financial Statements,
to normal year end adjustments and the absence of footnotes) and in conformity
with the practices consistently applied by the Company without modification of
the accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company as
at the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at July 31, 1998 is hereinafter referred to as
the "Balance Sheet" and July 31, 1998 is hereinafter referred to as the "Balance
Sheet Date". The Company has no indebtedness, obligations or liabilities of any
kind (whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described in the Balance Sheet or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the Balance Sheet or the notes thereto or was not
incurred since the Balance Sheet Date in the ordinary course of business
consistent with the Company's past practices.
N. Compliance with Laws; Permits. The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively,
"Laws") applicable to it or to the conduct of its business, except for such
noncompliance as would not have a Material Adverse Effect. The Company possesses
all permits, approvals, authorizations, licenses, certificates and consents from
all public and governmental authorities which are necessary to conduct its
business, except for those the absence of which would not have a Material
Adverse Effect.
O. Related Party Transactions. Except as set forth on Schedule
III.O. hereto and excluding receivables between the Company and its
Subsidiaries, neither the Company nor any of its officers, directors or
"Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act) has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company. Except as set forth on Schedule III.O. hereto,
neither the Company nor any of its officers, directors or Affiliates (i) owns
any direct or indirect interest
constituting more than a 1% equity (or similar profit participation) interest
in, or controls or is a director, officer, partner, member or employee of, or
consultant to or lender to or borrower from, or has the right to participate in
the profits of, any person or entity which is (x) a competitor, supplier,
customer, landlord, tenant, creditor or debtor of the Company, (y) engaged in a
business related to the business of the Company, or (z) a participant in any
transaction to which the Company is a party (other than in the ordinary course
of the Company's business) or (ii) is a party to any contract, agreement,
commitment or other arrangement with the Company.
P. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate and consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any such insurance policy presently in force.
Q. Securities Law Matters. Based, in part, upon the representations
and warranties of Buyer set forth in Section II hereof, the offer and sale by
the Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year period next preceding the date hereof,
except as disclosed on Schedule III.A or III.Q. hereto or otherwise previously
disclosed in writing to Buyer, and the Company shall not directly or indirectly
take, and shall not permit any of its directors, officers or Affiliates directly
or indirectly to take, any action (including, without limitation, any offering
or sale to any person or entity of the Preferred Shares or shares of Common
Stock), so as to make unavailable the exemption from Securities Act registration
being relied upon by the Company for the offer and sale to Buyer of the
Preferred Shares and the Warrants (and the Redemption Warrants, the Conversion
Shares and the Warrant Shares) as contemplated by this Agreement. No form of
general solicitation or advertising has been used or authorized by the Company
or any of its officers, directors or Affiliates in connection with the offer or
sale of the Preferred Shares and the Warrants (and the Redemption Warrants, the
Conversion Shares and the Warrant Shares) as contemplated by this Agreement or
any other agreement to which the Company is a party.
R. Environmental Matters.
1. The operations of the Company are in compliance with all
applicable Environmental Laws and all permits issued pursuant to
Environmental Laws or otherwise;
2. The Company has obtained or applied for all permits required
under all applicable Environmental Laws necessary to operate its business;
3. The Company is not the subject of any outstanding written
order of or agreement with any governmental authority or person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
threatened Release of Hazardous Materials;
4. The Company has not received, since July 31, 1998, any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law,
or may have any liability under any Environmental Law;
5. The Company does not have any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);
6. Except as set forth on Schedule III.R. hereto, to the
Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property
of the Company pending or threatened which could lead to the imposition of
any liability pursuant to any Environmental Law;
7. There are not located at any of the properties of the Company
any (A) underground storage tanks, (B) asbestos-containing material or (C)
equipment containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally related
audits, studies, reports, analyses, and results of investigations that have
been performed with respect to the currently or previously owned, leased or
operated properties of the Company.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law now in effect in any way
relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act,
the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Occupational Safety and Health Act, and the regulations
promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant,"
"pollutant," "toxic waste" or "toxic substance" under any provision of any
Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
S. Labor Matters. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. Except as set forth on
Schedule III.S, no employees of the Company are represented by any labor
organization and none of such employees has made a pending demand for
recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving the
Company pending or, to the Company's knowledge, threatened by any labor
organization or group of employees of the Company. There are no (i) strikes,
work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances
or other labor disputes pending or, to the knowledge of the Company, threatened
against or involving the Company. There are no unfair labor practice charges,
grievances or complaints pending or, to the knowledge of the Company, threatened
by or on behalf of any employee or group of employees of the Company.
T. ERISA Matters. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any ERISA Affiliate was required to file a report with the PBGC, and
the present value of all liabilities under all Plans (based on those assumptions
used to fund such Plans) did not, as of the most recent annual valuation date
applicable thereto, exceed the value of the assets of all such Plans in the
aggregate. None of the Company or ERISA Affiliates has incurred any Withdrawal
Liability that could result in a Material Adverse Effect. None of the Company
or ERISA Affiliates has received any notification that any Multiemployer Plan is
in reorganization or has been terminated within the meaning of Title IV of
ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization
or termination where such reorganization or termination has resulted or could
reasonably be expected to result in increases to the contributions required to
be made to such Plan or otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974,
together with the regulations thereunder, as the same may be amended from time
to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code").
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Internal Revenue Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or Section 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal
Revenue Code).
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which it is required to
file under applicable Laws, except for such Tax Returns in respect of which
the failure so to file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects
and have been prepared in compliance with all applicable Laws; the Company
has paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and has withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other
third parties; and since the Balance Sheet Date, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions
for deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its current tax
year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such
corporation is or may be subject to taxation by that jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company; no information related to Tax matters has been requested by any
foreign,
federal, state or local taxing authority; and, except as disclosed above,
no written notice indicating an intent to open an audit or other review has
been received by the Company from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to Section 7121 of the Internal
Revenue Code or any predecessor provision thereof or any similar provision
of state, local or foreign law; or (B) has not agreed to nor is required to
make any adjustments pursuant to Section 481(a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its
subsidiaries or has any knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any application pending
with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Internal Revenue Code.
3. The Company has not made an election under Section 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company (A) under Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or (D)
otherwise. The Company is not a party to any tax sharing agreement. The
Company has not made any payments, nor is it obligated to make payments nor
is it a party to an agreement that could obligate it to make any payments,
that would not be deductible under Section 280G of the Internal Revenue
Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto), whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
V. Property. The Company has good and indefeasible title to all real
and personal property owned by it, free and clear of all liens, encumbrances and
defects except such as are described on Schedule III.V. hereto or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company
are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company.
W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. The
Company is not infringing upon or in conflict with any right of any other person
with respect to any Intangibles. Except as disclosed on Schedule III.W. hereto,
no claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
X. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.
Y. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. No Misrepresentation. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any 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 not misleading.
AA. Finder's Fee. There is no finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement
for which Buyer is liable or responsible.
IV. Certain Covenants and Acknowledgments
A. Restrictive Legend. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Preferred Shares the Warrants and the
Redemption Warrants shall have endorsed thereon a legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings
and "blue sky" filings required to be made by the Company in connection with
the sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities (excluding amounts paid by the Company for Buyer's out-
of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement) solely for general corporate and working capital
purposes.
E. Listing. Except to the extent the Company lists its Common Stock
on the New York Stock Exchange or The Nasdaq Stock Market, the Company shall use
its best efforts to maintain its trading of the Common Stock on the OTCBB.
F. Reserved Conversion Shares. The Company at all times from and
after the date hereof shall have a sufficient number of shares of Common Stock
duly and validly authorized and reserved for issuance to satisfy the conversion,
in full, of the Preferred Shares and upon the exercise of the Warrants and the
Redemption Warrants.
G. Right of First Refusal. If the Company should propose (the
"Proposal") to issue Common Stock or securities convertible into Common Stock at
a price less than the Current Market Price (as defined in the Certificate of
Designation), or debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal Security" and
collectively, the "Right of First Refusal Securities"), in each case on the
date of issuance during the period ending two years after the Closing Date (the
"Right of First Refusal Period"), the Company shall be obligated to offer such
right of First Refusal Securities to the Buyer on the terms set forth in the
Proposal (the "Offer") and the Buyer shall have the right, but not the
obligation, to accept such Offer on such terms. If during the Right of First
Refusal Period, the Company provides written notice to the Buyer that it
proposes to issue any Right of First Refusal Securities on the terms set forth
in the Proposal, then Buyer shall have ten (10) business days to accept or
reject such offer in writing. If the Company fails to: (i) issue a Proposal
during the Right of First Refusal Period; (ii) offer Buyer the opportunity to
complete the transaction as set forth in the Proposal; or (iii) enter into an
agreement with Buyer, at such terms after the Buyer has accepted the Offer, then
the Company shall pay to Buyer, as liquidated damages, an amount in total equal
to 10% of the amount paid to the Company for the Right of First Refusal
Securities. The foregoing right of first refusal is and shall be senior in
right to any other right of first refusal issued by the Company to any other
Person (as defined in the Certificate of Designation). Notwithstanding the
foregoing, the Buyer shall have no rights under this Section IV.G. in respect of
Common Stock or any other securities of the Company issuable (i) upon the
exercise or conversion of options, warrants or other rights to purchase
securities of the Company outstanding as of the date hereof or (ii) to officers,
directors or employees of the Company or any of its subsidiaries.
V. Transfer Agent Instructions
A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants and the Redemption Warrants
otherwise shall be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement and applicable law. Nothing contained in this Section V.A. shall
affect in any way Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of such Common Stock. If, at any time,
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
B. The Company shall permit Buyer to exercise its right to convert the
Preferred Shares by telecopying an executed and completed Notice of Conversion
(as defined in the Certificate of Designation) to the Company. Each date on
which a Conversion Notice is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed a Conversion Date (as
defined in the Certificate of Designation). The Company shall transmit the
certificates evidencing the shares of Common Stock issuable upon conversion of
the Preferred Shares (together with certificates evidencing any Preferred Shares
not being so converted) to Buyer via express courier, by electronic transfer or
otherwise, within five business days after receipt by the Company of the Notice
of Conversion (the "Delivery Date"). Within
30 days after Buyer delivers the Notice of Conversion to the Company, Buyer
shall deliver to the Company the Preferred Shares being converted.
C. The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants and the Redemption
Warrants in accordance with the applicable terms of the Warrants and the
Redemption Warrants. The last date that the Company may deliver shares of Common
Stock issuable upon any exercise of Warrants or Redemption Warrants is referred
to herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the shares
of Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
the conversion of the Preferred Shares or exercise of the Warrants or Redemption
Warrants beyond the applicable Dividend Payment Due Date (as defined in the
Certificate of Designation), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty), the Company agrees to pay to Buyer for late issuance of Common Stock
issuable in lieu of cash dividends on the Preferred Shares, upon conversion of
the Preferred Shares or exercise of the Warrants or Redemption Warrants in
accordance with the following schedule (where "No. Business Days" is defined as
the number of business days beyond five days from the Dividend Payment Due Date,
the Delivery Date or the Warrant Delivery Date, as applicable):
Compensation For Each
10 Shares of
of Preferred Shares Not Converted
Timely or 500 Shares of Common
Stock Issuable In Payment of
Dividends or Upon Exercise of
Warrants or Redemption
No. Business Days Warrants Not Issued Timely
----------------- ----------------------------
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business Day
Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer; and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant
Delivery Date, as applicable, Buyer shall be entitled to rescind the relevant
Notice of Conversion or exercise of Warrants or Redemption Warrants by
delivering a notice to such effect to the Company whereupon the Company and
Buyer shall each be restored to their respective original positions immediately
prior to delivery of such Notice of Conversion on delivery.
VI. Delivery Instructions
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VII. Closing Date
The date and time of the issuance and sale of the Preferred Shares and
the Warrants (the "Closing Date") shall be the date hereof or such other date as
shall be mutually agreed upon in writing. The issuance and sale of the
Securities shall occur on the Closing Date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the Escrow Agent
shall not be authorized to release to the Company the Purchase Price and to
Buyer the Securities being purchased by Buyer unless the conditions set forth in
Section VIII.C. and IX.G. hereof have been satisfied.
VIII. Conditions To The Company's Obligations
Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase Price;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be determined as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date; and
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. Conditions To Buyer's Obligations
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
C. The accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be determined as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
D. Buyer having received an opinion of counsel for the Company, dated
the Closing Date, in form, scope and substance reasonably satisfactory to the
Buyer as to the matters set forth in Annex A;
E. There not having occurred (i) any general suspension of trading
in, or limitation on prices listed for, the Common Stock on the OTCBB, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
F. There not having occurred any event or development, and there
being in existence no condition, having or which reasonably and foreseeably
could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided in the
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and expenses
whether or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel);
H. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
and
I. Delivery of irrevocable instructions to the Company's transfer
agent to reserve 1,250,000 shares of Common Stock for issuance of the Conversion
Shares and the Warrant Shares.
X. Termination
A. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on September [30], 1999 (the "Latest Closing
Date"); provided, however, that the right to terminate this Agreement pursuant
to clause (i) shall not be available to any party whose failure to fulfill any
of its obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur at or before such time and date, or (ii) any
court or public or governmental authority shall have issued an order, ruling,
judgment or writ, or there shall be in effect any Law, restraining, enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement; provided, further, however, that if the Closing shall not
have occurred on or prior to the Latest Closing Date, the Closing may only occur
after the Latest Closing Date with the written acceptance of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, (iii) there shall have occurred any event or development,
or there shall be in existence any condition, having or reasonably and
forseeably likely to have a Material Adverse Effect or (iv) the Company shall
have failed to satisfy the conditions set forth in Section IX hereof.
D. Termination by the Company. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement.
E. Fees and Expenses of Termination. If this Agreement is terminated
for any reason, other than pursuant to Section X.D, the Company shall reimburse
Buyer for all of Buyer's out-of-pocket costs and expenses incurred in connection
with the transactions contemplated by this Agreement and the other Documents
(including, without limitation, the fees and disbursements of Buyer's legal
counsel).
XI. Survival; Indemnification
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless the
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "Buyer Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other Documents;
or
2. any failure by the Company to perform any of its covenants,
agreements. undertakings or obligations set forth in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement or the other Documents; or
3. resales of the Common Shares by Buyer in the manner and as
contemplated by this Agreement and the Registration Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any of
Buyer's representations or warranties contained in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by Buyer
pursuant to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights and defenses by reason of such failure. In connection with
any Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clause (x), (y) or (z) above, the fees, costs and expenses of such legal counsel
shall be borne exclusively by the Indemnified Party. Except as provided above,
the Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel).
The Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. Governing Law; Miscellaneous
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES OF SUCH STATE. EACH OF THE PARTIES CONSENTS TO THE JURISDICTION OF
THE FEDERAL COURTS WHOSE DISTRICTS ENCOMPASS ANY PART OF THE CITY OF NEW YORK OR
THE XXXXX XXXXXX XX XXX XXXXX XX XXX XXXX SITTING IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT AND HEREBY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION
BASED ON FORUM NON CONVENIENS, TO THE BRINGING OF ANY SUCH PROCEEDING IN SUCH
JURISDICTIONS. A signed facsimile transmission of this Agreement shall
constitute delivery thereof and shall be legal and binding on all parties
hereto. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement and the other Documents supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
XIII. Notices
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
A. if to the Company, to:
American TeleSource International, Inc.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxx 00000
(000) 000-0000
(000) 000-0000 (Fax)
Attention: H. Xxxxxxx Xxxxxxxx
with a copy to:
Xxxxx X. Xxxx, Esq.
Corporate Counsel
American TeleSource International, Inc.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxx 00000
(000) 000-0000
(000) 000-0000 (Fax)
B. if to the Buyer, to:
The Shaar Fund Ltd.
c/x Xxxxxxxx Capital Management
0 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxxx
(000) 000-0000
(000) 000-0000 (Fax)
with a copy to:
Cadwalader, Xxxxxxxxxx & Xxxx
000 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Block, Esq.
(000) 000-0000
(000) 000-0000 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Xxxxxxxxxx & Xxxx
000 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Block, Esq.
(000) 000-0000
(000) 000-0000 (Fax)
The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV. Confidentiality
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XV. Assignment
This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any financially able affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
American TeleSource International, Inc.
By: (s) H. Xxxxxxx Xxxxxxxx
-----------------------
Name: H. Xxxxxxx Xxxxxxxx
Title: Chief Financial Officer
The Shaar Fund Ltd.
By: /s/ Xxxxxx Xxxxxxxx
-------------------
Name: Xxxxxx Xxxxxxxx
Title: Managing Director
