PURCHASE AGREEMENT
EXHIBIT
10.01
PURCHASE
AGREEMENT
(the
“Agreement”),
dated
as of August 22, 2006, by and among XXX.xxx, Inc., a Delaware corporation (the
“Company”),
MegaPath Inc., a Delaware corporation (“Parent”),
and
MDS Acquisition, Inc., a wholly-owned subsidiary of Parent (the “Buyer”).
WHEREAS:
A. The
Company, Parent and Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the “1933
Act”),
and
Rule 506 of Regulation D (“Regulation D”)
as
promulgated by the United States Securities and Exchange Commission (the
“SEC”)
under
the 1933 Act.
B. The
Buyer
wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, Subordinated Secured Convertible Notes,
in
the forms attached hereto as Exhibit
X-0,
Xxxxxxx
X-0,
Exhibit
B-3
and
Exhibit
B-4
(each, a
“Convertible
Note”
and
together, the “Convertible
Notes”)
and a
Subordinated Secured Note, in the form attached hereto as Exhibit
C
(the
“Nonconvertible
Note”),
each
in the principal amounts as set forth on Exhibit
A
hereto.
In addition, the Company and the Buyer wish to provide for the possible future
sale of subordinated secured notes in substantially the form as the form of
the
Nonconvertible Note (each a “Subsequent
Closing Note”
and
together with the Convertible Notes and the Nonconvertible Note, the
“Notes”).
The
Subsequent Closing Notes, if issued, may be used, among other purposes, to
fund
working capital shortfalls of the Company that may occur prior to the Merger
(as
defined below), including, without limitation, shortfalls that may occur as
a
result of the maturity of the Company’s indebtedness to Laurus Master Fund, Ltd.
(“Laurus”).
C. The
Notes
(i) will rank senior to all outstanding and future indebtedness of the Company,
other than as set forth in the Subordination Agreement in the form attached
hereto as Exhibit D
(as
amended or modified from time to time, the “Subordination
Agreement”),
and
(ii) will be secured by a perfected security interest in all of the assets
of
the Company, as evidenced by the Security Agreement in the form attached hereto
as Exhibit E
(the
“Security
Agreement”
and
together with the Subordination Agreement, the “Security
Documents”).
D. Following
the satisfaction of the conditions to the convertibility of all the Convertible
Notes, Buyer intends to have converted all such Convertible Notes into Company
Common Stock such that Buyer will hold more than 90% of the outstanding shares
of Company Common Stock. At such time, Buyer, pursuant to a resolution of its
board of directors authorized by Section 253 of the Delaware General
Corporations Law, intends to effect a merger of the Company into Buyer, with
the
Buyer as the surviving corporation (the “Merger”)
and
pursuant to which the stockholders of the Company other than the Buyer will
be
entitled to receive a cash payment for their shares of Company Common
Stock.
NOW,
THEREFORE,
the
Company, the Buyer and the Parent hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES.
(a) Purchase
of Notes.
(i) On
or
prior to the Closing (as defined below), the Company shall have authorized
(A)
the sale and issuance to the Buyer of the Notes and (B) the issuance of the
shares of Common Stock issuable upon conversion of the Convertible Notes in
the
forms attached hereto as Exhibit
B-1,
Exhibit
B-2
and
Exhibit
B-3
as
provided therein and shall have authorized, conditional upon securing any
requisite stockholder consent, the issuance of the shares of Common Stock
issuable upon conversion of the Convertible Note in the form attached hereto
as
Exhibit
B-4
as
provided therein. The shares of Common Stock issuable upon conversion of the
Convertible Notes are referred to herein collectively as the “Conversion
Shares.”
The
Convertible Notes and the Conversion Shares are collectively referred to herein
as the “Securities.”
(ii) Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 5 and
6
below, the Company shall issue and sell to the Buyer, and the Buyer agrees
to
purchase from the Company on the Closing Date (as defined below), the Notes
(the
“Closing”).
(iii) The
date
and time of the Closing (the “Closing
Date”)
shall
occur after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 5 and 6 below and at the offices of Xxxxxxxxx
Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP, 000 Xxxxxxxxxxxx Xxxxx,
Xxxxx Xxxx, Xxxxxxxxxx, 00000.
(iv) The
aggregate purchase price for the Notes to be purchased by the Buyer at the
Closing shall be $1.00 of consideration for each $1.00 of principal amount
under
the Convertible Notes and $1.00 of consideration for each $1.182 of principal
amount under the Nonconvertible Note purchased by the Buyer at the Closing,
for
an aggregate purchase price of $13,000,000 (the “Purchase
Price”)
as set
forth on Exhibit A
hereto.
(b) Form
of Payment.
On the
Closing Date, (i) the Buyer shall pay its Purchase Price to the Company for
the
Notes to be issued and sold to the Buyer at the Closing, by wire transfer of
immediately available funds and (ii) the Company shall deliver to the Buyer
the Notes the Buyer is purchasing.
(c) Subsequent
Closing.
Following the Closing, the Company may sell Subsequent Closing Notes subject
to
the terms of this Agreement to the Buyer for $1.00 of consideration for each
$1.182 of principal amount under the Subsequent Closing Note, provided that
such
sale shall not take place later than one year from the Closing and
the
aggregate amount of consideration does not exceed $6,000,000. Each closing
of
the sale of Subsequent Closing Notes shall take place at such locations and
at
such times as shall be mutually agreed upon orally or in writing by the Company
and the Buyer.
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2. BUYER’S
AND PARENT’S REPRESENTATIONS AND WARRANTIES.
The
Buyer
and the Parent, jointly and severally, represent and warrant to the Company,
as
of the date hereof and as of the Closing Date, that:
(a) No
Public Sale or Distribution.
The
Buyer is (i) acquiring the Convertible Note and (ii) upon conversion of the
Convertible Note, Buyer will acquire the Conversion Shares, for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided,
however,
that by
making the representations herein, the Buyer does not agree to hold any of
the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. The Buyer is
acquiring the Securities hereunder in the ordinary course of its business.
The
Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities. “Person”
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(b) Accredited
Investor Status.
The
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D, because it is an entity whose sole equity owner is a corporation
not formed for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000. The Buyer’s principal place of business is
at the address provided in Section 8(f) hereof.
(c) Reliance
on Exemptions.
The
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in
part
upon the truth and accuracy of, and the Buyer’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
the Buyer set forth herein to determine the availability of such exemptions
and
the eligibility of the Buyer to acquire the Securities.
(d) Transfer
or Resale.
The
Buyer understands that: (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) the Buyer shall have delivered to the Company,
if it is reasonably requested by the Company, an opinion of counsel selected
by
the Buyer, in a form reasonably acceptable to the Company, to the effect that
such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) the Buyer
provides the Company with reasonable assurance that such Securities can be
sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under
the
1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”);
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some
other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person
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is
under
any obligation to register the Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
(e) No
Conflicts.
The
execution, delivery and performance of each Transaction Document by the Buyer
and the Parent and the consummation by the Buyer and the Parent of the
transactions contemplated thereby will not (i) result in a violation of any
certificate of incorporation, any certificate of designations or other
constituent documents of the Buyer or the Parent or bylaws of the Buyer or
the
Parent or (ii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
and the rules applicable to the Buyer or the Parent or by which any property
or
asset of the Buyer or the Parent is bound or affected.
(f) Organization.
The
Buyer and the Parent are each corporations duly organized, validly existing
and
in good standing under the laws of the State of Delaware.
(g) Legends.
The
Buyer understands that the Notes and the stock certificates representing the
Conversion Shares shall bear any legend as required by the “blue sky” laws of
any state and a restrictive legend in substantially the following form (and
a
stop-transfer order may be placed against transfer of such certificates or
other
instruments):
THE
ISSUANCE AND SALE OF THE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF REASONABLY REQUESTED
BY
THE COMPANY, AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.
(h) Validity;
Enforcement.
This
Agreement and the Security Documents to which the Buyer or the Parent is a
party
have been duly and validly authorized, executed and delivered on behalf of
the
Buyer and the Parent, as applicable, and shall constitute the legal, valid
and
binding obligations of the Buyer and the Parent enforceable against the Buyer
and the Parent in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company hereby represents and warrants to Buyer and Parent that the statements
contained in this Section 3 are true and correct as of the date hereof and
as of
the
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Closing
Date except as set forth in the disclosure schedule delivered by the Company
to
Buyer and Parent concurrently with the execution of this Agreement, as may
be
amended or supplemented at Closing by the Company solely for the purposes of
the
Closing (together, the “Disclosure
Schedule”);
provided,
however,
that
any amendments or supplements to
the
Disclosure Schedule after the date hereof shall only modify the Company’s
representations and warranties as of the Closing Date.
The
Disclosure Schedule shall be arranged according to specific sections in this
Section 3 and shall provide exceptions to, or otherwise qualify in reasonable
detail, only the corresponding section in this Section 3 and
any
other section in this Section 3 where it is reasonably clear, upon a reading
of
such disclosure without any independent knowledge on the part of the reader
regarding the matter disclosed, that the disclosure is intended to apply to
such
other section.
(a) Organization
and Qualification.
Schedule 3(a) of the Disclosure Schedule sets forth the jurisdiction of
incorporation or organization of each of the Company and each subsidiary of
the
Company (each a “Subsidiary”
and
collectively, the “Subsidiaries”).
Each
of the Company and the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of such
incorporation and has all requisite corporate power and authority and all
necessary governmental approvals to own, lease and operate its properties and
to
carry on its business as it is now being conducted, except where the failure
to
have such governmental approvals have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
(as defined below). Each of the Company and the Subsidiaries is duly qualified
or licensed as a foreign corporation or organization to do business, and is
in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that have not had, and could not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect. Schedule
3(a)
of the Disclosure Schedule sets forth each jurisdiction in which the Company
or
a Company Subsidiary is qualified or licensed to do business as a foreign
corporation or organization. As used in this Agreement, the term “Material
Adverse Effect”
means
any change in or effect on the business of the Company or any Subsidiary that,
individually or in the aggregate is, or could reasonably be expected to be,
materially adverse to the business, condition (financial or otherwise), assets
(tangible or intangible), liabilities (including contingent liabilities) or
results of operations of the Company and the Subsidiaries taken as a whole.
(b) Authorization;
Enforcement; Validity.
The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Security Documents, and each
of
the other agreements entered into by the parties hereto in connection with
the
transactions contemplated by this Agreement (collectively, the “Transaction
Documents”)
and to
issue the Securities and the Nonconvertible Note in accordance with the terms
hereof and thereof. The execution and delivery of each Transaction Documents
by
the Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Notes, the
reservation for issuance and the issuance of the Conversion Shares, and the
granting of a security interest in the Collateral (as defined in the Security
Agreement), have been duly authorized by the Company’s board of directors (the
“Board
of Directors”)
and
(other than the filing of appropriate UCC financing statements with the
appropriate states and other authorities pursuant to the Security
5
Agreement
and other than majority stockholder approval of the Charter Amendment (as
defined below) to be sought pursuant to the terms of Section 4(d) below) no
further filing, consent, or authorization is required by the Company, its Board
of Directors, or its stockholders. Each Transaction Document has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the
enforcement of applicable creditors’ rights and remedies.
(c) Valid
Issuance.
The
issuance of the Notes are duly authorized and are free from all taxes, liens
and
charges with respect to the issue thereof. As of the Closing, a sufficient
number of shares of Common Stock shall have been duly authorized and reserved
for issuance upon conversion of the Convertible Notes in the forms attached
hereto as Exhibit
B-1,
Exhibit B-2
and
Exhibit
B-3
and,
conditional upon requisite stockholder approval authorizing a sufficient number
of shares of Common Stock for issuance upon conversion of the Convertible Note
in the form attached hereto as Exhibit
B-4
and the
filing with the Delaware Secretary of State of the Charter Amendment (as defined
below), such number of shares of Common Stock shall have been duly reserved
for
issuance upon conversion of such Convertible Note. Upon issuance or conversion
in accordance with the Convertible Notes, as the case may be, the Conversion
Shares, will be validly issued, fully paid and nonassessable and free from
all
preemptive or similar rights, taxes, liens and charges with respect to the
issue
thereof, with the holders being entitled to all rights accorded to a holder
of
Common Stock. Subject in part to the truth and accuracy of the Buyer’s and
Parent’s representations set forth in Section 2, the offer and issuance by the
Company of the Securities is exempt from registration under the 1933
Act.
(d) No
Conflicts.
The
execution, delivery and performance of each Transaction Document by the Company
and the consummation by the Company of the transactions contemplated thereby
(including, without limitation, the issuance of the Notes, the granting of
a
security interest in the Collateral (as defined in the Security Documents)
and
reservation for issuance and issuance of the Conversion Shares) will not
(i) result in a violation of any certificate of incorporation, any
certificate of designations or other constituent documents of the Company,
any
capital stock of the Company or bylaws of the Company or (ii) 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 material agreement, indenture
or
instrument to which the Company is a party, (iii) subject in part to the truth
and accuracy of the Buyer’s and Parent’s representations set forth in Section 2,
result in a violation of any law, rule or regulation (including federal and
state securities laws and regulations) or (iv) result in the violation of any
order, judgment or decree and the rules applicable to the Company or by which
any property or asset of the Company is bound or affected.
(e) Consents.
The
Company is not required to obtain any consent, authorization or order of, or
make any filing (other than the filing of appropriate UCC financing statements
with the appropriate states and other authorities pursuant to the Security
Agreement) or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person (as defined below)
in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents to which it is a party, in each
6
case
in
accordance with the terms thereof. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence will have been obtained or effected on or prior to the
Closing Date, and the Company is unaware of any facts or circumstances which
might prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence.
(f) Acknowledgment
Regarding Buyer’s Purchase of Securities.
The
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that the Buyer is not (i)
an
officer or director of the Company, (ii) an “affiliate” of the Company (as
defined in Rule 144) or (iii) to the knowledge of the Company, a “beneficial
owner” of more than 10% of the shares of Common Stock (as defined for purposes
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
“1934
Act”)).
(g) No
General Solicitation; Placement Agent’s Fees.
Neither
the Company, nor any of its Subsidiaries and affiliates, nor any Person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D) in connection with
the
offer or sale of the Securities. The Company has not engaged any placement
agent
or other agent in connection with the sale of the Securities.
(h) No
Integrated Offering.
None of
the Company, any of its Subsidiaries and affiliates, and any Person acting
on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations
of
any exchange or automated quotation system on which any of the securities of
the
Company are listed or designated.
(i) Application
of Takeover Protections; Rights Agreement.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of
incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”),
or
the laws of the jurisdiction of its formation or otherwise which is or could
become applicable to the Buyer and the Parent as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company’s
issuance of the Securities and the Buyer’s ownership of the Securities. The
Company has not adopted a stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change
in
control of the Company.
(j) SEC
Documents; Financial Statements.
(i) During
the three (3) years prior to the date hereof, the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by a company that is subject to the reporting requirements of the 1934 Act
(all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes and
7
schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the “SEC
Documents”).
The
Company has delivered or made available to the Buyer or its respective
representatives true, correct and complete copies of the SEC Documents not
available on the XXXXX system. As of their respective filing dates or, if
amended, as of the date of such amendment, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC or,
if
amended, as of the date of such amendment, 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 the light of the
circumstances under which they were made, not misleading.
(ii) As
of
their respective dates, each of the consolidated financial statements (including
in each case, any notes thereto) of the Company included in the SEC Documents
(the “Financial
Statements”)
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such Financial Statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent
they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company and
the
consolidated Subsidiaries as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments). The
Company does not intend to correct or restate, nor, to the Company’s knowledge,
is there any basis for any correction or restatement of, any aspect of any
of
the Financial Statements contained in the SEC Documents. The Company has not
had
any material disagreement with any of its auditors regarding accounting matters
or policies during any of its past three full years or during the current fiscal
year-to-date which disagreements would require disclosure to the Company’s board
of directors. The books and records of the Company have been, and are being
maintained, in all material respects in accordance with applicable legal and
accounting requirements and the Financial Statements contained in the SEC
Documents are consistent with such books and records. The
most
recent audited balance sheet of the Company contained in the Company SEC
Documents as of December 31, 2005 is hereinafter referred to as the
“Reference
Balance Sheet.”
(iii) The
Company has heretofore furnished or made available to Buyer a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments that previously had been filed by the Company with the SEC
pursuant to the 1933 Act or the 1934 Act.
(k) Absence
of Certain Changes or Events.
Since
December 31, 2005, each of the Company and the Subsidiaries has conducted its
business only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been any:
(i) Material
Adverse Effect;
8
(ii) amendment
or any other change to the Certificate of Incorporation or the Company’s bylaws,
as amended and as in effect on the date hereof (the “Bylaws”),
or
equivalent organizational documents of the Company or any
Subsidiary;
(iii) issuance,
sale, pledge, lease, license, disposition, grant, encumbrance, or authorization
for any issuance, sale, pledge, lease, license, disposition, grant or
encumbrance, of (A) any shares of capital stock of any class of the Company
or
any Subsidiary, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such stock, or any other ownership interest
(including, without limitation, any phantom interest) of the Company or any
Subsidiary (except for (x) the issuance of shares of Common Stock pursuant
to
the exercise of options and in accordance with the terms of the Company’s
various authorized stock option and employee stock purchase plans, including
without limitation, the Company’s Amended and Restated 2001 Stock Option and
Incentive Plan (the “Plans”)
and
(y) the grant in the ordinary course of business and consistent with past
practice of options pursuant to the Plans or (B) any material assets of the
Company or any Subsidiary, except in the ordinary course of business and in
a
manner consistent with past practice, including, without limitation, any Company
IP (as defined in Section 3(u) below) of the Company or any
Subsidiary;
(iv) authorization,
declaration, setting aside, dividend payment or other distribution, payable
in
cash, stock, property or otherwise, with respect to any of the capital stock
of
the Company or any Subsidiary;
(v) reclassification,
combination, split, subdivision or redemption, purchase or other acquisition,
directly or indirectly, of any of the capital stock of the Company or any
Subsidiary;
(vi) acquisition
(including, without limitation, by merger, consolidation, or acquisition of
stock or assets) of any interest in any corporation, partnership, other business
organization or any division thereof or any assets, other than acquisitions
of
assets for consideration which is not, in the aggregate, in excess of
$10,000.00;
(vii) incurrence
of any indebtedness for borrowed money or issuance of any debt securities or
assumption, guarantee or endorsement of the obligations of any person, or any
loans or advances made, except for indebtedness incurred in the ordinary course
of business and consistent with past practice and for other indebtedness with
a
maturity of not more than one year in a principal amount not, in the aggregate,
in excess of $10,000.00;
(viii) contracts
or agreements entered into requiring the payment of consideration in excess
of
$25,000.00, or the modification, amendment or termination of any such existing
contract or agreement;
(ix) making
of
any capital expenditures in the aggregate in excess of $600,000 or the
authorization of any capital expenditures not yet made in the aggregate in
excess of $100,000;
(x) waiver
of
any stock repurchase rights, acceleration, amendment or change in the period
of
exercisability of options or restricted stock, or the repricing of options
9
granted
under the Plan or authorization of cash payments in exchange for any options
granted under any such plans;
(xi) increase
in, or agreement to increase, the compensation payable or to become payable
to
its officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any Subsidiary
who
are not officers of the Company, or the grant of any rights to severance or
termination pay to, or the entering into of any employment, consulting,
termination, indemnification or severance agreement with, any director, officer
or other employee of the Company or any Subsidiary, or the establishment,
adoption, entering into or amendment of any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee; provided,
however,
that
the foregoing provisions of this subsection shall not apply to any amendments
to
employee benefits plans described in Section 3(3) of the Employee Retirement
Security Act of 1974, as amended (“ERISA”)
that
may be required by law;
(xii) action
to
make or change any material Tax (as defined in Section 3(v) below) or accounting
election, change any annual accounting period, adopt or change any accounting
method, file any amended Tax Return (as defined in Section 3(v) below), enter
into any closing agreement, settle any Tax claim or assessment relating to
the
Company or any Subsidiary, surrender any right to claim a refund of Taxes,
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment relating to the Company or any Subsidiary, or take
any
other action or omit to take any action that would have the effect of increasing
the Tax liability of the Company or any Subsidiary, Buyer or
Parent;
(xiii) action
taken, other than as required by generally accepted accounting principles or
by
the SEC, with respect to accounting principles or procedures, including, without
limitation, any revaluation of assets;
(xiv) initiation
or settlement of any Legal Proceeding (as defined in Section 3(q)
below);
(xv) acceleration
(or grant of any right to acceleration, whether or not contingent), amendment
or
change in the period of exercisability or the vesting schedule of restricted
stock or options granted under any option plan, employee stock plan or
agreements or authorization of cash payments in exchange for any options granted
under any of such plans, except as specifically required by the terms of such
plans or any such agreements or any related agreements in effect as of the
date
of this Agreement and disclosed in the Disclosure Schedule;
(xvi) action
to
cause, or failure to take any action to prevent, the accelerated vesting and
exercisability of any options or Warrants;
(xvii) (A)
sale,
assignment, lease, termination, abandonment, transfer, authorization to encumber
or to otherwise dispose of or grant of any security interest in and to any
item
of the Company IP (as defined in Section 3(u) below), in whole or in part,
(B)
grant of any license with respect to any Company IP, other than license of
Company software to
10
customers
of the Company or any Subsidiary to whom the Company or any Subsidiary licenses
such Company software in the ordinary course of business, (C) development,
creation or invention of any Company IP jointly with any third party, or (D)
disclosure, or authorization for disclosure, of any confidential Company IP,
unless such Company IP is subject to a confidentiality or non-disclosure
covenant protecting against disclosure thereof; or
(xviii) any
authorization, agreement or commitment by the Company or any Subsidiary to
do
any of the things described in this Section 3(k).
(l) No
Undisclosed Events, Liabilities, Developments or Circumstances.
Undisclosed
Liabilities.
Except
for (i) liabilities that are fully reflected or reserved against on the
Reference Balance Sheet and (ii) liabilities incurred in the ordinary course
of
business consistent with past practice that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, since
the
date of the Reference Balance Sheet, neither the Company nor any Subsidiary
has
incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that would be required
to be reflected on, or reserved against, in a balance sheet of the Company,
or
in the notes thereto, prepared in accordance with the published rules and
regulations of the SEC and generally accepted accounting principals that would
be material to the business, results of operations or financial condition of
the
Company and the Subsidiaries, taken as a whole.
(m) Conduct
of Business; Regulatory Permits.
(i) Neither
the Company nor any Subsidiaries are in violation of any term of or in default
under its Certificate of Incorporation and the Bylaws. Neither the Company
nor
any Subsidiaries are in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company, except for
possible violations which would not, individually or in the aggregate, have
a
Material Adverse Effect. The Company and the Subsidiaries possess all material
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders issued by the
appropriate regulatory authorities necessary to conduct its business as it
is
now being conducted (the “Permits”).
All
Permits are in full force and effect, and the Company has not received any
notice of proceedings relating to the pending or proposed revocation or
modification of any such Permit.
(ii) Neither
the Company nor any Subsidiary is in conflict in any material respect with,
or
in default or violation in any material respect of, (A) any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any Subsidiary or by which
any material property or asset of the Company or any Subsidiary is bound or
affected, (B) any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any material property or asset of the Company or any Subsidiary is bound
or
affected or (C) any Permits, except for such conflicts, defaults or violations
which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
11
(n) Xxxxxxxx-Xxxxx
Act.
The
Company is in compliance with any and all applicable requirements of the
Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any
and
all applicable rules and regulations promulgated by the SEC thereunder that
are
effective as of the date hereof, except where such noncompliance would not
have,
individually or in the aggregate, a Material Adverse Effect.
(o) Capitalization.
(i) The
authorized capital stock of the Company as of the date hereof consists of the
following:
(A) 800,000,000
shares of Common Stock, $0.0005 par value, of which 239,020,817 are issued
and
outstanding, 78,505,077 shares are reserved for issuance pursuant to the Plans,
and 16,500,142 shares are reserved for issuance pursuant to securities
(excluding the Convertible Notes) exercisable or exchangeable for, or
convertible into, shares of Common Stock, and a sufficient number of
shares
are reserved for issuance pursuant to the conversion of the Convertible
Notes.
(B) 20,000,000 shares
of
Preferred Stock, $0.001 par value per share, of which 20,000 shares
are designated Series X Preferred Stock, none of which is issued and
outstanding, 15,000 shares are designated Series Y Preferred Stock, none of
which is issued and outstanding, and 14,000 shares are designated Series Z
Preferred Stock, none of which is issued and outstanding.
(ii) All
of
such outstanding shares have been, or upon issuance will be, duly authorized,
validly issued, fully paid and nonassessable and issued in accordance with
all
applicable law.
(iii) Schedule
3(o)(iii) of the Disclosure Schedule accurately sets forth with respect to
each
option to purchase shares of the Company’s capital stock that is outstanding as
of the date of this Agreement: (A) for those options with a per share exercise
price of $0.05 or less, (1) the name of the holder of such option; (2) the
number of shares of Common Stock that remain subject to such option; (3) the
date on which such option was granted and the term of such option; (4) the
exercise price per share of Common Stock purchasable under such option; and
(B)
for those options with a per share exercise price of more than $0.05, the number
of shares of Common Stock that remain subject to such options at each per share
exercise price of more than $0.05 per share. No option will by its terms require
an adjustment in connection with the transactions contemplated herein. Neither
the consummation of the transactions contemplated by this Agreement, nor any
action taken or to be taken by Company in connection with such transactions,
will result in (x) any acceleration of exercisability or vesting (including
any
right to acceleration of vesting that is contingent upon the occurrence of
a
subsequent event) in favor of any optionee under any option; (y) any additional
benefits for any optionee under any option.
(iv) Other
than as set forth in Schedules 3(o)(iv) of the Disclosure Schedule, there are
no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or
12
exercisable
or exchangeable for, any preferred stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue preferred stock of the Company or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any preferred stock of the Company.
(v) Other
than as set forth in Schedules 3(o)(iii), 3(o)(iv) and 3(o)(v) of the Disclosure
Schedule, there are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any capital
stock or equity interests of the Company, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound
to
issue additional capital stock or equity interests of the Company or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock or equity interests of the Company.
(vi) No
adjustment, including, without limitation, any adjustment of exercise or strike
price or any adjustment of the number of shares of Company capital stock
issuable upon exercise or conversion, of any option, warrant, scrip, right,
call, commitment, security, contract, understanding or arrangement listed on
Schedules 3(o)(iii), 3(o)(iv) and 3(o)(v) of the Disclosure Schedule will occur
in connection with the authorization, issuance or conversion of the Convertible
Notes or any of the transactions contemplated herein.
(vii) There
are
no agreements or arrangements under which the Company is obligated to register
the sale of any of its securities under the 1933 Act.
(viii) There
are
no outstanding securities or instruments of the Company which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound
to
redeem a security of the Company.
(ix) The
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement.
(x) The
Company has no liabilities or obligations required to be disclosed in the SEC
Documents but not so disclosed in the SEC Documents, other than those incurred
in the ordinary course of the Company’s business and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect. None of
the
Company’s capital stock is subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, and
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities. The Company
has furnished to the Buyer true, correct and complete copies of the Certificate
of Incorporation and the Bylaws, and the terms of all securities convertible
into, or exercisable or exchangeable for, shares of Common Stock and the
material rights of the holders thereof in respect thereto.
13
(p) Contracts.
Neither
the Company nor any Subsidiary is a party to or is bound by any:
(i) employment,
consulting, termination or severance agreement, contract or commitment with
any
officer, director or higher level employee, or member of the Board of
Directors;
(ii) agreement,
contract or commitment containing any covenant materially limiting the right
of
the Company or any Subsidiary to engage in any line of business, acquire any
property, distribute any product or provide any service (including geographic
restrictions) or to compete with any person or granting any exclusive
distribution rights;
(iii) agreement,
contract or commitment (A) relating to the disposition or acquisition by the
Company or any Subsidiary after the date of this Agreement of a material amount
of assets not in the ordinary course of business, (B) relating to the
acquisition by the Company of any Subsidiary of any other entity, whether by
means of merger, consolidation, purchase of assets or otherwise, or (C) pursuant
to which the Company or any Subsidiary has any ownership interest in any
corporation, partnership, joint venture or other business enterprise (other
than
the Subsidiaries) that is material to the Company’s business as currently
conducted;
(iv) joint
venture, stockholder, partnership or other agreement relating to any equity
ownership or profit interest;
(v) distributor,
reseller or dealer agreement;
(vi) contract
relating to any outstanding commitment for capital expenditures in excess of
$25,000.00;
(vii) indenture,
mortgage, promissory note, loan agreement, credit agreement, security agreement,
guarantee of borrowed money or other agreement or instrument relating to the
borrowing of money or extension of credit in excess of $10,000.00;
(viii) contract
providing for an “earn-out” or other contingent payment by the Company or any
Subsidiary involving more than $10,000.00 over the term of the
contract;
(ix) contract
or agreement which is terminable upon or prohibits a change of ownership or
control of the Company or any Subsidiary;
(x) contract
providing for the indemnification of any officer, director, employee or agent;
(xi) contract
providing for any obligation of the Company or any Subsidiary to provide funds
to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Subsidiary or any other person; or
(xii) any
other
agreement, contract, license or commitment that is material to the business
of
the Company and the Subsidiaries, taken as a whole, as currently conducted
or
proposed to be conducted.
14
Neither
the Company nor any Subsidiary, nor to the Company’s knowledge any other party
to a Company Contract (as defined below), is in breach or violation of or
default under (nor does there exist any condition which with the passage of
time
or giving of notice or both would result in such a breach, violation or
default), and neither the Company nor any Subsidiary has received written notice
that it has breached, violated or defaulted under, any of the material terms
or
conditions of any of the agreements, contracts or commitments to which the
Company or any Subsidiary is a party or by which it is bound that (A) are
required to be disclosed in the Disclosure Schedule pursuant to clauses (i)
through (xii) above, (B) are set forth in Schedule 3(u) of the Disclosure
Schedule or (C) are required to be filed with any SEC Documents (any such
agreement, contract or commitment, a “Company
Contract”),
in
each case, in such a manner as would permit any other party to cancel or
terminate any such Company Contract, or would permit any other party to seek
damages or other remedies (for any or all of such breaches, violations or
defaults, in the aggregate). Each Company Contract (x) is valid and binding
in
all material respects on the Company or Subsidiary and, to the knowledge of
the
Company, on the other parties thereto and is in full force and effect and (y)
upon consummation of the transactions contemplated by this Agreement, shall
continue in full force and effect without penalty or other consequence. The
Company has delivered or made available to Buyer accurate and complete copies
of
all Company Contracts, including all amendments thereto.
(q) Absence
of Litigation.
There
is no action, suit, proceeding, inquiry or investigation before any court,
public board, government agency, self-regulatory organization or body (a
“Legal
Proceeding”)
pending or, to the knowledge of the Company, threatened against or affecting
the
Company or any Subsidiary, except such that if adversely determined,
individually or in the aggregate, would not, nor be reasonably expected to,
have
a Material Adverse Effect or that seeks to delay or prevent the transactions
contemplated hereunder. None of the Company, the Subsidiaries, the directors
and
officers of the Company and the Subsidiaries in their capacity as such, nor
any
material property or asset of the Company or any Subsidiary is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of the Company, continuing
investigation by, any governmental entity, or any order, writ, judgment,
injunction, decree, determination or award of any governmental entity or
arbitrator. The Company does not have any plans to initiate any litigation,
arbitration or other proceeding against any third party.
(r) Insurance.
The
Company and all the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the business in which
the
Company is engaged. Neither the Company nor any Subsidiary have been refused
any
insurance coverage sought or applied for and the Company does not have any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not, nor would be reasonably expected to, have a Material Adverse Effect.
There is no material claim pending under any of such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies. All premiums due and payable under all such policies have been paid
and the Company is otherwise in compliance in all material respects with the
terms of such policies. The Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
15
(s) Employee
Benefit Plans; Labor Matters.
(i) Schedule 3(s)
of the Disclosure Schedule lists (A) all
employee benefit plans (as defined in section 3(3) of the ERISA) and all
bonus, stock option, stock purchase, stock appreciation right, restricted stock,
phantom stock, incentive, deferred compensation, executive compensation,
cafeteria benefit, dependent care, director or employee loan, fringe benefit,
sabbatical, retiree medical or life insurance, disability, supplemental
retirement, employment, severance, termination pay or other benefit plans,
programs or arrangements, including (without limitation) any arrangements that
contain change of control or vesting acceleration provisions, to which the
Company or any Subsidiary is a party, with respect to which the Company or
any
Subsidiary has any obligation or which are maintained, contributed to or
sponsored by the Company or any Subsidiary for the benefit of any current or
former employee, officer or director of the Company or any Subsidiary,
(B) each employee benefit plan for which the Company or any Subsidiary
could incur liability under section 4069 of ERISA in the event such plan
has been or were to be terminated, (C) any plan in respect of which the
Company or any Subsidiary could incur liability under section 4212(c) of
ERISA, and (iv) any contracts, arrangements or understandings between the
Company or any Subsidiary and any employee or former employee of the Company
or
any Subsidiary including, without limitation, any contracts, arrangements or
understandings relating to a sale of the Company (collectively, the
“Company
Benefit Plans”).
(ii) Each
Company Benefit Plan is in writing and the Company has furnished Buyer with
a
true and complete copy of each Company Benefit Plan and a true and complete
copy
of each material document, if any, prepared in connection with each such Company
Benefit Plan, including, without limitation, (A) a copy of each trust or
other funding arrangement, (B) each summary plan description and summary of
material modifications, (C) the three most recent annual reports (Form 5500
series and all schedules and financial statements attached thereto), if any,
required under ERISA or the United States Internal Revenue Code of 1986, as
amended (the “Code”)in
connection with each Company Benefit Plan, (D) the most recently received
IRS determination letter for each such Company Benefit Plan, (E) the
actuarial report and financial statement in connection with each such Company
Benefit Plan for the three most recent plan years, and (F) any
correspondence with the IRS or the Department of Labor with respect to each
such
Company Benefit Plan, and (F) each form of notice of grant or stock option
agreement used to document Company Stock Options. Neither the Company nor any
Subsidiary has express or implied commitment, whether legally enforceable or
not, (x) to create, incur liability with respect to, or cause to exist, any
other employee benefit plan, program or arrangement, (y) to enter into any
contract or agreement to provide compensation or benefits to any individual,
or
(z) to modify, change or terminate any Company Benefit Plan, other than
with respect to a modification, change or termination required by ERISA or
the
Code.
(iii) Neither
the Company, any Subsidiary nor any ERISA Affiliate has ever maintained or
contributed to or had an obligation to contribute to any pension plan that
is
subject to Title IV of ERISA or Section 412 of the Code.
(iv) None
of
the Company Benefit Plans provides for the payment of separation, severance,
termination or similar-type benefits to any person or obligates the Company
or
any Subsidiary to pay separation, severance, termination or similar-type
benefits
16
solely
or
partially as a result of any transaction contemplated by this Agreement or
as a
result of a “change in ownership or control,” within the meaning of such term
under section 280G of the Code. No amounts payable under the Company
Benefit Plans solely as a result of the consummation of the transactions
contemplated by this Agreement will fail to be deductible for federal income
tax
purposes by virtue of section 280G of the Code. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby, either alone or together with another event, will (A) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, forgiveness of indebtedness or otherwise) becoming due under
any Company Benefit Plan, (B) materially increase any benefits otherwise payable
under any Company Benefit Plan or other arrangement, (C) result in the
acceleration of the time of payment, vesting or funding of any benefits
including, but not limited to, the acceleration of the vesting and
exercisability of any Company Stock Options, or (D) affect in any material
respects any Company Benefit Plan’s current treatment under any Laws including
any tax or social contribution law. No Company Benefit Plan provides or reflects
or represents any liability to provide retiree health to any person for any
reason, except as may be required by COBRA or other applicable statute, and
neither the Company nor any Subsidiary has represented, promised or contracted
(whether in oral or written form) to any employee (either individually or to
employees as a group) or any other person that such employee(s) or other person
would be provided with retiree health, except to the extent required by
statute.
(v) Each
Company Benefit Plan is now and always has been operated in accordance in all
material respects with its terms and the requirements of all applicable Laws,
regulations and rules promulgated thereunder including, without limitation,
ERISA, COBRA, the Family Medical Leave Act of 1993, as amended (“FMLA”)
and
the Code. The Company and each Subsidiary has performed in all material respects
all obligations required to be performed by it under, is not in any respect
in
default under or in violation of, and has no knowledge of any default or
violation by any party to, any Company Benefit Plan. No action, claim or
proceeding is pending or, to the knowledge of the Company, threatened with
respect to any Company Benefit Plan (other than claims for benefits in the
ordinary course) and no fact or event exists that could give rise to any such
action, claim or proceeding. Neither the Company nor any person that is a member
of the same controlled group as the Company or under common control with the
Company within the meaning of section 414 of the Code (each, an
“ERISA
Affiliate”)
is
subject to any penalty or tax with respect to any Company Benefit Plan under
section 402(i) of ERISA or sections 4975 through 4980 of the Code. Each
Company Benefit Plan can be amended, terminated or otherwise discontinued as
of
or after the Effective Time, without material liability to the Buyer, Parent,
Company or any of its ERISA Affiliates (other than ordinary administration
expenses).
(vi) Each
Company Benefit Plan intended to qualify under section 401(a) or
section 401(k) of the Code and each trust intended to qualify under section
501(a) of the Code has either received a favorable determination, opinion,
notification or advisory letter from the IRS with respect to each such Company
Benefit Plan as to its qualified status under the Code, including all amendments
to the Code effected by the Tax Reform Act of 1986 and subsequent legislation,
and no fact or event has occurred since the date of such determination letter
or
letters from the IRS to adversely affect the qualified status of any such
Company Benefit Plan or the exempt status of any such trust, or has remaining
a
period of time under applicable
17
Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Benefit Plan.
(vii) To
the
Company’s knowledge, all contributions, premiums or payments required to be made
or accrued with respect to any Company Benefit Plan have been made on or before
their due dates. All such contributions have been fully deducted for income
tax
purposes and no such deduction has been challenged or disallowed by any
governmental entity and no fact or event exists which could give rise to any
such challenge or disallowance.
(viii) Except
as
set forth in Schedule 3(s) of the Disclosure Schedule, (A) neither the
Company nor any Subsidiary is a party to any collective bargaining agreement
or
other labor union contract applicable to persons employed by the Company or
any
Subsidiary or in the Company’s or any Subsidiary’s business, and currently there
are no organizational campaigns, petitions or other unionization activities
seeking recognition of a collective bargaining unit which could affect the
Company or any Subsidiary; (B) there are no controversies, strikes,
slowdowns or work stoppages pending or, to the best knowledge of the Company
after reasonable due inquiry, threatened between the Company or any Subsidiary
and any of its employees, and neither the Company nor any Subsidiary has
experienced any such controversy, strike, slowdown or work stoppage within
the
past three years; (C) neither the Company nor any Subsidiary has breached
or otherwise failed to comply with the provisions of any collective bargaining
or union contract and there are no grievances outstanding against the Company
or
any Subsidiary under any such agreement or; (D) there are no unfair labor
practice complaints pending against the Company or any Subsidiary before the
National Labor Relations Board or any other governmental entity or any current
union representation questions involving employees of the Company or any
Subsidiary; (E) the Company and each Subsidiary is currently in compliance
in all material respects with all applicable Laws relating to the employment
of
labor, including, without limitation, those related to wages, hours, worker
classification, collective bargaining and the payment and withholding of Taxes
and other sums as required by the appropriate governmental entity and has
withheld and paid to the appropriate governmental entity or is holding for
payment not yet due to such governmental entity all material amounts required
to
be withheld from employees of the Company or any Subsidiary and is not liable
for any arrears of wages, Taxes, penalties or other sums for failure to comply
in all material respects with any of the foregoing; (F) the Company and
each Subsidiary has paid in full to all employees or adequately accrued for
in
accordance with generally accepted accounting principles consistently applied
all wages, salaries, commissions, bonuses, benefits and other compensation
due
to or on behalf of such employees; (G) there is no claim with respect to
payment of wages, salary or overtime pay that has been asserted or is now
pending or threatened before any governmental entity with respect to any persons
currently or formerly employed by the Company or any Subsidiary;
(H) neither the Company nor any Subsidiary is a party to, or otherwise
bound by, any consent decree with, or citation by, any governmental entity
relating to employees or employment practices; (I) there is no charge or
proceeding with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened with respect
to
the Company or any Subsidiary; and (J) there is no charge of discrimination
in employment or employment practices, for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or is now pending or
18
threatened
before the United States Equal Employment Opportunity Commission, or any other
governmental entity with respect to the Company or any Subsidiary.
(ix) Schedule
3(s) of the Disclosure Schedule accurately sets forth the name and title of
each
employee of the Company with the title of Vice President or higher.
(t) Title.
The
Company and the Subsidiaries do not own any real property and have good and
marketable title to all personal property owned by it which is material to
the
business of the Company, free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made of such property by the Company. Any real property
and facilities held under lease by the Company and the Subsidiaries 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. Schedule 3(t) of the Disclosure
Schedule lists all real property leases to which the Company or any Subsidiary
is a party and each amendment thereto, and with respect to each such lease,
the
aggregate monthly rent payable thereunder and the expiration date thereof.
All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice
or
lapse of time, or both, would constitute a default) that would give rise to
a
material claim. Neither the Company nor any of the Subsidiaries have subleased
or otherwise granted rights of use or occupancy of any of the premises subject
to such leases to any other persons. Other than leaseholds created under the
real property leases identified in Schedule 3(t) of the Disclosure Schedule,
the
Company and the Subsidiaries have no leasehold interest in any real
property.
(u) Intellectual
Property Rights.
Each of
the Company and the Subsidiaries have sufficient title and ownership of or
exclusive licenses to all patents, trademarks, service marks, trade names,
domain names, copyrights, trade secrets, information, proprietary rights and
processes necessary for their respective businesses as now conducted and as
proposed to be conducted (collectively, the “Company
IP”)
without, to the knowledge of the Company and the each Subsidiary solely with
respect to patents, any violation or infringement of, or other conflict with,
the rights of others. The Disclosure Schedule contains a complete list of
trademarks, service marks and domain names of, or exclusively licensed to,
the
Company or the Subsidiaries. There are no outstanding options, licenses,
agreements, claims, encumbrances or shared ownership of interests of any kind
relating to anything referred to above in this Section 3(u) that is to any
extent owned by or exclusively licensed to the Company or the Subsidiaries,
nor
is the Company or any Subsidiary bound by or a party to any options, licenses
or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, domain names, copyrights, trade secrets, licenses, information,
proprietary rights and/or processes of any other person or entity, except,
in
either case, for standard end-user, object code, internal-use software license
and support/maintenance agreements. Neither the Company nor the Subsidiaries
have received any communications alleging that the Company or any Subsidiary
has
violated or by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets
or
other proprietary rights of any other person or entity and the Company is not
aware of any potential basis for such an allegation or of any reason to believe
that such an allegation may be forthcoming. The Company is not aware that any
of
its or the Subsidiaries’ employees is obligated under any contract (including
licenses, covenants or
19
commitments
of any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency, that would interfere with the use of
his
or her best efforts to promote the interests of the Company or any Subsidiary
or
that would conflict with the Company’s or Subsidiaries’ respective businesses as
presently conducted or as proposed to be conducted. Neither the execution nor
delivery of Transaction Documents, nor the carrying on of the Company’s or
Subsidiaries’ respective businesses by the employees of the Company and the
Subsidiaries, nor the conduct of the Company’s and Subsidiaries’ business as
proposed, will, to the Company’s knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. Neither the Company nor any of the Subsidiaries believe (after
reasonable investigation) it is or will be necessary to utilize any inventions
of any of its or any Subsidiaries’ respective employees made prior to or outside
the scope of their employment by the Company or the Subsidiary, as the case
may
be.
(v) Taxes.
(i) All
Tax
(as defined below) returns, statements, reports, declarations and other forms
and documents (including without limitation estimated Tax returns and reports
and material information returns and reports) required to be filed with any
Tax
Authority (as defined below) with respect to any Taxable (as defined below)
period ending on or before the Closing, by or on behalf of the Company or any
Subsidiary (collectively, “Tax
Returns”
and
individually, a “Tax
Return”),
where
the Company has material business activity, have been or will be completed
and
filed when due (including any extensions of such due date). Except to the extent
that a reserve for Taxes has been established on the Reference Balance Sheet,
all such Returns are true, complete and correct in all material respects and
were prepared in substantial compliance with all applicable laws. Subject to
extensions, the Company has paid all Taxes due and owing on such Returns for
all
periods through December 31, 2005, or will have paid such Taxes when due, except
to the extent reserves for Taxes have been established on the Reference Balance
Sheet. The Financial Statements (A) fully accrue all actual and contingent
material liabilities for Taxes (as defined below) with respect to all periods
through December 31, 2005, and (B) properly accrues in accordance with generally
accepted accounting principles all material liabilities for Taxes payable after
December 31, 2005, with respect to all transactions and events occurring on
or
prior to such date. To the Company’s knowledge, the Company will not, as a
result of the transactions contemplated herein, become liable for any material
Tax not adequately reserved against on the Financial Statements. All information
set forth in the notes to the Financial Statements relating to Tax matters
is
true, complete and accurate in all material respects when made for the periods
covered. The Company has not incurred any material Tax liability since December
31, 2005 other than in the ordinary course of business and the Company has
made
adequate provisions for all material Taxes since that date in accordance with
generally accepted accounting principles on at least a quarterly
basis.
(ii) The
Company and the Subsidiaries have withheld and paid to the applicable financial
institution or Tax Authority all material amounts required to be withheld.
To
the best knowledge of the Company, no Tax Returns filed with respect to Taxable
years through the Taxable year ended December 31, 2005 in the case of the United
States, have been examined and closed. The Company (or any member of any
affiliated or combined group of which the Company has been a member) has not
granted any extension or waiver of the
20
limitation
period applicable to any Tax Returns that is still in effect and there is no
material claim, audit, action, suit, proceeding, or (to the knowledge of the
Company) investigation now pending, threatened or expected against or with
respect to the Company in respect of any Tax or assessment. No notice of any
material deficiency or similar document of any Tax Authority has been received
by the Company, and, to the knowledge of the Company, there are no liabilities
for Taxes (including liabilities for interest, additions to Tax and penalties
thereon and related expenses) with respect to the issues that have been raised
(and are currently pending) by any Tax Authority that could, if determined
adversely to the Company, materially and adversely affect the liability of
the
Company for Taxes. No material claim has ever been made by a governmental entity
in a jurisdiction where Company does not file Tax Returns that Company is or
may
be subject to material taxation by that jurisdiction. There are no liens for
material Taxes (other than for current Taxes not yet due and payable) upon
the
assets of the Company. All material elections with respect to the Company’s
Taxes made during the fiscal years ending December 31, 2003 and 2004 are
reflected on the Company’s Tax Returns for such periods, copies of which have
been provided or made available to Buyer. After the date of this Agreement,
no
material election with respect to Taxes will be made without the prior written
consent of Buyer and Parent, which consent will not be unreasonably conditioned,
withheld or delayed. The Company has previously provided or made available
to
Buyer true and correct copies of all income, franchise, and sales Tax Returns,
and, as reasonably requested by Buyer, prior to or following the date hereof,
presently existing information statements and reports.
(iii) The
Company is not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
(iv) There
is
no agreement, contract or arrangement to which the Company is a party that
could, individually or collectively, result in the payment of any amount that
would not be deductible by reason of Sections 280G (as determined without regard
to Section 280G(b)(4)), 162 (other than 162(a)) or 404 of the Code. Company
is
not a party to any contract and/or has not granted any compensation, equity
or
award that could be deemed deferred compensation subject to the additional
20%
tax under Section 409A of the Code, and neither Company nor any of its ERISA
Affiliates has any liability or obligation to make any payments or to issue
any
equity award or bonus that could be deemed deferred compensation subject to
the
additional 20% tax under Section 409A of the Code.
(v) The
Company is not party to any joint venture, partnership, or other arrangement
or
contract which could be treated as a partnership for Federal income tax
purposes. Company does not own any interest in any entity that is characterized
as a partnership for federal income Tax purposes.
(vi) Schedule
3(v)(vi) of the Disclosure Schedule sets forth a complete and accurate list
of
all material agreements, rulings, settlements or other Tax documents relating
to
Tax incentives between Company and any governmental entity.
(vii) For
purposes of this Agreement, the following terms have the following meanings:
“Tax”
(and,
with correlative meaning, “Taxes”
and
“Taxable”)
means
any and all taxes including, without limitation, (A) any net income, alternative
or add-on minimum
21
tax,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, value added, net worth, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
any
penalty, addition to tax or additional amount imposed by any governmental entity
responsible for the imposition of any such tax (domestic or foreign) (a
“Tax
Authority”),
(B)
any liability for the payment of any amounts of the type described in (A) as
a
result of being a member of an affiliated, consolidated, combined or unitary
group for any taxable period or as the result of being a transferee or successor
thereof and (C) any liability for the payment of any amounts of the type
described in (A) or (B) as a result of any express or implied obligation to
indemnify any other person. As used in this Section 3.15, the term “Company”
means
the Company and any entity included in, or required under generally accepted
accounting principles to be included in, any of the Audited Financial Statements
or the Interim Financial Statements.
(w) Internal
Accounting Controls.
The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of Financial Statements in conformity with
generally accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management’s general or specific authorization and (iv)
the recorded accountability for assets and liabilities is compared with the
existing assets and liabilities at reasonable intervals and appropriate action
is taken with respect to any difference. Since January 1, 2005, neither the
Company (including any employee thereof) nor, to the Company’s knowledge, the
Company’s independent auditors, has identified or been made aware of (x) any
significant deficiency or material weakness in the system of internal accounting
controls utilized by the Company, (y) any fraud, whether or not material, that
involves the Company’s management or other employees who have a role in the
preparation of Financial Statements or the internal accounting controls utilized
by the Company or (iii) any claim or allegation regarding any of the
foregoing.
(x) Brokers;
Costs.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated herein
based upon arrangements made by or on behalf of the Company. The Company has
delivered to Buyer true and complete copies of all agreements under which any
such fees or expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are payable. The
fees
and expenses of any broker or financial advisor retained by the Company in
connection with this Agreement and the transactions contemplated hereby incurred
or to be incurred by the Company will not exceed the fees and expenses payable
under the investment banking engagement letter set forth in Schedule 3(x) of
the
Disclosure Schedule, a copy of which has been provided to Buyer, and the fees
and expenses of any accountant, legal counsel or other person retained by the
Company (other than brokers and financial advisors) in connection with this
Agreement and the transactions contemplated hereby incurred by the Company
as of
the date of this Agreement have not exceeded the fees and expenses set forth
in
Schedule 3(x) of the Disclosure Schedule.
(y) Ranking
of Notes.
Except
for indebtedness set forth on Schedule 3(y) (collectively, the
“Current
Indebtedness”),
no
Indebtedness of the Company is senior to or
22
ranks
pari
passu
with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise. For purposes
of this Agreement: (i) “Indebtedness”
of
any
Person means, without duplication (A) all indebtedness for borrowed money,
(B)
all obligations (other than trade payables entered into in the ordinary course
of business) issued, undertaken or assumed as the deferred purchase price of
property or services including, without limitation, “capital leases” in
accordance with U.S. generally accepted accounting principals, (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; and (ii) “Contingent
Obligation”
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto.
(z) Disclosure.
All
disclosure provided to the Buyer regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company is true and correct in all material
respects and does 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 the light of the circumstances under which they were made, not misleading.
Each press release issued by the Company during the twelve (12) months preceding
the date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or its business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure
or
announcement by the Company but which has not been so publicly announced or
disclosed.
23
4. COVENANTS.
(a) Efforts
to Satisfy Conditions.
Upon
the terms and subject to the conditions hereof, each party shall use its
commercially reasonable efforts to (i) take, or cause to be taken, all
appropriate action and do, or cause to be done, all things necessary, proper
or
advisable under applicable law or otherwise to consummate and make effective
the
transactions contemplated by this Agreement, (ii) obtain from any
governmental entity or any other person all consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made
by
Buyer or the Company or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation
of
the transactions contemplated by this Agreement, and (iii) make all
necessary filings, and thereafter make any other required submission, with
respect to this Agreement and the transactions contemplated by this Agreement
required under applicable law. The parties hereto shall cooperate with each
other in connection with the making of all such filings, including by providing
copies of all such documents to the non-filing party and its advisors prior
to
filing and, if requested, by accepting all reasonable additions, deletions
or
changes suggested in connection therewith.
(b) Form
D
and Blue Sky.
The
Company agrees to file a Form D with respect to the Securities as required
under
Regulation D and to provide a copy thereof to the Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take such action
as
the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyer at the Closing
pursuant to this Agreement under applicable securities or “Blue Sky” laws of the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Buyer on or prior
to the date on which such action must be taken. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or “Blue Sky” laws of the states of the United
States following the Closing Date.
(c) Financial
Information.
Unless
the following are filed with the SEC through XXXXX and are available to the
public through the XXXXX system, the Company agrees to send the following to
the
Buyer and Parent: (i) within one (1) Business Day after the filing thereof
with
the SEC, a copy of its Annual Reports on Form 10-K or 10-KSB, any interim
reports or any consolidated balance sheets, income statements, stockholders’
equity statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other than
on
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) within 24 hours
of
the release thereof, facsimile or electronic copies of all press releases issued
by the Company or any of its Subsidiaries, and (iii) copies of any notices
and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to
the
stockholders.
(d) Disclosure
of Transactions and Other Material Information.
(i) On
or
before the fourth business day following the date hereof, the Company shall
file
a Current Report on Form 8-K describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934
Act
and attaching the material Transaction Documents (including, without limitation,
this Agreement, the form of
24
each
of
the Notes and the Security Documents) as exhibits to such filing (including
all
attachments, the “8-K
Filing”).
Subject to the foregoing, neither the Company, the Subsidiaries nor the Buyer
shall issue any press releases or any other public statements with respect
to
the transactions contemplated hereby; provided,
however,
that
the Company shall be entitled, without the prior approval of the Buyer and
Parent, to make any press release or other public disclosure with respect to
such transactions (A) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (B) as is required by applicable law and
regulations (provided that in the case of clause (A) the Buyer and Parent shall
be consulted by the Company in connection with and given an opportunity to
review and comment on any such press release or other public disclosure prior
to
its release). Prior to the Merger, and notwithstanding the foregoing, the
Company and each Subsidiary shall not publicly disclose the relationship of
the
Buyer or Parent to the Company, or include the name of the Buyer or Parent
in
any filing with the SEC or any regulatory agency, without the prior written
consent of the Buyer and Parent, except (x) for disclosure thereof in the 8-K
Filing or (y) as required by law, regulation or any order of any court or other
governmental agency, in which case the Company shall provide the Buyer and
Parent with prior notice of such disclosure.
(ii) As
promptly as practicable after the date hereof, Company shall prepare proxy
materials (the “Proxy
Statement”)
relating to the approval of the Charter Amendment by the stockholders of the
Company and, as promptly as practicable, the Company shall file with the SEC
the
Proxy Statement and, to the extent required, a Schedule 13E-3, each of which
comply in form with applicable SEC requirements and shall use all reasonable
efforts to respond to SEC comments regarding such filings and obtain SEC
approval to mail the Proxy Statement to the stockholders of the Company. The
Proxy Statement shall include a statement that the Board of Directors of the
Company has declared the advisability of the Charter Amendment, provided
that the Board of Directors may withdraw such statement regarding the
advisability of the Charter Amendment if it determines in good faith that
failure to do so would be inconsistent with its fiduciary obligations under
applicable law; provided,
further,
however,
that
such withdrawal shall not affect the Company’s obligations to prepare and mail
the Proxy Statement and to call and hold the Stockholder Meeting (as defined
below).
(iii) Company
shall promptly after the date hereof take all actions necessary to call a
meeting of its stockholders to be held for the purpose of voting upon the
Charter Amendment (the “Stockholder
Meeting”)
and to
hold such Stockholder Meeting; provided,
however,
that,
without the prior written consent of the Buyer, the record date for the
Stockholder Meeting (the “Record
Date”)
shall
not be set earlier than two (2) business days following nor later than five
(5)
business days following the date on which the conditions to the conversion
of
the Convertible Note in the form attached hereto as Exhibit
B-3
into
Company Common Stock have been satisfied, nor shall the Record Date be set
earlier than two (2) business days following the Company’s notice to Buyer of
the date of the Record Date.
(e) Conduct
of Business.
The
Company agrees that, between the date of this Agreement and the Closing Date,
except as set forth in Schedule 4(e) of the Disclosure Schedule or as
specifically contemplated by any other provision of this Agreement, unless
Buyer
shall otherwise consent in writing:
25
(i) the
businesses of the Company and the Subsidiaries shall be conducted only in,
and
the Company and the Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice;
and
(ii) the
Company shall use its reasonable best efforts to preserve substantially intact
the business organization of the Company and the Subsidiaries, to keep available
the services of the current officers, employees and consultants of the Company
and the Subsidiaries and to preserve the current relationships of the Company
and the Subsidiaries with customers, suppliers, licensors, licensees, alliance
partners and other persons with which the Company or any Subsidiary has business
relations.
(iii) By
way of
amplification and not limitation, except as contemplated by this Agreement
or as
set forth in Schedule 4(e) of the Disclosure Schedule, the Company shall not,
and shall not permit any Subsidiary to, between the date of this Agreement
and
the Closing Date, directly or indirectly, do, or propose to do, any of the
following without the prior written consent of Buyer:
(A) issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of,
any
shares of capital stock of any class or any securities convertible into, or
any
right, warrants, calls, subscriptions or options to acquire, any such shares
or
convertible securities, or any other ownership interest other than (1) the
issuance of shares of Common Stock upon the exercise of options outstanding
on
the date of this Agreement under the Plans, (2) the issuance of shares of Common
Stock upon the exercise of warrants outstanding on the date of this Agreement
and (3) the issuance of Common Stock upon the conversion of that certain Secured
Convertible Minimum Borrowing Note issued to Laurus in the principal amount
of
$4,250,000 and that certain Secured Revolving Note issued to Laurus in the
principal amount of $750,000;
(B) take
any
of the actions described in clause (i) or clauses (iii) through (xvii) of
Section 3(k) hereof;
(C) take
any
action (or fail to take any action) to cause the Company’s representations and
warranties set forth in Section 3 to be untrue in any material respect;
or
(D) agree
in
writing or otherwise to take any of the actions described in Section
4(e)(iii)(A) through (C) above.
(f) Integration.
None of
the Company, its affiliates and any Person acting on their behalf will take
any
action or steps that would require registration of any of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with
other
offerings.
(g) No
Solicitation of Transactions.
(i) The
Company will not solicit, initiate or knowingly encourage (including by way
of
furnishing nonpublic information), or take any other action to facilitate,
any
inquiries or the making of any proposal or offer (including, without limitation,
any proposal or offer to its stockholders) that constitutes, or may reasonably
be expected to lead to, any
26
Competing
Transaction (as defined below), or enter into or maintain or continue
discussions or negotiate with any person in furtherance of such inquiries or
to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or employees
of the Company, or any investment banker, financial advisor, attorney,
accountant or other representative retained by the Company, to take any such
action; provided,
however,
that
nothing contained in this Section 4(g)(i) shall prohibit the Company or its
advisors, upon express direction of the Board of Directors, from furnishing
information to, or entering into discussions or negotiations with, any person
or
entity that makes an unsolicited proposal to acquire the Company pursuant to
a
merger, consolidation, share exchange, business combination, purchase all or
substantially all of the Company’s assets, tender or exchange offer or other
similar transaction, if, the Board of Directors determines in good faith, after
consultation with the Company’s financial advisor, that such proposal provides
or is reasonably likely to provide greater value to and is in the better
interests of the stakeholders of the Company than as contemplated by the
transactions hereunder (a “Superior
Proposal”).
The
Company will notify the Buyer after receipt by the Company (or any of its
officers, directors, employees, agents, advisors or other representatives)
of
any proposal for, or inquiry respecting, any Competing Transaction, or any
request for nonpublic information in connection with such proposal or inquiry
or
for access to the properties, books or records of the Company by any person
that
informs or has informed the Company that it is considering making or has made
such a proposal or inquiry. Such notice to the Buyer shall indicate in
reasonable detail the identity of the person making such proposal or inquiry
and
the terms and conditions of such proposal or inquiry. The Company immediately
shall cease and cause to be terminated all existing discussions or negotiations
with any parties conducted heretofore with respect to a Competing Transaction.
The Company agrees not to release any third party from, or waive any provision
of, any confidentiality or standstill agreement to which it is a
party.
(ii) “Competing
Transaction”
means
any of the following involving the Company (other than the transactions
contemplated by this Agreement): (A) a merger, consolidation, share
exchange, business combination or other similar transaction; (B) any sale,
lease, exchange, transfer or other disposition of a material portion of the
assets or debt or equity securities of such party; and (C) a tender offer
or exchange offer for a majority of the outstanding voting securities of such
party.
(h) Future
Events. Buyer
and
the Parent shall give prompt notice to the Company, and the Company shall give
prompt notice to Buyer and Parent, of any failure or inability of Buyer or
Parent on the one hand or the Company on the other hand, as the case may be,
to
comply with or satisfy, any covenant, condition or agreement to be complied
with
or satisfied by it hereunder on or before the Closing Date; provided,
however,
that
the delivery of any notice pursuant to this Section 4(h) shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice. The parties hereto acknowledge that reliance shall not be an element
of
any claim or cause of action by any party hereto for misrepresentation or breach
of a representation, warranty or covenant under this Agreement.
(i) Threatened
Actions. From
the
date of this Agreement until the earlier of the Closing or the termination
of
this Agreement, the Company shall promptly notify the Buyer in writing of any
pending or, to the knowledge of the Company, threatened action, proceeding
or
investigation by any governmental entity or any other Person
(i) challenging or seeking material
27
damages
in connection with this Agreement or the transactions contemplated hereunder
or
(ii) seeking to restrain or prohibit the consummation of the transactions
contemplated hereunder.
(j) Access
to Information.
Except
as required pursuant to any confidentiality agreement or similar agreement
or
arrangement to which the Company or any of its Subsidiaries is a party or
pursuant to applicable Law, from the date of this Agreement to the Closing
Date,
the Company shall (and shall cause its Subsidiaries to): (i) provide to the
Buyer and Parent (and their respective officers, directors, employees,
subsidiaries, accountants, consultants, legal counsel, investment bankers,
advisors, agents and other representatives, collectively, “Representatives”)
access
at reasonable times upon prior notice to the officers, employees, agents,
properties, offices and other facilities of it and its Subsidiaries and to
the
books and records thereof and (ii) furnish promptly such information concerning
the business, properties, contracts, assets, liabilities, personnel and other
aspects of it and its Subsidiaries as the Buyer or the Parent or their
Representatives may reasonably request.
(k) Use
of
Proceeds.
The
proceeds from the sale of the Notes will be used by the Company for general
working capital and to repay current outstanding debt held by DunKnight Telecom
Partners LLC and its affiliates.
(l) Parent
Obligations.
The
Parent agrees that it shall cause the Buyer to fulfill the Buyer’s obligations
under this Agreement.
(m) Board
Composition.
The
Company covenants and agrees that beginning upon the Record Date and for so
long
as any of the Notes are outstanding, that the Board of Directors will neither
fill nor nominate directors to fill either of the New Director Positions (as
defined below in Section 6(a)(xx)), except as provided in this
Section 4(m). Following the date that the Buyer holds more than 50% of the
outstanding voting stock of the Company and upon the request of Buyer to the
Company, the Board of Directors of the Company will appoint persons designated
by Buyer to fill the New Director Positions. The Buyer covenants and agrees
that
should it cease to hold more than 50% of the outstanding voting stock of the
Company that it will no longer have the right to designate persons to fill
the
New Director Positions and it will then use commercially reasonable efforts
to
cause its designees that have been appointed to the New Director Positions
to
resign from the Board of Directors of the Company.
5. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
(a) The
obligation of the Company hereunder to issue and sell the Notes to the Buyer
at
the Closing is subject to the satisfaction, at or before the Closing Date,
of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion by providing Buyer with prior written notice thereof; provided,
however,
that
other than subsection 5(a)(ii), the provisions of this Section 5 need
not be fulfilled for any closing of sales of Subsequent Closing Notes pursuant
to Section 1(c):
(i) The
Buyer
and the Parent shall have executed each of the Transaction Documents to which
it
is a party and delivered the same to the Company.
28
(ii) The
Buyer
or the Parent shall have delivered to the Company the Purchase Price for the
Notes being purchased by the Buyer or the Parent at the Closing by wire transfer
of immediately available funds pursuant to the wire instructions provided by
the
Company.
(iii) The
representations and warranties of Buyer and Parent shall be true and correct
in
all material respects (except for those representations and warranties that
are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date hereof and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such date), and
the
Buyer and Parent shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Buyer and Parent
at
or prior to the Closing Date. The Company shall have received a certificate,
executed by the Chief Executive Officer of the Buyer, dated as of the Closing
Date, to the foregoing effect in a form reasonably acceptable to the
Company.
(iv) The
Buyer
shall have delivered to the Company a certificate, executed by the Secretary
of
the Buyer and dated as of the Closing Date, as to (A) the resolutions adopted
by
the Board of Directors of the Buyer approving this Agreement and the
transactions contemplated hereunder, (B) the Certificate of Incorporation and
(C) the Bylaws, as in effect at the Closing, in a form reasonably acceptable
to
the Company.
(v) No
governmental entity or court of competent jurisdiction shall have enacted,
threatened, issued, promulgated, enforced or entered any law, rule, regulation,
judgment, decree, injunction, executive order or award, whether temporary,
preliminary or permanent (an “Order”),
that
is then in effect, pending or threatened and has, or would have, the effect
of
making the transactions contemplated by the Transaction Documents illegal or
otherwise prohibiting consummation of such transactions.
6. CONDITIONS
TO THE BUYER’S OBLIGATION TO PURCHASE AND TO RELEASE OF PURCHASE
PRICE.
(a) Closing
Date.
The
obligation of the Buyer hereunder to purchase the Notes at
the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the Buyer’s
sole benefit and may be waived by the Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof; provided,
however,
that,
other than subsection 6(a)(ii), the provisions of this Section 6 need
not be fulfilled for any closing of sales of Subsequent Closing Notes pursuant
to Section 1(c):
(i) The
Company shall have executed and delivered to the Buyer and the Parent each
of
the Transaction Documents to which it is a party.
(ii) The
Company shall have executed and delivered to the Buyer the Notes being purchased
by the Buyer at the Closing pursuant to this Agreement.
29
(iii) The
Buyer
and Parent shall have received the opinion of Xxxxxxx Xxxxxx Xxxxxx & Dodge
LLP, the Company’s outside counsel, dated as of the Closing Date, in
substantially the form of Exhibit F
attached
hereto.
(iv) The
Company shall have delivered to Buyer and Parent (A) a certificate evidencing
the formation and good standing of the Company and each Subsidiary in such
entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within five (5) days
of
the Closing Date and (B) a facsimile or other acceptable method of confirmation
from such Secretary of State (or comparable office) as of the Closing Date
as to
the continued good standing of such entity.
(v) The
Company shall have delivered to Buyer and Parent a certificate evidencing the
Company’s and each Subsidiary’s qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) in each of
California, Connecticut, Illinois, Maryland, New Jersey, New York, Pennsylvania,
the Commonwealth of Massachusetts, the Commonwealth of Virginia and the District
of Columbia, in each case as applicable, as of a date within five (5) days
of
the Closing Date.
(vi) The
Company shall have delivered to the Buyer and Parent a certified copy of its
Certificate of Incorporation, as certified by the Secretary of State of Delaware
within five (5) days of the Closing Date.
(vii) The
Company shall have delivered to the Buyer and Parent a certificate, executed
by
the Secretary of the Company and dated as of the Closing Date, as to (A) the
resolutions adopted by the Board of Directors approving this Agreement and
the
transactions contemplated hereunder in a form reasonably acceptable to the
Buyer, (B) the Certificate of Incorporation and (C) the Bylaws, as in effect
at
the Closing, in a form reasonably acceptable to the Buyer.
(viii) The
representations and warranties of the Company shall be true and correct in
all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date hereof and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such date), and
the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or
prior
to the Closing Date; provided,
however,
the
Company shall have performed, satisfied and complied in all respects with the
covenants set forth in subsection 4(e)(iii)(A) and subsections (b), (c),
(d), (e), (k), (l) and (m) of Section 4 of the Security Agreement. The Buyer
and
Parent shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer or
Parent in a form reasonably acceptable to the Buyer.
(ix) No
Material Adverse Effect shall have occurred since the date of this
Agreement.
30
(x) The
Company shall have delivered to the Buyer and Parent a letter from the Company’s
Common Stock transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
(xi) The
Company shall have delivered to the Buyer and Parent the following agreements
executed by Laurus: (A) an agreement, in a form acceptable to Buyer, in which
Laurus (1) consents to the transactions contemplated by this Agreement;
(2) waives any anti-dilution adjustments arising from such transactions,
and (3) agrees not to exercise any registration rights for so long as any
of the Notes are outstanding; and (B) a Voting Agreement in the form
attached hereto as Exhibit
G
(the
“Voting Agreement”)
pursuant to which Laurus agrees to vote all shares of the Company’s capital
stock held by it in favor of the Charter Amendment.
(xii) The
Company shall have delivered to the Buyer and Parent the following agreements
executed by each of DunKnight Telecom Partners, LLC and Knight Vision Foundation
(collectively, the “DunKnight
Parties”):
(A)
an agreement, in a form acceptable to Buyer, in which the DunKnight Parties
(1) agree to the pay-off of the Company’s indebtedness to them and consent
to the transactions contemplated by this Agreement; and (2) agree not to
exercise any registration rights for so long as any of the Notes are
outstanding; and (B) a Voting Agreement pursuant to which the DunKnight
Parties agree to vote all shares of the Company’s capital stock held by them in
favor of the Charter Amendment.
(xiii) Within
six (6) Business Days prior to the Closing, the Company shall have delivered
or
caused to be delivered to Buyer and Parent certified copies of UCC financing
statement search results listing any and all effective financing statements
filed within five (5) years prior to such date in Delaware that name the Company
as a debtor to perfect an interest in any of the assets thereof, together with
copies of such financing statements, none of which financing statements, except
for any financing statements filed with respect to the Senior Indebtedness
and
as otherwise agreed to in writing by the Buyer, shall cover any of the
“Collateral”
(as
defined in the Security Agreement), and the results of searches for any
effective tax liens and judgment liens filed against any such Person or its
property in each of California, Connecticut, Illinois, Maryland, New Jersey,
New
York, Pennsylvania, the Commonwealth of Massachusetts, the Commonwealth of
Virginia and the District of Columbia, which results, except as otherwise agreed
to in writing by the Buyer, shall not show any such effective tax liens and
judgment liens.
(xiv) The
Certificate of Amendment of the Company’s Certificate of Incorporation (the
“Charter
Amendment”),
in
the form reasonably acceptable to Buyer and Parent, increasing the number of
authorized shares of the Company’s Common Stock and decreasing the par value of
the Common Stock to $0.0001 in order to permit the conversion of the Convertible
Note in the form attached hereto as Exhibit
B-4,
shall
have been approved by the Board of Directors and declared advisable to the
stockholders of the Company.
(xv) The
Company shall have delivered to the Buyer, to be held until the receipt of
the
requisite stockholder approval, an undated Charter Amendment duly executed
by
the Company’s Chief Executive Officer that provides for an increase in the
authorized
31
number
of
shares of Common Stock to a number of
shares
sufficient for the issuance of Common Stock issuable upon the conversion of
all
of the Convertible Notes.
(xvi) No
governmental entity or court of competent jurisdiction shall have enacted,
threatened, issued, promulgated, enforced or entered any Order that is then
in
effect, pending or threatened and has, or would have, the effect of making
the
transactions contemplated by the Transaction Documents illegal or otherwise
prohibiting consummation of such transactions.
(xvii) Actions
shall have been taken so that, effective at Closing, the Board of Directors
shall consist of the following five (5) persons: Xxxxx X. Xxxxxxx, two (2)
individuals designated by the Buyer, Xxxxxx X. Xxxxxxxx, Xx. and Xxxx X.
Xxxxxx.
(xviii) Each
individual set forth on Schedule 6(a)(xviii) shall (A) remain employed by the
Company and (B) shall have entered into an employment agreement with the Company
providing for supplemental retention compensation and severance protection,
each
in a form acceptable to the Buyer and which agreement shall remain in full
force
and effect and shall not have been anticipatorily breached or repudiated by
such
individual.
(xix) The
Company shall have delivered to Buyer a duly executed and properly completed
Perfection Certificate in substantially the form attached hereto as Exhibit
H.
(xx) The
Board
of Directors of the Company shall have taken appropriate action so that the
authorized size of the Board of Directors, which as of the Closing shall be
five (5) members, shall be increased to seven (7) members upon the
Record Date. The two (2) director positions created on the Board of
Directors by such increase as of the Record Date are referred to herein as
the
“New
Director Positions”.
7. TERMINATION.
(a) Termination.
This
Agreement may be terminated and the transactions contemplated by this Agreement
may be abandoned at any time prior to the Closing Date, as follows:
(i) by
mutual
written consent duly authorized by the Boards of Directors of each of Buyer,
Parent and the Company;
(ii) by
Buyer
if (A) the Board of Directors withholds, withdraws, amends, modifies or changes
its unanimous recommendation of the adoption of the Transaction Documents or
the
approval of the transactions contemplated hereunder in a manner adverse to
Buyer
or shall have resolved to do so, (B) the Board of Directors shall have
recommended to the stockholders of the Company a Competing Transaction or shall
have resolved to do so or shall have entered into any letter of intent or
similar document or any agreement, contract or commitment accepting any
Competing Transaction, (C) the Board of Directors fails to reject a Competing
Transaction within 10 days following receipt by the Company of the proposal
for
such Competing Transaction, or (D) the Company shall have breached its
obligations under Section 4(g);
32
(iii) by
the
Company, by action of its Board of Directors, if pursuant to and in compliance
with Section 4(g) the Board of Directors has determined that it has
received a Superior Proposal, provided that such termination by the Company
shall not become effective until the Company has paid the Termination Fee in
accordance with Section 7(c)(i);
(iv) by
Buyer
upon a material breach of any representation, warranty, covenant or agreement
on
the part of the Company set forth in this Agreement such that the conditions
set
forth in Section 6(a)(vii) would not be satisfied (“Terminating
Company Breach”);
provided,
however,
that if
such Terminating Company Breach is curable by the Company within 15 days of
the
occurrence of such Terminating Company Breach through the exercise of its best
efforts and for as long as the Company continues to exercise such best efforts,
Buyer may not terminate this Agreement under this Section 7(a)(iv) until the
expiration of such 15-day period;
(v) by
the
Company upon a material breach of any representation, warranty, covenant or
agreement on the part of Buyer set forth in this Agreement such that the
conditions set forth in Section 5(a)(iii) would not be satisfied (“Terminating
Buyer Breach”);
provided,
however,
that if
such Terminating Buyer Breach is curable by Buyer and within 15 days of the
occurrence of such Terminating Buyer Breach through the exercise of their
respective best efforts and for as long as Buyer continue to exercise such
best
efforts, the Company may not terminate this Agreement under this Section 7(a)(v)
until the expiration of such 15-day period;
(vi) by
either
the Buyer or Company in the event that the Closing shall not have occurred
on or
before October 31, 2006; provided,
however,
that
the right to terminate this Agreement under this Section 7(a)(vi) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing
to
occur on or before October 31,
2006;
or
(vii) by
Buyer
if there shall be any Order which is final and nonappealable preventing the
consummation of any of the transactions contemplated hereunder.
(b) Effect
of Termination.
In the
event of termination of this Agreement pursuant to Section 7(a), this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of the Buyer, the Parent or the Company or any of their
respective officers or directors, and all rights and obligations of each party
hereto shall cease; provided,
however,
that
(i) this Section 7(b) shall remain in full force and effect and survive any
termination of this Agreement and (ii) nothing herein shall relieve any
party from liability for the willful breach of any of its representations or
warranties or the breach of any of its covenants or agreements set forth in
this
Agreement.
(c) Termination
Fee.
(i) The
Company agrees that the Company shall pay to Buyer an amount equal to the sum
of
$500,000.00 (the “Termination
Fee”)
and
all of Buyer’s Expenses (as defined below) up to $250,000.00:
(A) if
Buyer
shall terminate this Agreement pursuant to Section 7(a)(ii);
or
33
(B) if
the
Company shall terminate this Agreement pursuant to
Section 7(a)(iii).
(ii) The
Company agrees that the Company shall pay to Buyer all of Buyer’s Expenses (as
defined below) up to $250,000.00 if Buyer shall terminate this Agreement
pursuant to Section 7(a)(iv) hereof.
(d) Except
as
otherwise required by Section 7, any payment required to be made pursuant to
Section 7(c) shall be made to Buyer not later than two business days after
delivery to the Company of notice of demand for payment and an itemization
setting forth in reasonable detail all Expenses (as defined below) of Buyer
(which itemization may be supplemented and updated from time to time by Buyer
until the 60th day after Buyer delivers such notice of demand for payment),
and
shall be made by wire transfer of immediately available funds to an account
designated by Buyer. Payment of the Termination Fee and Expenses described
in
Section 7(c) shall not be in lieu of damages incurred in the event of willful
breach of the representations and warranties set forth in this Agreement or
the
willful breach of any of the covenants or agreements set forth in this
Agreement. “Expenses”
as
used
in this Agreement shall include all reasonable out of pocket expenses
(including, without limitation, all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to a party hereto and its
affiliates) incurred by a party or on its behalf in connection with or related
to the authorization, preparation, negotiation, execution and performance of
this Agreement and all other matters related to the closing of the transactions
contemplated hereunder. In the event that the Company shall fail to pay the
Termination Fee or the Expenses when due, the term “Expenses” shall be deemed to
include the costs and expenses actually incurred or accrued by Buyer (including,
without limitation, fees and expenses of counsel) in connection with the
collection under and enforcement of this Section 7(d), together with interest
on
such Termination Fee and unpaid Expenses, commencing on the date that such
Termination Fee and Expenses became due, at a rate equal to the rate of interest
publicly announced by Citibank, N.A., from time to time, in The City of New
York, as such bank’s Prime Rate plus 1.00%.
8. MISCELLANEOUS.
(a) Governing
Law; Jurisdiction; Jury Trial.
This
Agreement (and any claim or controversy arising out of or relating to this
Agreement) shall be governed by, and construed in accordance with, the laws
of
the State of Delaware applicable to contracts executed in and to be performed
in
that state and without regard to any applicable conflicts of law. In any action
between the parties hereto arising out of or relating to this Agreement or
any
of the transactions contemplated by this Agreement: (i) each of the parties
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction and venue of the Delaware Court of Chancery; and (ii) each of
the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid.
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
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;
provided that a facsimile signature shall be considered due execution and shall
be binding upon
34
the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire
Agreement; Amendments.
This
Agreement supersedes all other prior oral or written agreements between Buyer,
Parent, the Company, their respective affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and
the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
nor
the Parent makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company, the Parent and Buyer.
No
provision hereof may be waived other than by an instrument in writing signed
by
the party against whom enforcement is sought.
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The addresses
and
facsimile numbers for such communications shall be:
If
to the
Company:
XXX.xxx,
Inc.
00
Xxxxxx
Xxxx Xxxxx, Xxxxx # 000
Xxxxxxxxxxx,
XX 00000
Telephone:
000-000-0000
Facsimile: 000-000-0000
Attention: Chief
Executive Officer
with
a
copy (for informational purposes only) to:
Xxxxxxx
Xxxxxx Xxxxxx & Dodge LLP
000
Xxxxxxxxxx Xxxxxx xx Xxxxxxxxxx Xxxxxx
Xxxxxx,
XX 00000
Telephone: 000-000-0000
Facsimile: 617-227-4420
Attention: Xxxxxxx
X. Xxxxxxx, Esq.
35
If
to the
Buyer:
MDS
Acquisition, Inc.
000
Xxxxx
Xxxx., Xxxxx 000
Xxxxx
Xxxx, XX 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: Chief
Executive Officer
with
a
copy (for informational purposes only) to:
Xxxxxxxxx
Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP
000
Xxxxxxxxxxxx Xxxxx
Xxxxx
Xxxx, XX 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: Xxxxx
X.
Xxxxx, Esq.
If
to the
Parent:
MegaPath
Inc.
000
Xxxxx
Xxxx., Xxxxx 000
Xxxxx
Xxxx, XX 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: General
Counsel
with
a
copy (for informational purposes only) to:
Xxxxxxxxx
Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP
000
Xxxxxxxxxxxx Xxxxx
Xxxxx
Xxxx, XX 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: Xxxxx
X.
Xxxxx, Esq.
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided
by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively; provided,
however
that the
foregoing clause (B) shall only be valid if such communication contained in
the
facsimile is delivered by an overnight courier service within 24 hours of the
transmission of facsimile.
36
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Notes.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Buyer and Parent. Subject to
Sections 2(d) and 2(g), the Buyer may assign some or all of its rights hereunder
without the consent of the Company.
(h) No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
(i) Survival
of Representations, Warranties and Agreements.
The
representations, warranties and agreements in this Agreement and in any
certificate delivered pursuant hereto shall terminate on the date that all
Notes
have been cancelled and are no longer outstanding or upon the termination of
this Agreement pursuant to Section 7, as the case may be, except that the
agreements set forth in Section 1, Section 4(k), Section 4(m) and this Section
8
shall survive the Closing Date and those set forth in Sections 7(b), 7(c) and
7(d) and this Section 8 shall survive termination of this
Agreement.
(j) Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.
(k) No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
(l) Remedies.
The
Buyer, Parent and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement
or
contract and all of the rights which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security),
to
recover damages by reason of any breach of any provision of this Agreement
and
to exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all
of
its obligations under the Transaction Documents, any remedy at law may prove
to
be inadequate relief to the Buyer or Parent. The Company therefore agrees that
the Buyer or Parent shall be entitled to seek temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or other security.
(m) Each
of
the Company, the Buyer and the Parent shall pay the fees and disbursements
of
its own counsel in connection with the preparation of this Agreement and the
other documents contemplated hereby and the closing of the transactions
contemplated hereby.
[Signature
Page Follows]
37
IN
WITNESS WHEREOF,
Buyer,
Parent and the Company have caused their respective signature page to this
Purchase Agreement to be duly executed as of the date first written
above.
|
COMPANY:
|
||
| XXX.XXX, INC. | ||
| |
|
|
| By: | /s/ Xxxxx X. Xxxxxxx | |
|
Name: Xxxxx X. Xxxxxxx |
||
| Title: President & Chief Executive Officer | ||
|
BUYER:
|
||
| MDS ACQUISITION, INC. | ||
| |
|
|
| By: | /s/ D. Xxxxx Xxxxx | |
|
Name:
D.
Xxxxx Xxxxx
|
||
| Title: Chief Executive Officer | ||
|
PARENT:
|
||
| MEGAPATH INC. | ||
| |
|
|
| By: | /s/ D. Xxxxx Xxxxx | |
|
Name:
D.
Xxxxx Xxxxx
|
||
| Title: Chairman & Chief Executive Officer | ||
SIGNATURE
PAGE TO PUCHASE AGREEMENT
EXHIBITS
| Exhibit A |
Schedule
of Consideration for and Principal Amounts of
Notes
|
| Exhibit B-1 |
Form
of Convertible Note
|
| Exhibit B-2 |
Form
of Convertible Note
|
| Exhibit B-3 |
Form
of Convertible Note
|
| Exhibit B-4 |
Form
of Convertible Note
|
| Exhibit C |
Form
of Nonconvertible Note
|
| Exhibit D |
Form
of Subordination Agreement
|
| Exhibit E |
Form
of Security Agreement
|
| Exhibit F |
Form
of Legal Opinion
|
| Exhibit G |
Form
of Voting Agreement
|
| Exhibit H |
Form
of Perfection Certificate
|
Exhibit
A
Schedule
of Consideration for and Principal Amounts of Notes
Closing
Date: August __, 2006
|
Consideration
|
Principal
Amount
|
||||||
|
Convertible
Notes
|
|||||||
|
Exhibit
B-1
|
30,000
|
30,000
|
|||||
|
Exhibit
B-2
|
300,000
|
300,000
|
|||||
|
Exhibit
B-3
|
150,000
|
150,000
|
|||||
|
Exhibit
B-4
|
1,520,000
|
1,520,000
|
|||||
|
SUB-TOTAL
|
$
|
2,000,000
|
$
|
2,000,000
|
|||
|
Nonconvertible
Note
|
$
|
11,000,000
|
$
|
13,002,000
|
|||
|
TOTAL
|
$
|
13,000,000
|
$
|
15,002,000
|
|||
Exhibit
B-1
Form
of Convertible Note
THE
ISSUANCE AND SALE OF THE SECURITIES AND THE SECURITIES INTO WHICH THIS
INSTRUMENT IS CONVERTIBLE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF REASONABLY REQUESTED
BY
THE COMPANY, AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.
SUBORDINATED
SECURED
CONVERTIBLE PROMISSORY NOTE
[First
Convertible Note]
| $30,000 |
August
__,
2006
|
FOR
VALUE
RECEIVED, the undersigned, XXX.xxx, Inc., a Delaware corporation ("Borrower"),
hereby promises to pay to MDS Acquisition, Inc., a Delaware corporation
("Lender"),
or
order, the principal sum of Thirty Thousand Dollars ($30,000), together with
accrued interest as provided herein. This Note is being issued pursuant to
the
Purchase Agreement, dated as of the date hereof, between Borrower, Lender
and
Lender’s parent company, MegaPath Inc. (the “Purchase
Agreement”).
A. Interest.
Interest shall accrue with respect to the principal sum hereunder at eight
percent (8%) per annum. However, if an Event of Default, as defined herein,
occurs and is continuing, then interest shall accrue at ten percent (10%)
per
annum. Interest payable hereunder shall be calculated on the basis of a three
hundred sixty (360) day year for actual days elapsed.
B. Payment.
1. Scheduled
Payment.
The
principal indebtedness, together with all accrued interest, shall be payable
in
full on December 31, 2007 (the “Maturity
Date”).
2. Prepayment.
Borrower shall not have the right to prepay, in whole or in part, the principal
of this Note without the prior written consent of Lender, given in its sole
discretion.
1
3. Form
of Payment.
Principal and interest and all other amounts due hereunder are to be paid
in
lawful money of the United States of America in federal or other immediately
available funds.
C. Security
Interest and Subordination.
1. Security
Interest.
Borrower’s obligations hereunder are secured by Borrower’s grant of a security
interest to Lender in all of Borrower’s personal property (the “Collateral”)
pursuant to the Security Agreement, dated as of the date hereof, between
Borrower and Lender (the “Security
Agreement”).
2. Subordination.
Lender’s Lien against the Collateral is subordinated to prior existing Liens
granted to other lenders to Borrower, to the extent provided in the
Subordination Agreement, dated as of the date hereof, by and among Borrower,
Lender and Laurus Master Fund, Ltd. (the “Subordination
Agreement”).
D. Events
of Default.
During
the continuance of an Event of Default, as defined in the Security Agreement,
Lender shall have the right to exercise its rights and remedies with respect
to
Borrower and the Collateral as provided in the Security Agreement.
E. Conversion
Right.
1. Conversion
Right.Lender
shall have the right (the "Conversion
Right"),
in
its sole discretion, at any time to elect to convert the outstanding principal
hereunder into such number of fully paid and nonassessable shares of Common
Stock (such shares the "Conversion
Shares")
as
determined by dividing the outstanding principal hereunder by the Conversion
Price (as defined below); provided,
however,
that
Lender may convert the outstanding principal hereunder into Common Stock
only to
the extent that the Conversion Shares, when aggregated with the Common Stock
owned by Lender immediately prior to the conversion, would equal 9.9% of
the
Common Stock Outstanding, accounting for all antidilution adjustments to
then
outstanding Convertible Securities and Options that would result from such
issuance of the Conversion Shares. The “Conversion
Price”
shall
be the amount determined by dividing the outstanding principal hereunder
by the
number of shares of Common Stock that Lender needs to acquire in order to
own
9.9% of the Common Stock Outstanding, accounting for all antidilution
adjustments to then outstanding Convertible Securities and Options that would
result from such issuance of the Conversion Shares.
2. Exercise
of Conversion Right.
To
convert the outstanding principal hereunder into shares of Common Stock,
Lender
shall deliver to Borrower a written notice of election to exercise the
Conversion Right (the "Conversion
Notice").
Borrower shall, as soon as practicable thereafter, issue and deliver to Lender
a
certificate or certificates, registered in Lender's name, for the number
of
Conversion Shares to which Lender shall be entitled by virtue of such exercise.
The conversion
2
of
the
outstanding principal shall be deemed to have been made on the date that
Borrower receives the Conversion Notice (the "Conversion
Date")
and
Lender shall be treated for all purposes as the record holder of the Conversion
Shares as of such date.
3. Acquisition.
Borrower shall give Lender written notice of an Acquisition no later than
the
date that notice of such event is given to Borrower’s stockholders. Lender may
deliver a Conversion Notice that provides that the exercise of the Conversion
Right is contingent upon, and shall occur concurrent with, the closing of
the
Acquisition.
4. Fractional
Shares.
Borrower shall not issue fractional shares of Common Stock or scrip representing
fractional shares of Common Stock upon exercise of the Conversion Right.
As to
any fractional share of Common Stock which Lender would otherwise be entitled
to
purchase from Borrower upon such exercise, Borrower shall purchase from Lender
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100th of a share) by the
fair
market value of a share of Common Stock on the Conversion Date, as determined
in
good faith by Borrower's Board of Directors. Payment of such amount shall
be
made in cash or by check payable to the order of Lender at the time of delivery
of any certificate or certificates arising upon such exercise.
5. Dilutive
Events.
If any
event occurs as to which the other provisions of this Section E are not strictly
applicable but the failure to make any adjustment would not fairly protect
the
Conversion Right in accordance with the essential intent and principles hereof,
then, in each such case, Borrower shall appoint a firm of independent public
accountants of recognized national standing (which may be Borrower's regular
auditors) which shall give their opinion upon the adjustment, if any, on
a basis
consistent with the essential intent and principles established in this Section
E, necessary to preserve, without dilution, the Conversion Right. Upon receipt
of such opinion, Borrower shall promptly mail a copy thereof to Lender and
shall
make the adjustments described therein.
F. Other
Provisions.
1. Definitions.
As used
herein, the following terms shall have the following meanings:
“Acquisition”
means
(i) the Borrower’s merger, consolidation, or reorganization with one or more
entities, corporate or otherwise, as a result of which the Borrower’s
stockholders immediately prior to such merger, consolidation or reorganization
do not hold at least a majority of the stock of the surviving entity that
is
entitled to vote for the election of directors, or (ii) the Borrower sells
all
or substantially all of its assets.
"Common
Stock Outstanding"
means
as of any date (i) all shares of Common Stock that are outstanding as of
such
date, plus
(ii) all
shares of Common Stock issuable upon conversion of Convertible Securities
outstanding as of such date, whether or not convertible as of such
date.
3
"Convertible
Securities"
means
shares of stock or other securities (other than Options and evidences of
indebtedness) which are convertible into or exchangeable for, with or without
payment of additional consideration, shares of Common Stock, either immediately
or upon the arrival of a specified date or the happening of a specified event
or
both.
"Option"
means
any right, warrant or option to subscribe or purchase shares of Common Stock
or
Convertible Securities.
Capitalized
terms used herein without definition shall have the meanings assigned to
them in
the Security Agreement.
2. Governing
Law; Venue.
This
Note shall be governed by the laws of the State of Delaware, without giving
effect to conflicts of law principles. All actions or proceedings arising
in
connection with this Note shall be conducted in accordance with Section 8(a)
of
the Purchase Agreement.
3. Notices.
Any
notice or communication required or desired to be served, given or delivered
hereunder shall be in the form and manner specified below, and shall be
addressed to the party to be notified as provided in Section 8(f) of the
Purchase Agreement.
4. Lender's
Rights; Borrower Waivers.
Lender's acceptance of partial or delinquent payment from Borrower hereunder,
or
Lender's failure to exercise any right hereunder, shall not constitute a
waiver
of any obligation of Borrower hereunder, or any right of Lender hereunder,
and
shall not affect in any way the right to require full performance at any
time
thereafter. Borrower waives presentment, diligence, demand of payment, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note. In any action
on
this Note, Lender need not produce or file the original of this Note, but
need
only file a photocopy of this Note certified by Lender be a true and correct
copy of this Note in all material respects.
5. Enforcement
Costs.
Borrower shall pay all costs and expenses, including reasonable attorneys'
fees
and expenses Lender expends or incurs in connection with the enforcement
of this
Note, the collection of any sums due hereunder, any actions for declaratory
relief in any way related to this Note, or the protection or preservation
of any
rights of the holder hereunder.
6. Severability.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
is prohibited by or invalid under applicable law, it shall be ineffective
to the
extent of such prohibition or invalidity, without invalidating the remainder
of
the provision or the remaining provisions of this Note.
4
7. Amendment
Provisions.
This
Note may not be amended or modified, nor may any of its terms be waived,
except
by written instruments signed by Borrower and Lender.
8. Binding
Effect.
This
Note shall be binding upon, and shall inure to the benefit of, Borrower and
Lender and their respective successors and assigns; provided,
however,
that
(i) Borrower's rights and obligations shall not be assigned or delegated
without
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void ab initio,
and
(ii) Lender may not assign, transfer or otherwise convey this Note to any
Person
that is not an Affiliate of Lender.
9. Time
of Essence.
Time is
of the essence of each and every provision of this Note.
10. Headings.
Section
headings used in this Note have been set forth herein for convenience of
reference only. Unless the contrary is compelled by the context, everything
contained in each section hereof applies equally to this entire
Note.
|
XXX.xxx,
Inc.
By:
Name:______________________________
Title:
|
5
Exhibit
B-2
Form
of Convertible Note
THE
ISSUANCE AND SALE OF THE SECURITIES AND THE SECURITIES INTO WHICH THIS
INSTRUMENT IS CONVERTIBLE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF REASONABLY REQUESTED
BY
THE COMPANY, AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.
SUBORDINATED
SECURED
CONVERTIBLE PROMISSORY NOTE
[Second
Convertible Note]
| $300,000 |
August
__,
2006
|
FOR
VALUE
RECEIVED, the undersigned, XXX.xxx, Inc., a Delaware corporation ("Borrower"),
hereby promises to pay to MDS Acquisition, Inc., a Delaware corporation
("Lender"),
or
order, the principal sum of Three Hundred Thousand Dollars ($300,000), together
with accrued interest as provided herein. This Note is being issued pursuant
to
the Purchase Agreement, dated as of the date hereof, between Borrower, Lender
and Lender’s parent company, MegaPath Inc. (the “Purchase
Agreement”).
A. Interest.
Interest shall accrue with respect to the principal sum hereunder at eight
percent (8%) per annum. However, if an Event of Default, as defined herein,
occurs and is continuing, then interest shall accrue at ten percent (10%)
per
annum. Interest payable hereunder shall be calculated on the basis of a three
hundred sixty (360) day year for actual days elapsed.
B. Payment.
1. Scheduled
Payment.
The
principal indebtedness, together with all accrued interest, shall be payable
in
full on the later of (i) December 31, 2007, and (ii) the earlier of (A) December
31, 2008, and (B) the date that is thirty (30) days following the date on
which
the condition for exercise of the Conversion Right specified in clause (i)
of
the first sentence of Section E.1 is satisfied (the “Maturity
Date”).
1
2. Prepayment.
Borrower shall not have the right to prepay, in whole or in part, the principal
of this Note without the prior written consent of Lender, given in its sole
discretion.
3. Form
of Payment.
Principal and interest and all other amounts due hereunder are to be paid
in
lawful money of the United States of America in federal or other immediately
available funds.
C. Security
Interest and Subordination.
1. Security
Interest.
Borrower’s obligations hereunder are secured by Borrower’s grant of a security
interest to Lender in all of Borrower’s personal property (the “Collateral”)
pursuant to the Security Agreement, dated as of the date hereof, between
Borrower and Lender (the “Security
Agreement”).
2. Subordination.
Lender’s Lien against the Collateral is subordinated to prior existing Liens
granted to other lenders to Borrower, to the extent provided in the
Subordination Agreement, dated as of the date hereof, by and among Borrower,
Lender and Laurus Master Fund, Ltd. (the “Subordination
Agreement”).
D. Events
of Default.
During
the continuance of an Event of Default, as defined in the Security Agreement,
Lender shall have the right to exercise its rights and remedies with respect
to
Borrower and the Collateral as provided in the Security Agreement.
E. Conversion
Right.
1. Conversion
Right.Subject
to (i) Borrower
having obtained any required
regulatory
approvals, the failure of which to obtain prior to Lender owning 49.9% of
the
Common Stock Outstanding would constitute a Material Adverse Effect (as defined
in the Purchase Agreement),
and (ii)
Lender having exercised the conversion right with respect to the First
Convertible Note,
Lender
shall have the right (the "Conversion
Right"),
in
its sole discretion, at any time to elect to convert the outstanding principal
hereunder into such number of fully paid and nonassessable shares of Common
Stock (such shares the "Conversion
Shares")
as
determined by dividing the outstanding principal hereunder by the Conversion
Price (as defined below); provided,
however,
that
Lender may convert the outstanding principal into Common Stock only to the
extent that the Conversion Shares, when aggregated with the Common Stock
owned
by Lender immediately prior to the conversion, would equal 49.9% of the Common
Stock Outstanding, accounting for all antidilution adjustments to then
outstanding Convertible Securities and Options that would result from such
issuance of the Conversion Shares. The
“Conversion
Price”
shall
be the amount determined by dividing the outstanding principal hereunder
by the
number of shares of Common Stock that Lender needs to acquire in order to
own
49.9% of the Common Stock Outstanding, accounting for all antidilution
adjustments to then outstanding Convertible Securities and Options that would
result from such issuance of the Conversion Shares.
2
2. Exercise
of Conversion Right.
To
convert any of the outstanding principal hereunder into shares of Common
Stock,
Lender shall deliver to Borrower a written notice of election to exercise
the
Conversion Right (the "Conversion
Notice").
Borrower shall, as soon as practicable thereafter, issue and deliver to Lender
a
certificate or certificates, registered in Lender's name, for the number
of
Conversion Shares to which Lender shall be entitled by virtue of such exercise.
The conversion of the outstanding principal shall be deemed to have been
made on
the date that Borrower receives the Conversion Notice (the "Conversion
Date")
and
Lender shall be treated for all purposes as the record holder of the Conversion
Shares as of such date.
3. Acquisition.
Borrower shall give Lender written notice of an Acquisition no later than
the
date that notice of such event is given to Borrower’s stockholders. Lender may
deliver a Conversion Notice that provides that the exercise of the Conversion
Right is contingent upon, and shall occur concurrent with, the closing of
the
Acquisition.
4. Fractional
Shares.
Borrower shall not issue fractional shares of Common Stock or scrip representing
fractional shares of Common Stock upon exercise of the Conversion Right.
As to
any fractional share of Common Stock which Lender would otherwise be entitled
to
purchase from Borrower upon such exercise, Borrower shall purchase from Lender
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100th of a share) by the
fair
market value of a share of Common Stock on the Conversion Date, as determined
in
good faith by Borrower's Board of Directors. Payment of such amount shall
be
made in cash or by check payable to the order of Lender at the time of delivery
of any certificate or certificates arising upon such exercise.
5. Other
Dilutive Events.
If any
event occurs as to which the other provisions of this Section E are not strictly
applicable but the failure to make any adjustment would not fairly protect
the
Conversion Right in accordance with the essential intent and principles hereof,
then, in each such case, Borrower shall appoint a firm of independent public
accountants of recognized national standing (which may be Borrower's regular
auditors) which shall give their opinion upon the adjustment, if any, on
a basis
consistent with the essential intent and principles established in this Section
E, necessary to preserve, without dilution, the Conversion Right. Upon receipt
of such opinion, Borrower shall promptly mail a copy thereof to Lender and
shall
make the adjustments described therein.
F. Other
Provisions.
1. Definitions.
As used
herein, the following terms shall have the following meanings:
“Acquisition”
means
(i) the Borrower’s merger, consolidation, or reorganization with one or more
entities, corporate or otherwise, as a result of which the Borrower’s
stockholders immediately prior to such merger, consolidation or reorganization
do not hold at least a majority of the stock of
3
the
surviving entity that is entitled to vote for the election of directors,
or (ii)
the Borrower sells all or substantially all of its assets.
"Common
Stock Outstanding"
means
as of any date (i) all shares of Common Stock that are outstanding as of
such
date, plus
(ii) all
shares of Common Stock issuable upon conversion of Convertible Securities
outstanding as of such date, whether or not convertible as of such
date.
"Convertible
Securities"
means
evidence of indebtedness, shares of stock or other securities (other than
Options and evidences
of indebtedness)
which
are convertible into or exchangeable for, with or without payment of additional
consideration, shares of Common Stock, either immediately or upon the arrival
of
a specified date or the happening of a specified event or both.
"Option"
means
any right, warrant or option to subscribe or purchase shares of Common Stock
or
Convertible Securities.
Capitalized
terms used herein without definition shall have the meanings assigned to
them in
the Security Agreement.
2. Governing
Law; Venue.
This
Note shall be governed by the laws of the State of Delaware, without giving
effect to conflicts of law principles. All actions or proceedings arising
in
connection with this Note shall be conducted in accordance with Section 8(a)
of
the Purchase Agreement.
3. Notices.
Any
notice or communication required or desired to be served, given or delivered
hereunder shall be in the form and manner specified below, and shall be
addressed to the party to be notified as provided in Section 8(f) of the
Purchase Agreement.
4. Lender's
Rights; Borrower Waivers.
Lender's acceptance of partial or delinquent payment from Borrower hereunder,
or
Lender's failure to exercise any right hereunder, shall not constitute a
waiver
of any obligation of Borrower hereunder, or any right of Lender hereunder,
and
shall not affect in any way the right to require full performance at any
time
thereafter. Borrower waives presentment, diligence, demand of payment, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note. In any action
on
this Note, Lender need not produce or file the original of this Note, but
need
only file a photocopy of this Note certified by Lender be a true and correct
copy of this Note in all material respects.
5. Enforcement
Costs.
Borrower shall pay all costs and expenses, including reasonable attorneys'
fees
and expenses Lender expends or incurs in connection with the enforcement
of this
Note, the collection of any sums due hereunder, any actions for declaratory
relief in any way related to this Note, or the protection or preservation
of any
rights of the holder hereunder.
4
6. Severability.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
is prohibited by or invalid under applicable law, it shall be ineffective
to the
extent of such prohibition or invalidity, without invalidating the remainder
of
the provision or the remaining provisions of this Note.
7. Amendment
Provisions.
This
Note may not be amended or modified, nor may any of its terms be waived,
except
by written instruments signed by Borrower and Lender.
8. Binding
Effect.
This
Note shall be binding upon, and shall inure to the benefit of, Borrower and
Lender and their respective successors and assigns; provided,
however,
that
(i) Borrower's rights and obligations shall not be assigned or delegated
without
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void ab initio,
and
(ii) Lender may not assign, transfer or otherwise convey this Note to any
Person
that is not an Affiliate of Lender.
9. Time
of Essence.
Time is
of the essence of each and every provision of this Note.
10. Headings.
Section
headings used in this Note have been set forth herein for convenience of
reference only. Unless the contrary is compelled by the context, everything
contained in each section hereof applies equally to this entire
Note.
|
XXX.xxx,
Inc.
By:
Name:______________________________
Title:
|
5
Exhibit
B-3
Form
of Convertible Note
THE
ISSUANCE AND SALE OF THE SECURITIES AND THE SECURITIES INTO WHICH THIS
INSTRUMENT IS CONVERTIBLE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF REASONABLY REQUESTED
BY
THE COMPANY, AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.
SUBORDINATED
SECURED
CONVERTIBLE PROMISSORY NOTE
[Third
Convertible Note]
| $150,000 |
August
__, 2006
|
FOR
VALUE
RECEIVED, the undersigned, XXX.xxx, Inc., a Delaware corporation ("Borrower"),
hereby promises to pay to MDS Acquisition, Inc., a Delaware corporation
("Lender"),
or
order, the principal sum of One Hundred Fifty Thousand Dollars ($150,000),
together with accrued interest as provided herein. This Note is being issued
pursuant to the Purchase Agreement, dated as of the date hereof, between
Borrower, Lender and Lender’s parent company, MegaPath Inc. (the “Purchase
Agreement”).
A. Interest.
Interest shall accrue with respect to the principal sum hereunder at eight
percent (8%) per annum. However, if an Event of Default, as defined herein,
occurs and is continuing, then interest shall accrue at ten percent (10%)
per
annum. Interest payable hereunder shall be calculated on the basis of a three
hundred sixty (360) day year for actual days elapsed.
B. Payment.
1. Scheduled
Payment.
The
principal indebtedness, together with all accrued interest, shall be payable
in
full on the later of (i) December 31, 2007, and (ii) the earlier of (A) December
31, 2008, and (B) the date that is thirty (30) days following the date on
which
the condition for exercise of the Conversion Right specified in clause (i)
of
the first sentence of Section E.1 is satisfied (the “Maturity
Date”).
1
2. Prepayment.
Borrower shall not have the right to prepay, in whole or in part, the principal
of this Note without the prior written consent of Lender, given in its sole
discretion.
3. Form
of Payment.
Principal and interest and all other amounts due hereunder are to be paid
in
lawful money of the United States of America in federal or other immediately
available funds.
C. Security
Interest and Subordination.
1. Security
Interest.
Borrower’s obligations hereunder are secured by Borrower’s grant of a security
interest to Lender in all of Borrower’s personal property (the “Collateral”)
pursuant to the Security Agreement, dated as of the date hereof, between
Borrower and Lender (the “Security
Agreement”).
2. Subordination.
Lender’s Lien against the Collateral is subordinated to prior existing Liens
granted to other lenders to Borrower, to the extent provided in the
Subordination Agreement, dated as of the date hereof, by and among Borrower,
Lender and Laurus Master Fund, Ltd. (the “Subordination
Agreement”).
D. Events
of Default.
During
the continuance of an Event of Default, as defined in the Security Agreement,
Lender shall have the right to exercise its rights and remedies with respect
to
Borrower and the Collateral as provided in the Security Agreement.
E. Conversion
Right.
1. Conversion
Right.Subject
to (i) Borrower
having obtained any required
regulatory
approvals, the failure of which to obtain prior to Lender owning 51% of the
Common Stock Outstanding would constitute a Material Adverse Effect (as defined
in the Purchase Agreement),
and (ii)
Lender having exercised the conversion right with respect to (A) the First
Convertible Note and (B) the Second Convertible Note,
Lender
shall have the right (the "Conversion
Right"),
in
its sole discretion, at any time to elect to convert the outstanding principal
hereunder into such number of fully paid and nonassessable shares of Common
Stock (such shares the "Conversion
Shares")
as
determined by dividing the outstanding principal by the Conversion Price
(as
defined below); provided,
however,
that
Lender may convert the outstanding principal hereunder into Common Stock
only to
the extent that the Conversion Shares, when aggregated with the Common Stock
owned by Lender immediately prior to the conversion, would equal fifty-one
percent (51%) of the Common Stock Outstanding, accounting for all antidilution
adjustments to then outstanding Convertible Securities and Options that would
result from such issuance of the Conversion Shares. The
“Conversion
Price”
shall
be the amount determined by dividing the outstanding principal hereunder
by the
number of shares of Common Stock that Lender needs to acquire in order to
own
51% of the Common Stock Outstanding, accounting for all antidilution
2
adjustments
to then outstanding Convertible Securities and Options that would result
from
such issuance of the Conversion Shares.
2. Exercise
of Conversion Right.
To
convert any of the outstanding principal hereunder into shares of Common
Stock,
Lender shall deliver to Borrower a written notice of election to exercise
the
Conversion Right (the "Conversion
Notice").
Borrower shall, as soon as practicable thereafter, issue and deliver to Lender
a
certificate or certificates, registered in Lender's name, for the number
of
Conversion Shares to which Lender shall be entitled by virtue of such exercise.
The conversion of the outstanding principal shall be deemed to have been
made on
the date that Borrower receives the Conversion Notice (the "Conversion
Date")
and
Lender shall be treated for all purposes as the record holder of the Conversion
Shares as of such date.
3. Acquisition.
Borrower shall give Lender written notice of an Acquisition no later than
the
date that notice of such event is given to Borrower’s stockholders. Lender may
deliver a Conversion Notice that provides that the exercise of the Conversion
Right is contingent upon, and shall occur concurrent with, the closing of
the
Acquisition.
4. Fractional
Shares.
Borrower shall not issue fractional shares of Common Stock or scrip representing
fractional shares of Common Stock upon exercise of the Conversion Right.
As to
any fractional share of Common Stock which Lender would otherwise be entitled
to
purchase from Borrower upon such exercise, Borrower shall purchase from Lender
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100th of a share) by the
fair
market value of a share of Common Stock on the Conversion Date, as determined
in
good faith by Borrower's Board of Directors. Payment of such amount shall
be
made in cash or by check payable to the order of Lender at the time of delivery
of any certificate or certificates arising upon such exercise.
5. Other
Dilutive Events.
If any
event occurs as to which the other provisions of this Section E are not strictly
applicable but the failure to make any adjustment would not fairly protect
the
Conversion Right in accordance with the essential intent and principles hereof,
then, in each such case, Borrower shall appoint a firm of independent public
accountants of recognized national standing (which may be Borrower's regular
auditors) which shall give their opinion upon the adjustment, if any, on
a basis
consistent with the essential intent and principles established in this Section
E, necessary to preserve, without dilution, the Conversion Right. Upon receipt
of such opinion, Borrower shall promptly mail a copy thereof to Lender and
shall
make the adjustments described therein.
3
F. Other
Provisions.
1. Definitions.
As used
herein, the following terms shall have the following meanings:
“Acquisition”
means
(i) the Borrower’s merger, consolidation, or reorganization with one or more
entities, corporate or otherwise, as a result of which the Borrower’s
stockholders immediately prior to such merger, consolidation or reorganization
do not hold at least a majority of the stock of the surviving entity that
is
entitled to vote for the election of directors, or (ii) the Borrower sells
all
or substantially all of its assets.
"Common
Stock Outstanding"
means
as of any date (i) all shares of Common Stock that are outstanding as of
such
date, plus
(ii) all
shares of Common Stock issuable upon conversion of Convertible Securities
outstanding as of such date, whether or not convertible as of such date,
plus
(iii)
all shares of Common Stock issuable upon exercise of Options outstanding
as of
such date, whether or not such Options are exercisable as of such date (assuming
for this purpose that Convertible Securities acquirable upon exercise of
any
such Options are converted into Common Stock as of such date).
"Convertible
Securities"
means
evidence of indebtedness (other than this Note, the First Convertible Note,
the
Second Convertible Note and the Fourth Convertible Note), shares of stock
or
other securities (other than Options) which are convertible into or exchangeable
for, with or without payment of additional consideration, shares of Common
Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event or both.
"Option"
means
any right, warrant or option to subscribe or purchase shares of Common Stock
or
Convertible Securities.
Capitalized
terms used herein without definition shall have the meanings assigned to
them in
the Security Agreement.
2. Governing
Law; Venue.
This
Note shall be governed by the laws of the State of Delaware, without giving
effect to conflicts of law principles. All actions or proceedings arising
in
connection with this Note shall be conducted in accordance with Section 8(a)
of
the Purchase Agreement.
3. Notices.
Any
notice or communication required or desired to be served, given or delivered
hereunder shall be in the form and manner specified below, and shall be
addressed to the party to be notified as provided in Section 8(f) of the
Purchase Agreement.
4. Lender's
Rights; Borrower Waivers.
Lender's acceptance of partial or delinquent payment from Borrower hereunder,
or
Lender's failure to exercise any right hereunder, shall not
4
constitute
a waiver of any obligation of Borrower hereunder, or any right of Lender
hereunder, and shall not affect in any way the right to require full performance
at any time thereafter. Borrower waives presentment, diligence, demand of
payment, notice, protest and all other demands and notices in connection
with
the delivery, acceptance, performance, default or enforcement of this Note.
In
any action on this Note, Lender need not produce or file the original of
this
Note, but need only file a photocopy of this Note certified by Lender be
a true
and correct copy of this Note in all material respects.
5. Enforcement
Costs.
Borrower shall pay all costs and expenses, including reasonable and documented
attorneys' fees and expenses Lender expends or incurs in connection with
the
enforcement of this Note, the collection of any sums due hereunder, any actions
for declaratory relief in any way related to this Note, or the protection
or
preservation of any rights of the holder hereunder.
6. Severability.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
is prohibited by or invalid under applicable law, it shall be ineffective
to the
extent of such prohibition or invalidity, without invalidating the remainder
of
the provision or the remaining provisions of this Note.
7. Amendment
Provisions.
This
Note may not be amended or modified, nor may any of its terms be waived,
except
by written instruments signed by Borrower and Lender.
8. Binding
Effect.
This
Note shall be binding upon, and shall inure to the benefit of, Borrower and
Lender and their respective successors and assigns; provided,
however,
that
(i) Borrower's rights and obligations shall not be assigned or delegated
without
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void ab initio,
and
(ii)
Lender may not assign, transfer or otherwise convey this Note to any Person
that
is not an Affiliate of Lender.
9. Time
of Essence.
Time is
of the essence of each and every provision of this Note.
5
10. Headings.
Section
headings used in this Note have been set forth herein for convenience of
reference only. Unless the contrary is compelled by the context, everything
contained in each section hereof applies equally to this entire
Note.
|
XXX.xxx,
Inc.
By:
Name:______________________________
Title:
|
6
Exhibit
B-4
Form
of Convertible Note
THE
ISSUANCE AND SALE OF THE SECURITIES AND THE SECURITIES INTO WHICH THIS
INSTRUMENT IS CONVERTIBLE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF REASONABLY REQUESTED
BY
THE COMPANY, AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.
SUBORDINATED
SECURED
CONVERTIBLE PROMISSORY NOTE
[Fourth
Convertible Note]
| $1,520,000 |
August
__,
2006
|
FOR
VALUE
RECEIVED, the undersigned, XXX.xxx, Inc., a Delaware corporation ("Borrower"),
hereby promises to pay to MDS Acquisition, Inc., a Delaware corporation
("Lender"),
or
order, the principal sum of One Million Five Hundred Twenty Thousand Dollars
($1,520,000), together with accrued interest as provided herein. This Note
is
being issued pursuant to the Purchase Agreement, dated as of the date hereof,
between Borrower, Lender and Lender’s parent company, MegaPath Inc. (the
“Purchase
Agreement”).
A. Interest.
Interest shall accrue with respect to the principal sum hereunder at eight
percent (8%) per annum. However, if an Event of Default, as defined herein,
occurs and is continuing, then interest shall accrue at ten percent (10%)
per
annum. Interest payable hereunder shall be calculated on the basis of a three
hundred sixty (360) day year for actual days elapsed.
B. Payment.
1. Scheduled
Payment.
The
principal indebtedness, together with all accrued interest, shall be payable
in
full on the later of (i) December 31, 2007, and (ii) earlier of (A) December
31,
2008, and (B) the date that is thirty (30) days following the date on which
the
condition for exercise of the Conversion Right specified in clause (i) of
the
first sentence of Section E.1 is satisfied (the “Maturity
Date”).
1
2. Prepayment.
Borrower shall not have the right to prepay, in whole or in part, the principal
of this Note without the prior written consent of Lender, given in its sole
discretion.
3. Form
of Payment.
Principal and interest and all other amounts due hereunder are to be paid
in
lawful money of the United States of America in federal or other immediately
available funds.
C. Security
Interest and Subordination.
1. Security
Interest.
Borrower’s obligations hereunder are secured by Borrower’s grant of a security
interest to Lender in all of Borrower’s personal property (the “Collateral”)
pursuant to the Security Agreement, dated as of the date hereof, between
Borrower and Lender (the “Security
Agreement”).
2. Subordination.
Lender’s Lien against the Collateral is subordinated to prior existing Liens
granted to other lenders to Borrower, to the extent provided in the
Subordination Agreement, dated as of the date hereof, by and among Borrower,
Lender and Laurus Master Fund, Ltd. (the “Subordination
Agreement”).
D. Events
of Default.
During
the continuance of an Event of Default, as defined in the Security Agreement,
Lender shall have the right to exercise its rights and remedies with respect
to
Borrower and the Collateral as provided in the Security Agreement.
E. Conversion
Right.
1. Conversion
Right.Subject
to (i) the filing with the Secretary of State of the State of Delaware (after
approval of Borrower’s stockholders) of an amendment to Borrower’s Amended and
Restated Certificate of Incorporation authorizing a sufficient number of
shares
of Common Stock, and (ii) Lender having exercised the conversion right with
respect to (A) the First Convertible Note, (B) the Second Convertible Note,
and
(C) the Third Convertible Note,
Lender
shall have the right (the "Conversion
Right"),
in
its sole discretion, at any time to elect to convert the outstanding principal
hereunder into such number of fully paid and nonassessable shares of Common
Stock (such shares the "Conversion
Shares")
as
determined by dividing the outstanding principal by the Conversion Price
(as
defined below); provided,
however,
that
Lender may convert the outstanding principal hereunder into Common Stock
only to
the extent that the Conversion Shares, when aggregated with the Common Stock
owned by Lender immediately prior to the conversion, would equal ninety-one
percent (91%) of the Common Stock Outstanding, accounting for all antidilution
adjustments to then outstanding Convertible Securities and Options that would
result from such issuance of the Conversion Shares. The
“Conversion
Price”
shall
be the amount determined by dividing the outstanding principal hereunder
by the
number of shares of Common Stock that Lender needs to acquire in order to
own
91% of the Common Stock Outstanding,
2
accounting
for all antidilution adjustments to then outstanding Convertible Securities
and
Options that would result from such issuance of the Conversion
Shares.
2. Exercise
of Conversion Right.
To
convert any of the outstanding principal hereunder into shares of Common
Stock,
Lender shall deliver to Borrower a written notice of election to exercise
the
Conversion Right (the "Conversion
Notice").
Borrower shall, as soon as practicable thereafter, issue and deliver to Lender
a
certificate or certificates, registered in Lender's name, for the number
of
Conversion Shares to which Lender shall be entitled by virtue of such exercise.
The conversion of the outstanding principal shall be deemed to have been
made on
the date that Borrower receives the Conversion Notice (the "Conversion
Date")
and
Lender shall be treated for all purposes as the record holder of the Conversion
Shares as of such date.
3. Acquisition.
Borrower shall give Lender written notice of an Acquisition no later than
the
date that notice of such event is given to Borrower’s stockholders. Lender may
deliver a Conversion Notice that provides that the exercise of the Conversion
Right is contingent upon, and shall occur concurrent with, the closing of
the
Acquisition.
4. Fractional
Shares.
Borrower shall not issue fractional shares of Common Stock or scrip representing
fractional shares of Common Stock upon exercise of the Conversion Right.
As to
any fractional share of Common Stock which Lender would otherwise be entitled
to
purchase from Borrower upon such exercise, Borrower shall purchase from Lender
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100th of a share) by the
fair
market value of a share of Common Stock on the Conversion Date, as determined
in
good faith by Borrower's Board of Directors. Payment of such amount shall
be
made in cash or by check payable to the order of Lender at the time of delivery
of any certificate or certificates arising upon such exercise.
5. Other
Dilutive Events.
If any
event occurs as to which the other provisions of this Section E are not strictly
applicable but the failure to make any adjustment would not fairly protect
the
Conversion Right in accordance with the essential intent and principles hereof,
then, in each such case, Borrower shall appoint a firm of independent public
accountants of recognized national standing (which may be Borrower's regular
auditors) which shall give their opinion upon the adjustment, if any, on
a basis
consistent with the essential intent and principles established in this Section
E, necessary to preserve, without dilution, the Conversion Right. Upon receipt
of such opinion, Borrower shall promptly mail a copy thereof to Lender and
shall
make the adjustments described therein.
3
F. Other
Provisions.
1. Definitions.
As used
herein, the following terms shall have the following meanings:
“Acquisition”
means
(i) the Borrower’s merger, consolidation, or reorganization with one or more
entities, corporate or otherwise, as a result of which the Borrower’s
stockholders immediately prior to such merger, consolidation or reorganization
do not hold at least a majority of the stock of the surviving entity that
is
entitled to vote for the election of directors, or (ii) the Borrower sells
all
or substantially all of its assets.
"Common
Stock Outstanding"
means
as of any date (i) all shares of Common Stock that are outstanding as of
such
date, plus
(ii) all
shares of Common Stock issuable upon conversion of Convertible Securities
outstanding as of such date, whether or not convertible as of such date,
plus
(iii)
all shares of Common Stock issuable upon exercise of Options outstanding
as of
such date, whether or not such Options are exercisable as of such date (assuming
for this purpose that Convertible Securities acquirable upon exercise of
any
such Options are converted into Common Stock as of such date).
"Convertible
Securities"
means
evidence of indebtedness (other than this Note, the First Convertible Note,
the
Second Convertible Note and the Third Convertible Note), shares of stock
or
other securities (other than Options) which are convertible into or exchangeable
for, with or without payment of additional consideration, shares of Common
Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event or both.
"Option"
means
any right, warrant or option to subscribe or purchase shares of Common Stock
or
Convertible Securities.
Capitalized
terms used herein without definition shall have the meanings assigned to
them in
the Security Agreement.
2. Governing
Law; Venue.
This
Note shall be governed by the laws of the State of Delaware, without giving
effect to conflicts of law principles. All actions or proceedings arising
in
connection with this Note shall be conducted in accordance with Section 8(a)
of
the Purchase Agreement.
3. Notices.
Any
notice or communication required or desired to be served, given or delivered
hereunder shall be in the form and manner specified below, and shall be
addressed to the party to be notified as provided in Section 8(f) of the
Purchase Agreement.
4. Lender's
Rights; Borrower Waivers.
Lender's acceptance of partial or delinquent payment from Borrower hereunder,
or
Lender's failure to exercise any right hereunder, shall not
4
constitute
a waiver of any obligation of Borrower hereunder, or any right of Lender
hereunder, and shall not affect in any way the right to require full performance
at any time thereafter. Borrower waives presentment, diligence, demand of
payment, notice, protest and all other demands and notices in connection
with
the delivery, acceptance, performance, default or enforcement of this Note.
In
any action on this Note, Lender need not produce or file the original of
this
Note, but need only file a photocopy of this Note certified by Lender be
a true
and correct copy of this Note in all material respects.
5. Enforcement
Costs.
Borrower shall pay all costs and expenses, including reasonable and documented
attorneys' fees and expenses Lender expends or incurs in connection with
the
enforcement of this Note, the collection of any sums due hereunder, any actions
for declaratory relief in any way related to this Note, or the protection
or
preservation of any rights of the holder hereunder.
6. Severability.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
is prohibited by or invalid under applicable law, it shall be ineffective
to the
extent of such prohibition or invalidity, without invalidating the remainder
of
the provision or the remaining provisions of this Note.
7. Amendment
Provisions.
This
Note may not be amended or modified, nor may any of its terms be waived,
except
by written instruments signed by Borrower and Lender.
8. Binding
Effect.
This
Note shall be binding upon, and shall inure to the benefit of, Borrower and
Lender and their respective successors and assigns; provided,
however,
that
(i) Borrower's rights and obligations shall not be assigned or delegated
without
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void ab initio,
and
(ii) Lender may not assign, transfer or otherwise convey this Note to any
Person
that is not an Affiliate of Lender.
9. Time
of Essence.
Time is
of the essence of each and every provision of this Note.
5
10. Headings.
Section
headings used in this Note have been set forth herein for convenience of
reference only. Unless the contrary is compelled by the context, everything
contained in each section hereof applies equally to this entire
Note.
|
XXX.xxx,
Inc.
By:
Name:______________________________
Title:
|
6
Exhibit
C
Form
of Nonconvertible Note
THE
ISSUANCE AND SALE OF THE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF REASONABLY REQUESTED
BY
THE COMPANY, AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT.
SUBORDINATED
SECURED
PROMISSORY NOTE
| $13,002,000 |
August
__,
2006
|
FOR
VALUE
RECEIVED, the undersigned, XXX.xxx, Inc., a Delaware corporation ("Borrower"),
hereby promises to pay to MDS Acquisition, Inc., a Delaware corporation
("Lender"),
or
order, the principal sum of Thirteen Million Two Thousand Dollars ($13,002,000),
together with accrued interest as provided herein. This Note is being issued
pursuant to the Purchase Agreement, dated as of the date hereof, between
Borrower, Lender and Lender’s parent company, MegaPath Inc. (the “Purchase
Agreement”).
A. Interest.
Interest shall accrue with respect to the principal sum hereunder at eight
percent (8%) per annum. However, if an Event of Default, as defined herein,
occurs and is continuing, then interest shall accrue at ten percent (10%)
per
annum. Interest payable hereunder shall be calculated on the basis of a three
hundred sixty (360) day year for actual days elapsed.
B. Payment.
1. Scheduled
Payment.
The
principal indebtedness, together with all accrued interest, shall be payable
in
full on December 31, 2007 (the “Maturity
Date”).
2. Prepayment.
Borrower shall not have the right to prepay, in whole or in part, the principal
of this Note without the prior written consent of Lender, given in its sole
discretion.
1
3. Form
of Payment.
Principal and interest and all other amounts due hereunder are to be paid
in
lawful money of the United States of America in federal or other immediately
available funds.
C. Security
Interest and Subordination.
1. Security
Interest.
Borrower’s obligations hereunder are secured by Borrower’s grant of a security
interest to Lender in all of Borrower’s personal property (the “Collateral”)
pursuant to the Security Agreement, dated as of the date hereof, between
Borrower and Lender (the “Security
Agreement”).
2. Subordination.
Lender’s Lien against the Collateral is subordinated to prior existing Liens
granted to other lenders to Borrower, to the extent provided in the
Subordination Agreement, dated as of the date hereof, by and among Borrower,
Lender and Laurus Master Fund, Ltd. (the “Subordination
Agreement”).
D. Events
of Default.
During
the continuance of an Event of Default, as defined in the Security Agreement,
Lender shall have the right to exercise its rights and remedies with respect
to
Borrower and the Collateral as provided in the Security Agreement.
E. Other
Provisions.
1. Definitions.
Capitalized terms used herein without definition shall have the meanings
assigned to them in the Security Agreement.
2. Governing
Law; Venue.
This
Note shall be governed by the laws of the State of Delaware, without giving
effect to conflicts of law principles. All actions or proceedings arising
in
connection with this Note shall be conducted in accordance with Section 8(a)
of
the Purchase Agreement.
3. Notices.
Any
notice or communication required or desired to be served, given or delivered
hereunder shall be in the form and manner specified below, and shall be
addressed to the party to be notified as provided in Section 8(f) of the
Purchase Agreement.
4. Lender's
Rights; Borrower Waivers.
Lender's acceptance of partial or delinquent payment from Borrower hereunder,
or
Lender's failure to exercise any right hereunder, shall not constitute a waiver
of any obligation of Borrower hereunder, or any right of Lender hereunder,
and
shall not affect in any way the right to require full performance at any
time
thereafter. Borrower waives presentment, diligence, demand of payment, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note. In any action
on
this Note, Lender need not produce or file the original
2
of
this
Note, but need only file a photocopy of this Note certified by Lender be
a true
and correct copy of this Note in all material respects.
5. Enforcement
Costs.
Borrower shall pay all costs and expenses, including reasonable and documented
attorneys' fees and expenses Lender expends or incurs in connection with
the
enforcement of this Note, the collection of any sums due hereunder, any actions
for declaratory relief in any way related to this Note, or the protection
or
preservation of any rights of the holder hereunder.
6. Severability.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
is prohibited by or invalid under applicable law, it shall be ineffective
to the
extent of such prohibition or invalidity, without invalidating the remainder
of
the provision or the remaining provisions of this Note.
7. Amendment
Provisions.
This
Note may not be amended or modified, nor may any of its terms be waived,
except
by written instruments signed by Borrower and Lender.
8. Binding
Effect.
This
Note shall be binding upon, and shall inure to the benefit of, Borrower and
Lender and their respective successors and assigns; provided,
however,
that
(i) Borrower's rights and obligations shall not be assigned or delegated
without
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void ab initio,
and
(ii) Lender may not assign, transfer or otherwise convey this Note to any
Person
that is not an Affiliate of Lender.
9. Time
of Essence.
Time is
of the essence of each and every provision of this Note.
10. Headings.
Section
headings used in this Note have been set forth herein for convenience of
reference only. Unless the contrary is compelled by the context, everything
contained in each section hereof applies equally to this entire
Note.
|
XXX.xxx,
Inc.
By:
Name:______________________________
Title:
|
3
Exhibit
D
Form
of Subordination Agreement
SUBORDINATION
AGREEMENT
This
SUBORDINATION AGREEMENT, dated as of August __, 2006 (this “Agreement”),
is
entered into among Laurus Master Fund, Ltd. (“Laurus”),
as
First Lien Collateral Agent and as First Lien Lender (each, as defined below),
MDS Acquisition, Inc., (“MDS”)
as
Second Lien Lender (as defined below), and XXX.xxx, Inc., a Delaware corporation
(the “Borrower”),
for
itself and on behalf of its Subsidiaries (as defined in the Laurus Security
Agreement referred to below).
W I
T N E S S E T H:
Whereas,
Laurus
(individually, a “First
Lien Lender”
and,
together with its successors and assigns, the “First
Lien Lenders”)
and
Borrower have entered into a Security Agreement, dated as of August 31, 2004
(as
such agreement may be amended, amended and restated, supplemented or otherwise
modified, from time to time by the parties thereto, the “Laurus
Security Agreement”),
pursuant to which the First Lien Lender has made loans and extended other
financial accommodations to the Borrower on a secured basis; and
Whereas,
MDS
(the “Second
Lien Lender”
and
together within its successors and assigns, the “Second
Lien Lenders”),
Borrower and MDS’s parent, MegaPath, Inc., have entered into a Purchase
Agreement, dated as of the date hereof (as such agreement may be amended,
amended and restated, supplemented or otherwise modified from time to time
by
the parties thereto, the “Purchase
Agreement”),
pursuant to which MDS has agreed to make loans to the Borrower on a secured
basis in accordance with the Notes described in the Purchase Agreement (the
“MDS
Notes);
The
Borrower and MDS are parties to a Security Agreement, dated as of the date
hereof (as amended, amended and restated, supplemented or otherwise modified
from time to time by the parties thereto, the “MDS Security
Agreement”),
securing the obligations of the Borrower owing to the Second Lien Lenders
under
and in respect of the MDS Notes;
Whereas,
it is a
condition to the effectiveness of the Purchase Agreement and the continued
extension by Laurus of loans and other financing accommodations to the Borrower
pursuant to the terms of the Laurus Security Agreement that this Agreement
be
executed and delivered by the parties hereto to set forth the terms of the
respective rights of the First Lien Claimholders (as defined below), on the
one
hand, and the Second Lien Claimholders (as defined below), on the other hand,
and the application of any proceeds and certain other matters; and
Now,
Therefore,
in
consideration of the foregoing, the mutual covenants and obligations herein
set
forth and for other good and valuable consideration, the adequacy and receipt
of
which are hereby acknowledged, and in reliance upon the representations,
warranties and covenants herein contained, the parties hereto, intending
to be
legally bound, hereby agree as follows:
Section
1. Definitions
Unless
otherwise defined herein, terms defined in the Laurus Security Agreement
and
used herein shall have the meanings specified in the Laurus Security Agreement.
In addition, as used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and the plural form of the terms indicated):
“Adequate
Protection”
means
“adequate protection” under Section 361, 362, 363 or 364 of the Bankruptcy
Code.
“Agreement”
has
the
meaning set forth in the recitals hereto.
“Bankruptcy
Code”
means
11 U.S.C. §§ 101 et seq.
“Borrower”
has
the
meaning set forth in the recitals hereto, and shall include any successor
in
interest thereto.
“Claimholders”
means,
collectively, the First Lien Claimholders and the Second Lien
Claimholders.
“Collateral
Document”
means
any First Lien Collateral Document or Second Lien Collateral Document, as
the
context may require.
“Common
Collateral”
means
(a) all trade accounts receivable, and other book debts and other forms of
obligations associated with all trade accounts receivable (other than forms
of
obligations evidenced by Chattel Paper (as defined in the UCC) or Instruments
(as defined in the UCC) relating thereto)(including any right to receive
payment
for the sale of a product owned by the Borrower or the provision of services
by
the Borrower), now or hereafter owned by the Borrower; (b) all collateral
security of any kind given by the Borrower or any other Person with respect
to
the foregoing; (c) all supporting obligations (as defined in the UCC); (d)
the
Deposit Account, no. 9429398649, maintained at Fleet National Bank, a national
banking association organized under the laws of the United States and having
its
principal place of business at 000 Xxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx
and any
funds on deposit therein; (e) all Books and Records relating to each of the
foregoing; (f) all proceeds of all or any of the foregoing and (g) any tort
claims or other claims and other rights to payment, including insurance claims
against third parties, relating to each of the foregoing
“Debtor
Relief Laws”
means
the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy,
general assignment for the benefit of creditors, moratorium, rearrangement,
receivership, insolvency, reorganization, or similar debtor relief Laws of
the
United States or other applicable jurisdictions from time to time in effect
and
affecting the rights of creditors generally.
“Disposition”
or
“Dispose”
means
the sale, transfer, license, lease or other disposition (including any sale
and
leaseback transaction) of any property by any Person, including any sale,
assignment, transfer or other disposal, with or without recourse, of any
notes
or accounts receivable or any rights and claims associated
therewith.
“First
Lien Claimholders”
means,
at any relevant time, the holders of the First Lien Obligations outstanding
at
such time.
“First
Lien Collateral Agent”
means
the First Lien Collateral Agent referred to herein and any successor agent
thereto, or if there is no acting First Lien Collateral Agent under the Laurus
Security Agreement and the Ancillary Agreements, First Lien Lenders holding
more
than 80% of the sum of the aggregate unpaid principal amount of the Notes
outstanding.
“First
Lien Collateral Documents”
means
the Laurus Security Agreement and any Ancillary Documents executed in favor
of
the First Lien Collateral Agent and creating or purporting to create a Lien
in
respect of the First Lien Obligations on the Common Collateral.
“First
Lien Lenders”
has
the
meaning set forth in the recitals hereto.
2
“First
Lien Obligations”
means
all of Obligations owing to the First Lien Lenders under the Laurus Security
Agreement and the Ancillary Agreements.
“Governmental
Authority”
means
any nation or government, any state, province, city, municipal entity or
other
political subdivision thereof, and any governmental, executive, legislative,
judicial, administrative or regulatory agency, department, authority,
instrumentality, commission, board or similar body, whether federal, state,
territorial, local or foreign.
“Insolvency
or Liquidation Proceeding”
means
(a) any voluntary or involuntary case or proceeding under any Debtor Relief
Laws
with respect to the Borrower or any of its Subsidiaries, (b) any other voluntary
or involuntary insolvency, reorganization or bankruptcy case or proceeding,
or
any receivership or other similar case or proceeding with respect to the
Borrower or any of its Subsidiaries or with respect to any of their respective
assets, (c) any liquidation, dissolution, reorganization or winding up of
the
Borrower or any of its Subsidiaries, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy or (d) any general assignment
for the benefit of creditors or any other marshaling of assets and liabilities
of the Borrower or any of its Subsidiaries.
“Laurus”
has
the
meaning set forth in the recitals hereto.
“Laurus
Security Agreement”
has
the
meaning set forth in the recitals hereto.
“Laws”
means,
collectively, all applicable international, foreign, Federal, state and local
statutes, treaties, rules, guidelines, regulations, ordinances, codes and
administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directed duties, licenses, authorizations
and
permits of, and settlement agreements with, any Governmental Authority, in
each
case whether or not having the force of law.
“Lien”
means
any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference, priority or
other
security interest or preferential arrangement in the nature of a security
interest of any kind or nature whatsoever (including any conditional sale
or
other title retention agreement, any easement, right of way or other encumbrance
on title to real property, and any financing lease having substantially the
same
economic effect as any of the foregoing).
“MDS”
has
the
meaning set forth in the recitals hereto.
“MDS
Notes”
has
the
meaning set forth in the recitals hereto.
“MDS
Security Agreement”
has
the
meaning set forth in the recitals hereto.
“Non-Common
Collateral”
means
the Collateral (as defined in the MDS Security Agreement) excluding the Common
Collateral
“paid
in full”
and
“payment
in full”
means,
with respect to any and all First Lien Obligations, (a) payment in full
thereof in cash (or otherwise to the written satisfaction of the First Lien
Claimholders with respect to such First Lien Obligations), and (b) termination
of the Loans and all other First Lien Obligations of the First Lien Claimholders
under the Laurus Security Agreement and the Ancillary Agreements.
“Purchase
Agreement”
has
the
meaning set forth in the recitals hereto.
3
“Recovery”
has
the
meaning set forth in Section
6.3
hereof.
“Required
First Lien Lenders”
means,
at any time, First Lien Lenders holding at least 51% of the sum of the
aggregate unpaid principal amount owing under the Notes
outstanding.
“Required
Second Lien Lenders”
means,
at any time, Second Lien Lenders holding at least 51% of the sum of the
aggregate unpaid principal amount owing under the MDS Notes
outstanding.
“Second
Lien Claimholders”
means,
at any relevant time, the holders of the obligations owing to the Second
Lien
Lenders under the MDS Security Agreement and the MDS Notes outstanding at
such
time.
“Second
Lien Collateral Agent”
means
the Second Lien Lender, if any, designated by the Second Lien Lenders to
serve
as collateral agent under the MDS Security Agreement and the MDS Notes, or
if
there is no acting Second Lien Collateral Agent under the MDS Security Agreement
and the MDS Notes, the Second Lien Lenders holding more than 80% of the sum
of
the aggregate unpaid principal amount of MDS Notes outstanding.
“Second
Lien Collateral Documents”
means
each security agreement, mortgage, cash collateral deposit letter, collateral
assignment, pledge agreement and other similar agreement, instrument or document
executed in favor of the Second Lien Lenders and creating or purporting to
a
create a Lien in respect of the Second Lien Obligations.
“Second
Lien Lenders”
has
the
meaning set forth in the recitals hereto.
“Second
Lien Obligations”
means
all of obligations owing to the Second Lien Lenders under the Purchase Agreement
and the MDS Notes and all related instruments and agreements.
“Uniform
Commercial Code”
or
“UCC”
means
the Uniform Commercial Code of the State of New York, as amended.
Section
2. Lien
Priorities
2.1 Relative
Priorities
Notwithstanding
the date, manner or order of grant, attachment or perfection of any Lien
granted
to the First Lien Collateral Agent or the First Lien Claimholders on the
Common
Collateral or of any Lien granted to the Second Lien Collateral Agent or
the
Second Lien Claimholders on the Common Collateral and notwithstanding any
provision of the UCC, or any applicable Laws or decision or the MDS Notes,
the
Purchase Agreement, the MDS Security Agreement, the Laurus Security Agreement
or
any Ancillary Agreement or any other circumstance whatsoever (including,
without
limitation, any non-perfection of any Lien securing or purporting to secure
the
First Lien Obligations or the Second Lien Obligations), the Second Lien
Collateral Agent and each Second Lien Claimholder and the First Lien Collateral
Agent and each First Lien Claimholder agree that: (a) any Lien on the Common
Collateral securing the First Lien Obligations now or hereafter held by or
for
the benefit of the First Lien Claimholders, regardless of how acquired, whether
by grant, statute, operation of law, subrogation or otherwise, shall be senior
in all respects and prior to any Lien on the Common Collateral securing the
Second Lien Obligations; (b) any Lien on the Common Collateral securing the
Second Lien Obligations now or hereafter held by or for the benefit of the
Second Lien Claimholders, regardless of how acquired, whether by grant, statute,
operation of law, subrogation or otherwise, shall be junior and subordinate
in
all respects to all Liens on the Common Collateral securing the First Lien
Obligations, and (c) any Lien on
4
the
Non-Common Collateral securing the Second Lien Obligations now or hereafter
held
by or for the benefit of the Second Lien Claimholders, regardless of how
acquired, whether by grant, statute, operation of law, subrogation or otherwise,
shall be senior in all respects to all Liens, if any, on the Non-Common
Collateral securing the First Lien Obligations. All Liens on the Common
Collateral securing the First Lien Obligations shall be and remain senior
to all
Liens on the Common Collateral securing the Second Lien Obligations for all
purposes, whether or not such Liens securing the First Lien Obligations are
subordinated to any Lien securing any other obligation of the Borrower. All
Liens on the Non-Common Collateral securing the Second Lien Obligations shall
be
and remain senior to all Liens, if any, on the Non-Common Collateral securing
the First Lien Obligations for all purposes, whether or not such Liens securing
the First Lien Obligations are subordinated to any Lien securing any other
obligation of the Borrower.
2.2 Prohibition
on Contesting Liens
Each
of
(a) the Second Lien Collateral Agent and each Second Lien Claimholder agrees
that it shall not, and hereby waives any right to, contest, or support any
other
Person in contesting, in any proceeding (including, without limitation, any
Insolvency or Liquidation Proceeding), the priority, validity or enforceability
of any Lien held by the First Lien Collateral Agent or First Lien Claimholders
in the Common Collateral, and (b) the First Lien Collateral Agent and each
First
Lien Claimholder agrees that it shall not, and hereby waives any right to,
contest, or support any other Person in contesting, in any proceeding
(including, without limitation, any Insolvency or Liquidation Proceeding),
the
priority, validity or enforceability of any Lien held by the Second Lien
Collateral Agent or Second Lien Claimholders in the Non-Common Collateral.
Each
of the First Lien Collateral Agent and each First Lien Claimholder (by its
acceptance of the benefits of the Laurus Security Agreement and the Ancillary
Agreements) agrees that it shall not, and hereby waives any right to, contest,
or support any other Person in contesting, in any proceeding (including,
without
limitation, any Insolvency or Liquidation Proceeding), the priority, validity
or
enforceability of any Lien held by the Second Lien Collateral Agent and/or
the
Second Lien Claimholders in the Common Collateral; provided
that
this Section
2.2
shall
not be construed to prevent or impair the rights of the First Lien Collateral
Agent or First Lien Claimholders to enforce this Agreement, including without
limitation, the priority of Liens in Section
2.1
and the
exercise of remedies in Section
3.1
Section
3. Enforcement;
Application of Proceeds of Collateral and Other
Payments
3.1 Exercise
of Remedies
The
Second Lien Collateral Agent and each Second Lien Claimholder agrees that
it
shall not, with respect to the Second Lien Obligations, take or receive from
or
on behalf of the Borrower, directly or indirectly, in cash or other property
or
by setoff, counterclaim or in any other manner (whether pursuant to any
enforcement, collection, execution, levy, foreclosure action or other proceeding
or otherwise) any Common Collateral or any proceeds of Common Collateral,
unless
and until all First Lien Obligations have been paid in full in accordance
with
Section
3.2
hereof.
Without limiting the generality of the foregoing, unless and until the First
Lien Obligations have been paid in full, except as expressly provided herein
or
in the Laurus Security Agreement, the sole right of the Second Lien Collateral
Agent and the Second Lien Claimholders with respect to the Common Collateral
is
to hold a Lien on the Common Collateral pursuant to the MDS Security Agreement
and the MDS Notes for the period and to the extent granted therein and to
receive a share of the proceeds thereof, if any, after payment in full of
the
First Lien Obligations; provided
however,
that
nothing in this paragraph shall be construed to impair the right of the Second
Lien Claimholders to receive payments of principal, interest, fees and other
amounts in respect of the Second Lien Obligations as provided for in the
MDS
Security Agreement and
5
the
MDS
Notes, and to enforce the making of such payments by bringing suit at law
with
respect to any unpaid amounts of such payments. Each of the Second Lien
Collateral Agent and the Second Lien Claimholders (i) further agrees that
the
Second Lien Collateral Agent and the other Second Lien Claimholders will
not
take any action that would hinder, delay, limit, impede or prohibit any exercise
of remedies by the First Lien Collateral Agent to the extent related to
satisfying the First Lien Obligations, including any collection, sale, lease,
exchange, transfer or other Disposition of the Common Collateral, whether
by
foreclosure or otherwise, or that would limit, invalidate, avoid or set aside
any Lien or Collateral Document securing or purporting to secure the First
Lien
Obligations or subordinate the priority of the First Lien Obligations to
the
Second Lien Obligations with respect to the Common Collateral or grant the
Liens
securing the Second Lien Obligations with respect to the Common Collateral
equal
in ranking to the Liens securing the First Lien Obligations and (ii) hereby
waives any and all rights it may have (other than as specified herein) as
a
junior lien creditor or otherwise (whether arising under the UCC or under
any
other Law) to object to the manner in which the First Lien Collateral Agent
or
the First Lien Claimholders seek to enforce or collect the First Lien
Obligations or the Liens now or hereafter granted in any Common Collateral
to
secure the First Lien Obligations, regardless of whether any action or failure
to act by or on behalf of the First Lien Collateral Agent or the First Lien
Claimholders is adverse to the interest of the Second Lien Claimholders.
Notwithstanding the foregoing or anything else contained herein, (i) the
Second
Lien Collateral Agent and the other Second Lien Claimholders may xxx upon
any
claim they may have with respect to the Non-Common Collateral (whether pursuant
to an Insolvency or Liquidation Proceeding or otherwise) or take any action
with
respect to the Non-Common Collateral (including, without limitation, a
Disposition of the Non-Common Collateral), the Borrower or any of its
Subsidiaries or enforce their Lien in the Non-Common Collateral, without
consent, notice or consultation with the First Lien Collateral Agent or any
other First Lien Claimholder and (ii) the Second Lien Collateral Agent and
the
other Second Lien Claimholders may xxx upon any claim they may have with
respect
to the Common Collateral (whether pursuant to an Insolvency or Liquidation
Proceeding or otherwise) or take any action with respect to the Common
Collateral (including, without limitation, a Disposition of the Common
Collateral), the Borrower or any of its Subsidiaries or enforce their Lien
in
the Common Collateral, without consent, notice or consultation with the First
Lien Collateral Agent or any other First Lien Claimholder if the First Lien
Collateral Agent or any other First Lien Claimholders has not taken any of
the
actions specified in this clause (ii) with respect to the Common Collateral
within 120 days after any First Lien Claimholder has knowledge of the occurrence
of an Event of Default under the Laurus Security Agreement and such Event
of
Default shall not have been cured and/or waived within the 120-day period
following the date on which such First Lien Claimholder has knowledge of
the
occurrence of such Event of Default; it being understood and agreed that
for
purposes of this Section
3.1,
the
First Lien Claimholders will be deemed to have knowledge of the occurrence
of an
Event of Default if any Second Lien Claimholder notifies a First Lien
Claimholder of such occurrence.
Any
proceeds of Common Collateral recovered pursuant to the actions of the Second
Lien Collateral Agent or the other Second Lien Claimholders pursuant to the
foregoing clause (ii) shall be applied in the manner specified in Section
3.2
and
shall be subject to the provisions of Section
4.1.
3.2 Application
of Proceeds of Common Collateral
All
proceeds of Common Collateral received by the First Lien Collateral Agent
(including, without limitation, any interest earned thereon) resulting from
the
sale, collection or other Disposition of Common Collateral in connection
with
any demand for payment or acceleration thereof, the exercise of any rights
or
remedies with respect to any Common Collateral securing the First Lien
Obligations and the Second Lien Obligations or the commencement or prosecution
of enforcement of any of the rights and remedies under, as applicable, the
Laurus Security Agreement, the Ancillary Agreements, the MDS Security Agreement
or the MDS Notes, or applicable Law, including without limitation the exercise
of any rights of set-off or recoupment, and the exercise of any rights or
remedies of
6
a
secured
creditor under the UCC of any applicable jurisdiction or under the Bankruptcy
Code shall be applied to the First Lien Obligations and Second Lien Obligations
as follows:
First,
to
payment of that portion of the First Lien Obligations constituting fees,
indemnities, expenses and other amounts (including the reasonable fees and
expenses of counsel) payable to the First Lien Collateral Agent in its capacity
as such;
Second,
to
payment of that portion of the First Lien Obligations constituting fees payable
to the First Lien Lenders, ratably among them in proportion to the amounts
described in this clause Second
payable
to them;
Third,
to
payment of that portion of the First Lien Obligations constituting indemnities
and other amounts (other than fees, principal and interest) payable to the
First
Lien Lenders (including the reasonable fees and expenses of counsel), ratably
among them in proportion to the amounts described in this clause Third
payable
to them;
Fourth,
to
payment of that portion of the First Lien Obligations constituting accrued
and
unpaid interest on the Loans, ratably among the First Lien Lenders in proportion
to the respective amounts described in this clause Fourth
payable
to them;
Fifth,
to
payment of that portion of the First Lien Obligations constituting unpaid
principal of the Loans, ratably under this clause Fifth
among
the First Lien Lenders in proportion to the aggregate amounts of such Loans
owing to First Lien Lenders then due and payable;
Sixth,
to
payment of that portion of the Second Lien Obligations constituting fees,
indemnities, expenses and other amounts (including the reasonable fees and
expenses of counsel) payable to the Second Lien Collateral Agent in its capacity
as such;
Seventh,
to
payment of all other Second Lien Obligations of the Borrower and its
Subsidiaries owing under or in respect of the MDS Security Agreement and
the MDS
Notes, including, without limitation, fees, unpaid principal, accrued and
unpaid
interest, indemnities and other amounts (including the reasonable fees and
expenses of counsel) that are due and payable to the Second Lien Collateral
Agent and the Second Lien Lenders, ratably based upon the respective aggregate
amounts of all such Second Lien Obligations owing to the Second Lien Lenders
on
such date; and
Last,
the
balance, if any, after all of the First Lien Obligations and Second Lien
Obligations have been paid in full, to the Borrower or as otherwise required
by
Law.
Section
4. Payments
4.1 Payments
Over
Unless
and until all First Lien Obligations shall have been paid in full, any Common
Collateral or proceeds thereof or any payment received by the Second Lien
Collateral Agent or any Second Lien Claimholder from proceeds of the Common
Collateral shall be segregated and held in trust and forthwith paid over
to the
First Lien Collateral Agent for application to the First Lien Obligations
and
Second Lien Obligations in the priority set forth in Section
3.2
in the
same form as received, with any necessary endorsements or as a court of
competent jurisdiction may otherwise direct. The First Lien Collateral Agent
is
hereby authorized to make any such endorsements as agent for the Second Lien
7
Collateral
Agent or any such Second Lien Claimholder. This authorization is coupled
with an
interest and is irrevocable.
4.2 Permitted
Payments and Prepayments of Second Lien Obligations
(a) Notwithstanding
anything to the contrary in this Agreement, the Borrower shall be entitled
to
make the required payments of interest and principal and other amounts due
in
respect of the Second Lien Obligations in accordance with, and shall otherwise
be bound in all respects by, the terms of the MDS Security Agreement and
the MDS
Notes.
(b) Notwithstanding
the foregoing provisions of Section
3.2
and
Section
4.1,
optional prepayments made pursuant to the terms of the MDS Notes may be made
and
applied to the Second Lien Obligations as specified therein.
Section
5. Other
Agreements
5.1 Amendments
to Second Lien Collateral Documents
Without
the prior written consent of the First Lien Collateral Agent, no provision
of
any Second Lien Collateral Document relating to the Common Collateral may
be
amended, supplemented or otherwise modified or entered into to the extent
such
amendment, supplement or modification, or the terms of any new Second Lien
Collateral Document, would contravene the provisions of this Agreement.
5.2 Rights
As Unsecured Creditors
Except
as
otherwise set forth in Section
3.1
of this
Agreement but subject to the penultimate sentence of Section
3.1,
the
Second Lien Collateral Agent and the Second Lien Claimholders may exercise
rights and remedies as secured creditors as to the Non-Common Collateral
and as
unsecured creditors against the Borrower in accordance with the terms of
the MDS
Security Agreement, the MDS Notes and applicable Law. Except as otherwise
set
forth in Section
3.1
of this
Agreement, the First Lien Collateral Agent and the First Lien Claimholders
may
exercise rights and remedies as secured creditors as to the Common Collateral
and as unsecured creditors against the Borrower in accordance with the terms
of
the Laurus Security Agreement, the Ancillary Agreements referred to therein
and
applicable Law. Except as otherwise set forth in Section 3.1 of this Agreement,
nothing in this Agreement shall prohibit the receipt by the Second Lien
Collateral Agent or any Second Lien Claimholder of the required payments
of
interest and principal and other amounts due in respect of the Second Lien
Obligations so long as such receipt is not the direct or indirect result
of the
exercise by the Second Lien Collateral Agent or any Second Lien Claimholders
of
rights or remedies as a secured creditor against the Common Collateral or
enforcement in contravention of this Agreement, the MDS Security Agreement
or
the MDS Notes of any Lien held by any of them in the Common Collateral. Except
as otherwise set forth in Section
3.1 of
this
Agreement, nothing in this Agreement shall prohibit the receipt by the First
Lien Collateral Agent or any First Lien Claimholder of the required payments
of
interest and principal and other amounts due in respect of the First Lien
Obligations so long as such receipt is not the direct or indirect result
of the
exercise by the First Lien Collateral Agent or any First Lien Claimholders
of
rights or remedies as a secured creditor against the Non-Common Collateral
or
enforcement in contravention of this Agreement, the Laurus Security Agreement
or
the Ancillary Agreements referred to therein of any Lien held by any of them
in
the Non-Common Collateral.
8
5.3 First
Lien Collateral Agent as Bailee; Representative; Relationship
(a) The
First
Lien Collateral Agent agrees to hold the Common Collateral that is in its
possession or “control” (as defined in the UCC) (or in the possession or
“control” of its agents or bailees) as bailee or as agent, as the case may be,
for the Second Lien Collateral Agent and any assignee solely for the purpose
of
perfecting the security interest granted in such Collateral to the Second
Lien
Collateral Agent pursuant to other applicable Collateral Documents, subject
to
the terms and conditions of this Section
5.3.
For the
avoidance of doubt, solely for purposes of perfecting the Liens in favor
of the
Second Lien Collateral Agent, the First Lien Collateral Agent agrees that
it
shall be the agent of the Second Lien Collateral Agent with respect to any
Deposit Accounts or other documents or instruments included in the Common
Collateral that are controlled or held by the First Lien Collateral
Agent.
(b) Except
as
otherwise expressly provided for herein, until the First Lien Obligations
are
paid in full, the First Lien Collateral Agent shall be entitled to deal with
the
Common Collateral in accordance with the terms of this Agreement, the Laurus
Security Agreement and the Ancillary Agreements as if the Liens of the Second
Lien Claimholders under the MDS Security Agreement and the MDS Notes did
not
exist. The rights of the Second Lien Collateral Agent and the Second Lien
Claimholders with respect to the Common Collateral shall at all times be
subject
to the terms of this Agreement.
(c) The
First
Lien Collateral Agent shall have no obligation whatsoever to the Second Lien
Collateral Agent or any Second Lien Claimholder to assure that the Common
Collateral is genuine or owned by the Borrower or to preserve the rights
or
benefits of any Person.
(d) Neither
the First Lien Collateral Agent nor any First Lien Claimholder shall have
by
reason of the Laurus Security Agreement, the Ancillary Agreements, this
Agreement or any other document a fiduciary relationship in respect of the
Second Lien Collateral Agent or any Second Lien Claimholder (each of the
First
Lien Claimholders so agreeing by its acceptance of the benefits of the Laurus
Security Agreement and the Ancillary Agreements). Neither the Second Lien
Collateral Agent nor any Second Lien Claimholder shall have by reason of
the MDS
Security Agreement and the MDS Notes, this Agreement or any other document
a
fiduciary relationship in respect of the First Lien Collateral Agent or any
First Lien Claimholder.
(e) Each
First Lien Claimholder (by its acceptance of the benefits of the Laurus Security
Agreement and the Ancillary Agreements) hereby authorizes the First Lien
Collateral Agent, upon the payment in full of the First Lien Obligations,
to
deliver to the Second Lien Collateral Agent the Common Collateral held or
received by it, together with any necessary endorsement and any other proceeds
of Common Collateral held by it.
(f) The
First
Lien Collateral Agent and the Second Lien Collateral Agent shall each be
entitled to rely upon any certificate, notice, consent or other instrument
in
writing (including any facsimile transmission) believed by such Agent to
be
genuine and correct and to have been signed or sent or made by or on behalf
of a
proper Person.
5.4 Required
Second Lien Lenders Consent to Certain Transactions
(a) Notwithstanding
anything in the Laurus Security Agreement to the contrary, the Borrower agrees
that, prior to the payment in full of the First Lien Obligations, no amendment
of the Laurus Security Agreement or waiver of the terms of the Laurus Security
Agreement shall be effective without the Borrower obtaining the consent to
such
amendment or waiver by the Required Second Lien
9
Lenders
if such amendment or waiver seeks the consent of any of the Lenders to increase
the Capital Availability Amount to an aggregate amount in excess of
$5,000,000.
(b) The
First
Lien Collateral Agent agrees not to subordinate any Lien on the Common
Collateral to the Lien of any other creditor of the Borrower without the
consent
of the Required Second Lien Lenders.
5.5 Actions
in Connection with Certain Refinancings
If,
at
any time concurrently with or after the First Lien Obligations are deemed
for
purposes of this Agreement “paid in full”, the Borrower enters into a
Refinancing (as defined below) of any First Lien Obligation, then the
obligations under such Refinancing shall automatically and immediately be
treated as First Lien Obligations for all purposes of this Agreement, including
for purposes of the Lien priorities and rights in respect of Common Collateral
set forth herein, and the first lien collateral agent under the documents
and
other instruments evidencing such Refinancing (the “New
First Lien Agent”)
shall
be deemed to be the First Lien Collateral Agent. Upon receipt of a notice
stating that the Borrower has entered into a new loan document in connection
with a Refinancing (which notice shall include the identity of the New First
Lien Agent), the Second Lien Collateral Agent shall promptly enter into such
documents and agreements (including amendments or supplements to this Agreement)
as the Borrower or such New First Lien Agent may reasonably request in order
to
provide to the New First Lien Agent the rights contemplated hereby, in each
case
consistent in all material respects with the terms of this Agreement. As
used in
this Section
5.5,
the
term “Refinancing”
means
any modification, refinancing, refunding, renewal or extension of any First
Lien
Obligation, subject to the limitation in Section
5.4(a)
hereof.
Section
6. Insolvency
or Liquidation Proceedings
6.1 Relief
From the Automatic Stay
Subject
to the penultimate sentence of Section 3.1, the Second Lien Collateral Agent
and
each Second Lien Claimholder agrees that it will not seek relief from the
automatic stay or any other stay in any Insolvency or Liquidation Proceeding
in
respect of the Common Collateral, without the prior written consent of the
First
Lien Collateral Agent and the Required First Lien Lenders.
6.2 No
Waiver
Nothing
contained herein shall prohibit or in any way limit the First Lien Collateral
Agent or any First Lien Claimholder from objecting in any Insolvency or
Liquidation Proceeding or otherwise to any action taken by the Second Lien
Collateral Agent or any Second Lien Claimholder, including, without limitation,
the seeking by the Second Lien Collateral Agent or any Second Lien Claimholder
of Adequate Protection or the asserting by any Second Lien Claimholder of
any of
its rights and remedies under the MDS Security Agreement or the MDS Notes
or
otherwise.
6.3 Preference
Issues
If
any
Claimholder is required in any Insolvency or Liquidation Proceeding or otherwise
to turn over or otherwise pay to the estate of the Borrower any amount received
in connection with the Common Collateral (a “Recovery”),
then
the First Lien Obligations or Second Lien Obligations, as the case may be,
of
such Claimholder shall be reinstated to the extent of such Recovery and such
Claimholder shall be entitled to receive payment in full of all such recovered
amounts. If this Agreement shall have been terminated prior to such Recovery,
this Agreement shall be reinstated in full force and effect, and
10
such
prior termination shall not diminish, release, discharge, impair or otherwise
affect the obligations of the parties hereto.
Section
7. Waivers;
etc.
7.1 No
Waiver of Provisions
(a) No
right
of any of the First Lien Claimholders to enforce any provision of this Agreement
shall at any time in any way be prejudiced or impaired by any act or failure
to
act on the part of the Borrower or any of its Subsidiaries or by any act
or
failure to act by any First Lien Claimholder or the First Lien Collateral
Agent
(subject, however, to the penultimate sentence of Section
3.1),
or by
any noncompliance by any Person with the terms, provisions and covenants
of this
Agreement, the Laurus Security Agreement, the Ancillary Agreements, the MDS
Security Agreement or the MDS Notes, regardless of any knowledge thereof
which
the First Lien Collateral Agent or the First Lien Claimholders, or any of
them,
may have or be otherwise charged with.
(b) Each
of
the Second Lien Collateral Agent and each Second Lien Claimholder also agrees
that the First Lien Claimholders and the First Lien Collateral Agent shall
have
no liability to the Second Lien Collateral Agent or any Second Lien
Claimholders, and the Second Lien Collateral Agent and each Second Lien
Claimholder hereby waives any claim against any First Lien Claimholder or
the
First Lien Collateral Agent arising out of any and all actions which any
of the
First Lien Claimholders or the First Lien Collateral Agent may take or permit
or
omit to take with respect to (i) the Laurus Security Agreement or the Ancillary
Agreements, (ii) the collection of the First Lien Obligations or (iii) the
foreclosure upon, or sale, liquidation or other Disposition of, the Common
Collateral (except only, in the case of Common Collateral, to the extent
such
foreclosure, sale, liquidation or other disposition is not made in a
commercially reasonable manner in accordance with the UCC or contrary to
this
Agreement or the Laurus Security Agreement, the Ancillary Agreements, the
MDS
Security Agreement or the MDS Notes). The Second Lien Collateral Agent and
each
Second Lien Claimholder agrees that the First Lien Collateral Agent and the
First Lien Claimholders have no duty to them in respect of the maintenance
or
preservation of the Common Collateral.
(c) Unless
and until the First Lien Obligations are paid in full, the Second Lien
Collateral Agent and each Second Lien Claimholder agrees not to assert and
hereby waives, to the fullest extent permitted by law, any right to demand,
request, plead or otherwise assert or otherwise claim the benefit of, any
marshaling, appraisal, valuation or other similar right that may otherwise
be
available under applicable law or any other similar rights a secured creditor
may have under applicable law with respect to the Common
Collateral.
7.2 Obligations
Unconditional
All
rights, interests, agreements and obligations of the First Lien Collateral
Agent
and the First Lien Claimholders and the Second Lien Collateral Agent and
the
Second Lien Claimholders, respectively, hereunder shall remain in full force
and
effect irrespective of:
(a) any
lack
of validity or enforceability of the Laurus Security Agreement, the Ancillary
Agreements, the MDS Security Agreement or the MDS Notes;
(b) any
change in the time, manner or place of payment of, or in any other terms
of, all
or any of the First Lien Obligations or Second Lien Obligations, or any
amendment or waiver or other modification, including, without limitation,
any
increase in the amount of Second Lien Obligations, whether by course of conduct
or otherwise, of the terms of the Laurus Security Agreement or of the terms
11
of
the
Ancillary Agreements, the MDS Security Agreement or the MDS Notes made in
accordance with their terms;
(c) any
exchange, release or nonperfection of any security interest in any Common
Collateral or any other collateral, or any release, amendment, waiver or
other
modification, whether in writing or by course of conduct or otherwise, of
all or
any of the First Lien Obligations or Second Lien Obligations or any guarantee
thereof;
(d) the
commencement of any Insolvency or Liquidation Proceeding; or
(e) any
other
circumstances which otherwise might constitute a defense available to, or
a
discharge of, the Borrower in respect of the First Lien Obligations or of
any
Second Lien Claimholder in respect of this Agreement.
Section
8. Miscellaneous
8.1 Second
Lien Lenders’ Representation
The
Second Lien Lenders hereby represent and warrant that all Second Lien Lenders
party to the MDS Security Agreement and MDS Notes are signatories hereto.
8.2 Consent
to Control Agreement
The
Second Lien Lenders hereby consent to the terms of the Deposit Account Control
Agreement between the Second Lien Collateral Agent and Fleet National Bank
with
respect to the Borrower’s deposit account with Fleet National Bank, Account No.
9429398649, and authorize the Second Lien Collateral Agent to execute such
Deposit Account Control Agreement on our behalf.
8.3 Notice
from First Lien Collateral Agent
The
First
Lien Collateral Agent hereby agrees to give prior written notice to the Second
Lien Collateral Agent, the Second Lien Lenders and Fleet National Bank of
the
date of termination of the Laurus Security Agreement.
8.4 Conflicts
Except
as
expressly provided herein, in the event of any conflict between the provisions
of this Agreement and the provisions of the Laurus Security Agreement, the
Ancillary Agreements, the MDS Security Agreement or the MDS Notes with respect
to the Common Collateral or the enforcement of the Claimholders’ Liens, rights
or remedies with respect thereto, the provisions of this Agreement shall
govern.
It is further expressly understood that the Lien priorities and other terms
referred to herein shall not in any way modify or relieve the Borrower or
any of
its Subsidiaries of or from any liability or obligation that the Borrower
or any
of its Subsidiaries may have to the Claimholders under the Laurus Security
Agreement, the Ancillary Agreements, the MDS Security Agreement or the MDS
Notes.
8.5 Continuing
Nature of this Agreement
This
Agreement (other than the provisions in Section
3.2)
shall
continue to be effective until all First Lien Obligations shall have been
paid
in full, and the provisions of Section
3.2
shall
continue to be effective until all First Lien Obligations and Second Lien
Obligations have been paid in full. This is a continuing agreement of lien
subordination and the First Lien Claimholders may continue,
12
at
any
time and without notice to the Second Lien Collateral Agent or any Second
Lien
Claimholder, to extend credit and other financial accommodations and lend
monies
to or for the benefit of the Borrower or any Subsidiary on the faith hereof.
Except as expressly provided herein, the Second Lien Collateral Agent and
each
Second Lien Claimholder hereby waives any right it may have under applicable
law
to revoke this Agreement or any of the provisions of this Agreement. The
terms
of this Agreement shall survive, and shall continue in full force and effect,
in
any Insolvency or Liquidation Proceeding.
8.6 Amendments;
Waivers
No
amendment, modification or waiver of any of the provisions of this Agreement
by
the Second Lien Collateral Agent, the Required Second Lien Lenders, the First
Lien Collateral Agent, the Required First Lien Lenders or the Borrower shall
be
deemed to be made unless the same is made in writing and in accordance with
Section
5.4
of this
Agreement; provided,
however,
that no
amendment, modification or waiver of any of the provisions of this Agreement
shall be effective unless approved by the Required First Lien Lenders and
the
Required Second Lien Lenders.
8.7 Notices
Unless
otherwise specifically provided herein, any notice or other communication
herein
required or permitted to be given shall be made in accordance with Section
27
of the
Laurus Security Agreement in the case of the First Lien Collateral Agent
or any
First Lien Lender or in accordance with Section 6(f)
of the
MDS Security Agreement in the case of the Second Lien Collateral Agent or
any
Second Lien Lender.
8.8 Further
Assurances
The
Second Lien Collateral Agent and each Second Lien Claimholder agrees that
each
of them shall, at the Borrower’s expense, take such further action and shall
execute and deliver to the First Lien Collateral Agent and the First Lien
Claimholders such additional documents and instruments (in recordable form,
if
requested) as the First Lien Collateral Agent or the other First Lien
Claimholders may reasonably request to effectuate the terms of and the Lien
subordination contemplated by this Agreement.
8.9 Governing
Law
This
Agreement shall be governed by, and construed in accordance with, the law
of the
State of New York.
8.10 Specific
Performance
Each
of
the First Lien Collateral Agent, the Second Lien Collateral Agent and the
Claimholders may demand specific performance of this Agreement. Each of the
First Lien Collateral Agent and each First Lien Claimholder (by its acceptance
of the benefits of the Laurus Security Agreement and the Ancillary Agreements),
the Second Lien Collateral Agent, and each Second Lien Claimholder, as the
case
may be, hereby irrevocably waives any defense based on the adequacy of a
remedy
at law and any other defense which might be asserted to bar the remedy of
specific performance in any action which may be brought by the other
Person.
8.11 Section
Titles; Time Periods
The
section titles contained in this Agreement are and shall be without substantive
meaning or content of any kind whatsoever and are not a part of this Agreement,
except when used to
13
reference
such sections. In the computation of time periods, unless otherwise specified,
the word “from”
means
“from
and including”
and
each of the words “to”
and
“until”
means
“to
but excluding”
and
the
word “through”
means
“to
and including”.
The
term “including”
when
used in this Agreement means “including without limitation”, except when used in
the computation of time periods.
8.12 Counterparts
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument. Delivery by telecopier of an executed counterpart of a signature
page to this Agreement shall be effective as delivery of an original executed
counterpart of this Agreement. The First Lien Collateral Agent and the Second
Lien Collateral Agent may also require that any such documents and signatures
delivered by telecopier be confirmed by a manually-signed original thereof;
provided
that the
failure to request or deliver the same shall not limit the effectiveness
of any
document or signature delivered by telecopier.
8.13 Effectiveness
This
Agreement shall become effective when executed and delivered by the parties
hereto. This Agreement shall be effective both before and after the commencement
of any Insolvency or Liquidation Proceeding. All references to the Borrower
or
any of its Subsidiaries shall include the Borrower or any of its Subsidiaries
as
debtor and debtor-in-possession and any receiver or trustee for the Borrower
or
any of its Subsidiaries (as the case may be) in any Insolvency or Liquidation
Proceeding.
[SIGNATURE
PAGES
FOLLOW]
14
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first written above.
|
LAURUS
MASTER FUND, LTD,
as
First Lien Collateral
Agent
and as First Lien Lender
By:
Name:
Title:
|
|
MDS
ACQUISITION, INC.,
as
Second Lien Lender
By:
Name:
Title:
|
|
XXX.XXX,
INC.,
as
Borrower
By:
Name:
Title:
|
15
Exhibit
E
Form
of Security Agreement
SECURITY
AGREEMENT
This
Security Agreement (this
“Agreement”)
is
entered into as of August __, 2006, between XXX.xxx., Inc., a Delaware
corporation (“Borrower”),
and
MDS Acquisition, Inc., a Delaware corporation (“Lender”).
RECITALS
WHEREAS,
Borrower has issued to Lender (i) four (4) subordinated secured convertible
promissory notes in the original aggregate principal amount of Two Million
Dollars ($2,000,000)(the “Convertible
Notes”),
and
(ii) a subordinated secured promissory note in the principal amount of Thirteen
Million Two Thousand Dollars ($13,002,000)(the “Nonconvertible
Note”,
and
together with the Convertible Notes the “Notes”),
pursuant to the Purchase Agreement, dated as of the date hereof, between
Borrower, Lender and Lender’s parent company, MegaPath Inc. (the “Purchase
Agreement”).
The
parties wish to enter into this Agreement to secure Borrower’s obligations under
the Notes.
NOW,
THEREFORE, IT IS AGREED THAT:
1.
Definitions.
Where
applicable and except as otherwise defined herein, terms used in this Agreement
shall have the meanings assigned to them in the UCC. For purposes of this
Agreement, the following terms shall have the following meanings:
(a) “Affiliate”
means,
with respect to any Person, any Person that owns or controls directly or
indirectly such Person, any Person that controls or is controlled by or is
under
common control with such Person, and each of such Person’s senior executive
officers, directors, and partners.
(b) “Borrower’s
Books”
means
all of Borrower’s books and records including: ledgers; records concerning
Borrower’s assets or liabilities, the Collateral, business operations or
financial condition; and all computer programs, or tape files, and the
equipment, containing such information.
(c) “Collateral”
means
the personal property described in Exhibit A.
(d) “Change
of Control”
means
(a)
any
merger or consolidation of Borrower with or into any other corporation or
other
entity, or any other reorganization of Borrower, in which the holders of
Borrower’s outstanding capital stock immediately prior to such transaction do
not, immediately after such transaction, retain a majority of the voting
power
of the surviving entity or its parent, other than a transaction which results
in
Lender or an Affiliate of Lender holding such majority voting power, (b)
any
Person or any Persons (other than Lender and/or Affiliate(s) of Lender) acting
together that would constitute a “group” for purposes of Section 13(d) under the
Securities Exchange Act of 1934, or any successor provision thereto, shall
acquire beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act, or any successor provision thereto) in a single
transaction or a series of related transactions, of more than 50% of the
aggregate voting power of Borrower’s equity securities; or (c) any sale of all
or substantially all of Borrower’s assets, other than a sale to Lender or an
Affiliate of Lender.
(e) “Contingent
Obligation”
means,
as applied to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another, including any
such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or
sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect
to undrawn letters of credit, corporate credit cards, or merchant services
issued or provided for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other
agreement or arrangement designed to protect such Person against fluctuation
in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term “Contingent Obligation” shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated
or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in
good
faith; provided, however, that such amount shall not in any event exceed
the
maximum amount of the obligations under the guarantee or other support
arrangement.
(f) “Copyrights”
means
any and all copyright rights, copyright applications, copyright registrations
and like protections in each work or authorship and derivative work thereof,
whether published or unpublished and whether or not the same also constitutes
a
trade secret, now or hereafter existing, created, acquired or held.
(g) “Equipment”
means
all present and future machinery, equipment, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments in which Borrower has any
interest.
(h) “ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder.
(i) “GAAP”
means
generally accepted accounting principles as from time to time set forth in
the
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements by the Financial Accounting
Standards Board or in such opinions and statements of such other entities
as
shall be approved by a significant segment of the accounting profession in
the
United States.
(j) “Indebtedness”
means
(a) all indebtedness for borrowed money or the deferred purchase price of
property or services, including reimbursement and other obligations with
respect
to surety bonds and letters of credit, (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all capital lease
obligations and (d) all Contingent Obligations.
(k) “Intellectual
Property Collateral”
means
all of Borrower’s right, title, and interest in and to the
following:
| i. |
Copyrights,
Trademarks and Patents;
|
2
| ii. |
All
trade secrets, and all intellectual property rights in computer
software
and computer software products now or hereafter existing, created,
acquired or held;
|
| iii. |
All
design rights which may be available to Borrower now or hereafter
existing, created, acquired or
held;
|
| iv. |
All
claims for damages by way of past, present and future infringement
of any
of the rights included above, with the right, but not the obligation,
to
xxx for and collect such damages for said use or infringement of
the
intellectual property rights identified
above;
|
| v. |
All
licenses or other rights to use any of the Copyrights, Patents
or
Trademarks, and all license fees and royalties arising from such
use to
the extent permitted by such license or rights;
|
| vi. |
All
amendments, renewals and extensions of any of the Copyrights, Trademarks
or Patents; and
|
| vii. |
All
proceeds and products of the foregoing, including all payments
under
insurance or any indemnity or warranty payable in respect of any
of the
foregoing.
|
(l) “Inventory”
means
all present and future inventory in which Borrower has any interest, including
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products intended for sale or lease or to be
furnished under a contract of service, of every kind and description now
or at
any time hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily out
of its
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale
or
disposition of any of the foregoing and any documents of title representing
any
of the above, and Borrower’s Books relating to any of the
foregoing.
(m) “Investment”
means
any beneficial ownership of (including stock, partnership interest or other
securities) any Person, or any loan, advance or capital contribution to any
Person.
(n) “Lien”
means
any lien, pledge, mortgage, or security interest.
(o) “Material
Adverse Effect”
means
a
material adverse effect on (i) the business operations or condition (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole or (ii)
the
ability of the Borrower to repay the Obligations or otherwise perform its
obligations under the Notes or (iii) the priority of Lender’s security interests
in the Collateral.
3
(p) “Patents”
means
all patents, patent applications and like protections including improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
(q) “Permitted
Investments”
means:
| i. |
Investments
existing on the date stated above;
and
|
| ii. |
(i)
marketable direct obligations issued or unconditionally guaranteed
by the
United States of America or any agency or any State thereof maturing
within one (1) year from the date of acquisition thereof and (ii)
commercial paper maturing no more than one (1) year from the date
of
creation thereof and currently having rating of at least A-2 or
P-2 from
either Standard & Poor’s Corporation or Xxxxx’x Investors Service.
|
(r) “Permitted
Liens”
means:
(i) Liens in favor of Lender, (ii) Liens in favor of prior secured creditors
described in Exhibit B; (iii) Liens for taxes, assessments or other governmental
charges which are not yet due and payable or which are being contested in
good
faith with a reserve or other appropriate provision having been made therefore;
(iv) Liens of landlords (including security deposits under leases), carriers,
warehousemen, mechanics, materialmen and other similar liens imposed by law,
which are incurred in the ordinary course of business for sums not more than
ninety (90) days delinquent or which are being contested in good faith;
provided
that a
reserve or other appropriate provision shall have been made therefor; (v)
Liens
incurred or deposits made in the ordinary course of business in connection
with
workers’ compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations,
surety, stay, customs and appeal bonds, regulatory bonds, bids, leases,
government contracts, trade contracts, performance and return of money bonds
and
other similar obligations (exclusive of obligations for the payment of borrowed
money); (vi) Liens securing contingent reimbursement obligations under letters
of credit; (vii) Liens on equipment and related software to secure (1) the
purchase price and related soft costs of such equipment and related software,
as
applicable, or (2) lease obligations or indebtedness incurred solely for
the purpose of financing the acquisition of such equipment and related software;
provided that
such
Liens are confined solely to the equipment and related software so acquired,
and
the proceeds thereof, and the amount secured does not exceed the acquisition
price thereof; (viii) liens on equipment and related software when acquired;
(ix) licenses or sublicenses and any interest or title of a licensor or licensee
under any license or sublicense; (x) Liens on xxxxxxx money deposits required
under a letter of intent or purchase agreement; (xi) Liens on escrowed cash,
representing a portion of the proceeds of sales or other transactions,
established to satisfy contingent post closing obligations (including earn-outs,
indemnities and working capital adjustments); (xii) leases or subleases granted
in the ordinary course of business; (xiii) Liens in favor of customs and
revenue
authorities which secure payment of customs duties in connection with the
importation of goods; (xiv) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of real property or minor imperfections in title
thereto
which, in the aggregate, are not material in amount, and which do not, in
the
aggregate, materially detract from the value of the real property of
4
Borrower;
(xv) Liens consisting of bankers’ liens and rights of setoff, in each case,
arising by operation of law, and Liens on documents presented in letter of
credit drawings; (xvi) assignments of uncollectible accounts receivable to
collection agencies in the ordinary course of business; and (xvii) any zoning
or
similar law or right reserved to or vested in any governmental authority
to
control or regulate the use of any real property.
(s) “Permitted
Indebtedness”
means:
(i) Indebtedness
existing on the date hereof and disclosed in the Schedule hereto;
(ii) Indebtedness
secured by a Lien described in clause (vii) of the defined term “Permitted
Liens”;
(iii) Subordinated
Debt; and
(iv) Indebtedness
incurred to refinance any Indebtedness permitted under the foregoing clauses,
provided that (1) the principal amount of such Indebtedness does not exceed
the principal amount of the Indebtedness being refinanced, (2) such
Indebtedness has a Weighted Average Life to Maturity equal to or greater
than
the Weighted Average Life to Maturity of the Indebtedness being refinanced,
and
(3) the interest rate with respect to such Indebtedness is less than or
equal to that of the Indebtedness being refinanced. “Weighted Average Life to
Maturity” means, when applied to any Indebtedness at any date, the number of
years obtained by dividing (a) the sum of the products obtained by
multiplying (x) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal, including
payment
at final maturity, in respect thereof, by (y) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date
and
the making of such payment, by (b) the then outstanding principal amount of
such Indebtedness.
(t) “Person”
means
any individual, sole proprietorship, partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or governmental agency.
(u) “Regulated
Entity”
means
DSLnet Communications, LLC and DSLnet Communications VA, Inc.
(v) “Subordinated
Debt”
means
any indebtedness incurred by Borrower that is subordinated to the debt owing
by
Borrower to Lender on terms acceptable to Lender (and identified as being
such
by Borrower and Lender).
(w) “Subsidiary”
means
any corporation, company or partnership in which (i) any general partnership
interest or (ii) more than 50% of the stock or other units of ownership which
by
the terms thereof has the ordinary voting power to elect the board of directors,
managers or trustees of the entity, at the time as of which any determination
is
being made, is owned by Borrower, either directly or through an Affiliate
of
Borrower.
5
(x) “Trademarks”
means
any trademark and servicemark rights, whether registered or not, applications
to
register and registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and symbolized by such
trademarks.
(y) “UCC”
means
the Uniform Commercial Code as in effect in the State of Delaware from time
to
time.
Capitalized
terms used in this Agreement and not otherwise defined herein shall have
the
meanings set forth in the Purchase Agreement.
2.
Grant
of Security Interest.
(a) Security
Interest.
As
security for the payment and performance of the Obligations (as defined below),
Borrower hereby grants to Lender a continuing security interest in all of
Borrower’s right, title and interest in and to in the Collateral.
(b) Obligations
Secured.
The
security interest granted hereunder secures payment and performance of all
obligations of Borrower to Lender under this Agreement and all obligations
of
Borrower to Lender under the Notes, including all unpaid principal of the
Notes,
all interest accrued thereon, and all other amounts payable by Borrower to
Lender under the Notes, whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, including any interest
that accrues after the commencement of an Insolvency Proceeding (collectively,
the “Obligations”).
(c) Authorization
to File Financing Statement.
Borrower authorizes Lender to file one or more financing statements describing
the Collateral with the Secretary of State of the State of Delaware. Lender
shall promptly provide Borrower with copies of all such financing statements
filed.
3.
Affirmative
Covenants.
So long
as the Obligations remain outstanding (other than contingent indemnification
obligations), Borrower covenants to Lender that it will do all of the
following:
(a) Good
Standing.
Borrower
shall maintain its and each of its Subsidiaries’ corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification
as a
foreign corporation in each jurisdiction in which it is required under
applicable law, except for those jurisdictions where Borrower determines
to
relinquish its CLEC permit or to otherwise cease providing services. Borrower
shall maintain, and shall cause each of its Subsidiaries to maintain, in
force
all licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
(b) Government
Compliance.
Borrower shall meet, and shall cause each Subsidiary to meet, the minimum
funding requirements of ERISA with respect to any employee benefit plans
subject
to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply,
with
all statutes, laws, ordinances and government rules and regulations to which
it
is subject, noncompliance with which could have a Material Adverse
Effect.
6
(c) Protection
of Collateral.
Borrower shall keep the Collateral in good condition and repair, maintain,
preserve, defend and protect the Collateral from loss, damage or deterioration
(ordinary wear and tear excepted), except to the extent Borrower has determined,
in its reasonable business judgment, that such Collateral is no longer useful
in
the operation of its business.
(d) Notice
of Certain Actions; Location of Collateral.
Borrower shall give prompt written notice to Lender of: (i) any change in
the
location of its chief executive office; (ii) any change in its corporate
name;
(iii) any change its jurisdiction of organization; and (iv) any change in
its
executive officers.
(e) Inspection.
Upon
reasonable prior written notice, Borrower shall provide a representative
of
Lender with access to the Collateral and all books and records relating thereto
for the purpose of conducting an inspection and audit of the Collateral,
at
Lender’ sole cost and expense, at reasonable times during regular business
hours.
(f) Insurance.
Borrower shall carry and maintain in full force and effect, at its own expense
and with financially sound and reputable insurance companies, insurance with
respect to the Collateral in such amounts, with such deductibles and covering
such risks as is customarily carried by companies engaged in the same or
similar
businesses of similar size and owning similar properties in the localities
where
it operates or as reasonably determined by its Board of Directors or executive
officers.
(g) Taxes.
Borrower shall make, and shall cause each of its Subsidiaries to make, due
and
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Lender, on demand, appropriate certificates attesting to the payment
or deposit thereof; and Borrower will make, and will cause each of its
Subsidiaries to make, timely payment or deposit of all material tax payments
and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower or such Subsidiary
has
made such payments or deposits; provided that Borrower or a Subsidiary need
not
make any payment if the amount or validity of such payment is being contested
in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower or such Subsidiary.
(h) Intellectual
Property Rights.
i. Within
forty-five (45) days after the end of each fiscal quarter, Borrower shall
give
Lender written notice of any applications or registrations of intellectual
property rights filed with the United States Patent and Trademark Office
during
such fiscal quarter, including the date of such filing and the registration
or
application numbers, if any. Borrower (i)shall give Lender not less than
30 days
prior written notice of the filing of any applications or registrations with
the
United States Copyright Office, including the title of such intellectual
property rights to be registered, as such title will appear on such applications
or registrations, and the date such applications or registrations will be
filed,
and (ii) prior to the filing of any such applications or registrations, shall
execute such documents as Lender may reasonably request for Lender to maintain
7
its
perfection in such intellectual property rights to be registered by Borrower,
and upon the request of Lender, shall file such documents simultaneously
with
the filing of any such applications or registrations. Upon filing any such
applications or registrations with the United States Copyright Office, Borrower
shall promptly provide Lender with (i) a copy of such applications or
registrations, without the exhibits, if any, thereto, (ii) evidence of the
filing of any documents requested by Lender to be filed for Lender to maintain
the perfection and priority of its security interest in such intellectual
property rights, and (iii) the date of such filing.
ii. Borrower
shall execute and deliver such additional instruments and documents from
time to
time as Lender shall reasonably request to perfect and maintain the priority
of
Lender's security interest in the Intellectual Property Collateral. Borrower
shall (i) protect, defend and maintain the validity and enforceability of
the
trade secrets, Trademarks, Patents and Copyrights to the extent that the
failure
to do so could be reasonably expected to have a Material Adverse Effect,
(ii)
use commercially reasonable efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Lender in writing of material
infringements detected and (iii) not allow any material Trademarks, Patents or
Copyrights to be abandoned, forfeited or dedicated to the public without
the
written consent of Lender, which shall not be unreasonably
withheld.
iii. Lender
shall have the right, but not the obligation, to take, at Borrower’s sole
expense, any actions that Borrower is required under this section to take
but
which Borrower fails to take, after 15 days' notice to Borrower. Borrower
agrees
to reimburse and indemnify Lender for all reasonable and documented costs
and
reasonable expenses incurred in the reasonable exercise of its rights under
this
section.
(i) Further
Assurances.
From
time to time, Borrower shall execute, deliver, file and record such further
instruments, endorsements and other documents, and take such further action
as
Lender may reasonably request to perfect and continue the perfection, maintain
the priority of, or provide notice of, Lenders’ security interest in the
Collateral.
4.
Negative
Covenants.
So long
as the Obligations remain outstanding (other than contingent indemnification
obligations), Borrower covenants to Lender that it will not do any of the
following:
(a) Clear
Title.
Grant
or suffer to exist any Lien against any of the Collateral, other than Permitted
Liens.
(b) Dispositions.
Convey,
sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”),
or
permit any of its Subsidiaries to Transfer, all or any part of its material
business properties or assets, other than: (i) Transfers of Inventory in
the
ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; or (iii) Transfers of worn-out, obsolete,
excess or retired (i.e.,
no
longer actively deployed) Equipment.
(c) Indebtedness.
Create,
incur, assume or be or remain liable with respect to any indebtedness, or
permit
any Subsidiary so to do, other than Permitted Indebtedness.
8
(d) Distributions;
Splits; Reclassifications; Etc.
Declare, set aside, make or pay any dividends or other distribution, payable
in
cash, stock, property or otherwise, with respect to any of its capital stock,
or
split, combine, subdivide, redeem or reclassify any of its capital stock
or
issue or authorize the issuance of any other securities in respect of, in
lieu
of or in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock, or permit
any
Subsidiary to take any of the foregoing described actions.
(e) Investments.
Directly or indirectly acquire or own, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, other than Permitted
Investments; or maintain or invest any of its property with a Person other
than
Lender or permit any of its Subsidiaries to do so unless such Person has
entered
into an account control agreement with Lender in form and substance satisfactory
to Lender; or suffer or permit any Subsidiary to be a party to, or be bound
by,
an agreement that restricts such Subsidiary from paying dividends or otherwise
distributing property to Borrower.
(f) Transactions
with Affiliates.
Directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction with
a non-affiliated Person.
(g) Subordinated
Debt.
Make
any payment in respect of any Subordinated Debt, or permit any of its
Subsidiaries to make any such payment, except in compliance with the terms
of
such Subordinated Debt, or amend any provision contained in any documentation
relating to the Subordinated Debt without Lender’s prior written
consent.
(h) [Intentionally
Omitted].
(i) Compliance.
Become
an “investment company” or be controlled by an “investment company,” within the
meaning of the Investment Company Act of 1940, or become principally engaged
in,
or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of any loan secured hereby for such purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal
Fair
Labor Standards Act or violate any law or regulation, which violation could
reasonably be expected to have a Material Adverse Effect, or a material adverse
effect on the Collateral or the priority of Lender’s Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing.
(j) Negative
Pledge Agreements.
Permit
the inclusion in any contract to which Borrower becomes a party (other than
the
documents evidencing and relating to the loans extended by Laurus Master
Fund,
Ltd.) of any provisions that could restrict or invalidate the creation or
enforcement of a security interest in any of Borrower’s property.
(k) Capital
Stock.
Issue,
sell, pledge, dispose of, grant, encumber, authorize or propose the issuance,
sale, pledge, disposition, grant or encumbrance of any shares of its capital
9
stock
of
any class, or any options, warrants, convertible securities or other rights
of
any kind to acquire any shares of such capital stock or any other ownership
interest (including, without limitation, any phantom interest, but excluding
any
shares of common stock issued upon conversion of the Convertible Notes),
of
Borrower or any of the Subsidiaries, other than issuances of shares of common
stock pursuant to the Plans or upon exercise of options, warrants or other
convertible securities outstanding as of the date hereof.
(l) Corporate
Governance Matters.
Amend
or waive any provisions of its Certificate of Incorporation or Bylaws, or
change
the number of directors on Borrower’s Board of Directors, other than as
contemplated by the Purchase Agreement.
(m) Mergers
or Acquisitions.
Merge
or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with
or into any other non-Affiliate business organization, other than Lender
or its
Affiliates, or acquire, or permit any of its Subsidiaries to acquire, all
or
substantially all of the capital stock or property of another
Person.
5.
Events
of Default; Remedies.
(a) The
occurrence of any one or more of the following events shall constitute an
"Event
of Default"
hereunder:
(i) Borrower’s
failure to pay any amount payable under either of the Notes in accordance
with
the terms thereof; provided,
however,
that
Borrower shall have three (3) business days in which to cure any failure
to pay
interest due under any of the Notes;
(ii) Borrower’s
failure to issue any Common Stock issuable under any of the Convertible Notes
in
accordance with the terms thereof upon Lender’s exercise of the Conversion
Right, as defined in such Convertible Note;
(iii) Borrower’s
breach of any representation and warranty made to Lender in any of the
Transaction Documents or Borrower’s breach of any covenant under any of the
Transaction Documents which is not cured within ten (10) business days of
the
earlier of Borrower learning of such breach or of notice thereof from Lender;
provided,
however,
that if
the cure will take more than ten (10) business days and Borrower is diligently
pursuing such cure during such ten (10) business day period, then an Event
of
Default shall not occur with respect to such breach if it is cured within
twenty
(20) business days of the earlier of an officer of Borrower learning of such
breach or receipt by Borrower of notice thereof from Lender;
(iv) Borrower
(A) has an order for relief entered against it under the federal Bankruptcy
Code, (B) makes an assignment for the benefit of creditors, (C) applies for
or
seeks the appointment of a receiver, liquidator, assignee, trustee or other
similar official for it or of any substantial part of its property or any
such
official is appointed, other than upon Borrower’s request, and such unrequested
appointment continues for sixty (60) days, (D) institutes proceedings seeking
an
order for relief under the federal Bankruptcy Code or seeking to adjudicate
it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or any of its
debts
under other applicable federal or state law relating to creditor
10
rights
and remedies, or any such proceeding is filed against it, other than upon
Borrower’s request, and such unrequested proceeding continues undismissed or
unstayed for thirty (30) days, or (E) takes corporate action in furtherance
of
any of the foregoing actions;
(v) the
occurrence and continuance of any default under any lease or agreement for
borrowed money having an outstanding principal amount in excess of $100,000
that
gives the lessor or the creditor of such indebtedness, as applicable, the
right
to accelerate the lease payments or the indebtedness, as applicable, or the
right to exercise any rights or remedies with respect to any of the Collateral;
(vi) the
entry
of any judgment or order against Borrower which remains unsatisfied or
undischarged and in effect for forty-five (45) days after such entry without
a
stay of enforcement or execution;
(vii) the
occurrence of a Change of Control; or
(viii) any
material portion of Borrower’s assets is attached, seized, subjected to a writ
or distress warrant, or is levied upon, or comes into the possession of any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged
or
rescinded within ten (10) business days, or Borrower is enjoined, restrained,
or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs.
(b) Upon
the
occurrence and during the continuance of any Event of Default, Lender, may
at
any time, do any of the following:
(i) accelerate
the payment of the amounts owing under the Notes;
(ii) enforce
the Notes by exercise of the rights and remedies under this Agreement or
granted
to Lender by applicable law; and
(iii) exercise,
in addition to all other rights and remedies granted in this Agreement, all
rights and remedies of a secured party under the UCC and other applicable
laws.
(c) Without
limiting the generality of the foregoing provisions in Section 5(b), Lender
shall have the right to sell or otherwise dispose of all or any part of the
Collateral, either at public or private sale, in lots or in bulk, for cash
or
for credit, with or without warranties or representations, and upon such
terms
and conditions, all as Lender, in its sole discretion, may deem advisable,
and
it shall have the right to purchase at any such sale. Borrower agrees that
a
notice sent at least fifteen (15) days before the time of any intended public
sale or of the time after which any private sale or other disposition of
the
Collateral is to be made shall be reasonable notice of such sale or other
disposition. The proceeds of any such sale or other Collateral disposition
shall
be applied, first to the expenses of retaking, holding, storing, processing
and
preparing for sale, selling, and the like, and to Lender's reasonable and
documented attorneys’ fees and legal expenses, and then to the Obligations and
to the payment of any other amounts required by applicable law, after which
Lender shall account to Borrower for any surplus proceeds. If, upon the sale
or
other disposition of the
11
Collateral,
the proceeds thereof are insufficient to pay all amounts to which Lender
is
legally entitled, Borrower shall be liable for the deficiency, together with
interest thereon at the default rate specified in the Notes, and the reasonable
and documented fees of any attorneys Lender employs to collect such deficiency;
provided,
however,
that
the foregoing shall not be deemed to require Lender to resort to or initiate
proceedings against the Collateral prior to the collection of any such
deficiency from Borrower. To the extent permitted by applicable law, Borrower
waives all claims, damages and demands against Lender arising out of the
retention or sale or lease of the Collateral or other exercise of Lender's
rights and remedies with respect thereto.
(d) To
the
extent permitted by law, Borrower covenants that it will not at any time
insist
upon or plead, or in any manner whatever claim or take any benefit or advantage
of, any stay or extension law now or at any time hereafter in force, nor
claim,
take or insist upon any benefit or advantage of or from any law now or hereafter
in force providing for the valuation or appraisal of the Collateral or any
part
thereof, prior to any sale or sales thereof to be made pursuant to any provision
herein contained, or the decree, judgment or order of any court of competent
jurisdiction; or, after such sale or sales, claim or exercise any right under
any statute now or hereafter made or enacted by any state or otherwise to
redeem
the property so sold or any part thereof, and, to the full extent legally
permitted, hereby expressly waives all benefit and advantage of any such
law or
laws, and covenants that it will not invoke or utilize any such law or laws
or
otherwise hinder, delay or impede the execution of any power herein granted
and
delegated to Lender, but will suffer and permit the execution of every such
power as though no such power, law or laws had been made or
enacted.
(e) Any
sale,
whether under any power of sale hereby given or by virtue of judicial
proceedings, shall operate to divest all Borrower's right, title, interest,
claim and demand whatsoever, either at law or in equity, in and to the
Collateral sold, and shall be a perpetual bar, both at law and in equity,
against Borrower, its successors and assigns, and against all persons and
entities claiming the Collateral sold or any part thereof under, by or through
Borrower, its successors or assigns.
(f) Borrower
appoints Lender, and any officer, employee or agent of Lender, with full
power
of substitution, as Borrower's true and lawful attorney-in-fact, effective
as of
the date hereof, with power, in its own name or in the name of Borrower,
during
the continuance of an Event of Default, to endorse any notes, checks, drafts,
money orders, or other instruments of payment in respect of the Collateral
that
may come into Lender's possession, to sign and endorse any drafts against
debtors, assignments, verifications and notices in connection with accounts,
and
other documents relating to Collateral; to pay or discharge taxes or Liens
at
any time levied or placed on or threatened against the Collateral; to demand,
collect, issue receipt for, compromise, settle and xxx for monies due in
respect
of the Collateral; to notify parties obligated with respect to the Collateral
to
make payments directly to Lender; and, generally, to do, at Lender's option
and
at Borrower's expense, at any time, or from time to time, all acts and things
which Lender deems necessary to protect, preserve and realize upon the
Collateral and Lender's security interest therein to effect the intent of
this
Agreement, all as fully and effectually as Borrower might or could do; provided
that Lender provides Borrower with prompt notice of such actions having been
taken and Borrower hereby ratifies all that said attorney shall lawfully
do or
cause to be done by virtue hereof. This power of attorney shall be irrevocable
as long as any of the Obligations are outstanding.
12
(g) All
of
Lender's rights and remedies with respect to the Collateral, whether established
hereby or by any other agreements, instruments or documents or by law shall
be
cumulative and may be exercised singly or concurrently.
6.
Term.
The
term of this Agreement shall begin on the date stated above and shall continue
and be binding upon Borrower until all Obligations have been fully paid (other
than contingent indemnification obligations).
7.
Miscellaneous.
(a) Indemnity.
Borrower shall defend, indemnify and hold harmless Lender and its stockholders,
directors, officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement and the Notes;
and (b) all losses and expenses in any way suffered, incurred, or paid by
Lender as a result of or in any way arising out of, following, or consequential
to transactions between Lender and Borrower whether under this Agreement
or the
Notes, or otherwise (including reasonable and documented attorneys’ fees and
expenses), except for losses caused by Lender’s gross negligence or willful
misconduct. The
indemnity under this Section 7(a) shall survive payment, performance and
discharge of the Obligations and the
termination of this Agreement until applicable statutes of limitations for
actions that may be brought against Lender have run.
(b) Limitation
on Lender’ Duty in Respect of Collateral.
Lender
shall not have any obligation or liability under any contract or license
by
reason of or arising out of this Agreement or the granting of a security
interest therein or the receipt of any payment relating to any contract or
license pursuant hereto, nor shall Lender be required or obligated in any
manner
to perform or fulfill any of Borrower’s obligations under or pursuant to any
contract or license, or to make any payment, or to make any inquiry as to
the
nature or the sufficiency of any payment received by it or the sufficiency
of
any performance by any party under any contract or license, or to present
or
file any claim, or to take any action to collect or enforce any performance
or
the payment of any amounts which may have been assigned to it or to which
it may
be entitled at any time or times. Lender shall be deemed to have acted
reasonably in the custody, preservation and disposition of any of the Collateral
if it takes such action as Borrower requests in writing, but Lender’s failure to
comply with any such request shall not in itself be deemed a failure to act
reasonably, and no failure of Lender to do any act not so requested shall
be
deemed a failure to act reasonably.
(c) Governing
Law.
This
Agreement is governed by and shall be construed in accordance with the laws
of
the State of Delaware, without reference to the conflicts of law provisions
thereof
except
as required by mandatory provisions of law and to the extent the validity
or
perfection of the security interests hereunder, or the remedies hereunder,
in
respect of any Collateral are governed by the law of a jurisdiction other
than
Delaware.
(d) Severability
of Provisions. If
any
one or more of the provisions contained in this Agreement shall for any reason
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision hereof,
and
this
13
Agreement
shall be construed as if such invalid, illegal or unenforceable provision
had
never been contained herein.
(e) Time
of the Essence.
Time is
of the very essence of this Agreement.
(f) Notices.
All
notices required or permitted hereunder shall be in writing and shall be
given,
and be deemed effective, in accordance with Section 8(f) of the Purchase
Agreement.
(g) Waiver;
Amendment.
No
failure or delay on Lender’s part in the exercise of any right or remedy, power
or privilege shall operate as a waiver thereof. No single or partial exercise
of
a right or remedy, power or privilege shall preclude other or further exercise
thereof. No waiver of any right hereunder shall be effective unless in a
writing
executed by Lender and Borrower. Any
such
waiver shall be effective only for the specific purpose for which it is given.
The rights and remedies under this Agreement are cumulative and not exclusive
of
any other rights, remedies, powers or privileges that may otherwise the
available to Lender. No
provision of this Agreement may be amended, waived or modified or rights
modified or released, other than by a document signed by Borrower and Lender.
This Agreement may be amended, waived or modified upon the written consent
of
Borrower and Lender.
(h) Binding
Effect.
This
Agreement shall be binding upon, and shall inure to the benefit of, Borrower
and
Lender and their respective successors and assigns; provided,
however,
that
(i) Borrower's rights and obligations shall not be assigned or delegated
without
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void ab initio,
and
(ii) Lender may not assign any of the Obligations, or its rights and obligations
hereunder, to any Person that is not an Affiliate of Lender.
(i) Counterparts.
This
Agreement may be executed by facsimile and in any number of counterparts
and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall
constitute but one and the same agreement.
[Signature
Page Follows]
14
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
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XXX.XXX, INC.
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MDS ACQUISITION, INC. | ||||
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Name:
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Name:
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Title:
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Title:
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Signature
Page to Security Agreement
EXHIBIT
A
COLLATERAL
DESCRIPTION
All
personal property of XXX.xxx, Inc. (herein referred to as “Borrower”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a)
all
accounts (including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), deposit accounts, documents (including
negotiable documents), equipment (including all accessions and additions
thereto), general intangibles (including payment intangibles and software),
goods (including fixtures), instruments (including promissory notes), inventory
(including all goods held for sale or lease or to be furnished under a contract
of service, and including returns and repossessions), investment property
(including securities and securities entitlements), letter of credit rights,
money, and all of Borrower’s books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;
(b)
all
common law and statutory copyrights and copyright registrations, applications
for registration, now existing or hereafter arising, in the United States
of
America or in any foreign jurisdiction, obtained or to be obtained on or
in
connection with any of the forgoing, or any parts thereof or any underlying
or
component elements of any of the forgoing, together with the right to copyright
and all rights to renew or extend such copyrights and the right (but not
the
obligation) of Lender to xxx in its own name and/or in the name of Borrower
for
past, present and future infringements of copyright;
(c)
all
trademarks, service marks, trade names and service names and the goodwill
associated therewith, together with the right to trademark and all rights
to
renew or extend such trademarks and the right (but not the obligation) of
Lender
to xxx in its own name and/or in the name of Borrower for past, present and
future infringements of trademark provided that the Collateral shall not
include
any intent to use filings;
(d)
all
(i)
patents and patent applications filed in the United States Patent and Trademark
Office or any similar office of any foreign jurisdiction, and interests under
patent license agreements, including the inventions and improvements described
and claimed therein, (ii) licenses pertaining to any patent whether Borrower
is
licensor or licensee, (iii) income, royalties, damages, payments, accounts
and
accounts receivable now or hereafter due and/or payable under and with respect
thereto, including damages and payments for past, present or future
infringements thereof, (iv) right (but not the obligation) to xxx in the
name of
Borrower and/or in the name of Lender for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all
jurisdictions in which such patents have been issued or applied for, and
(vi) reissues, divisions, continuations, renewals, extensions and
continuations-in-part with respect to any of the foregoing; and
(e)
any
and
all cash proceeds and/or noncash proceeds of any of the foregoing, including
insurance proceeds, and all supporting obligations and the security therefor
or
for any right to payment.
All
terms
above have the meanings given to them in the Delaware Uniform Commercial
Code,
as amended or supplemented from time to time.
The
Collateral shall not include (i) any equity interests in Regulated Entities,
or
(ii) any lease, license, contract, property right or agreement to which Borrower
is a party or any of its rights or interests thereunder if and only for so
long
as the grant of a security interest hereunder shall constitute or result
in a
breach, termination or default under any such lease, license, contract, property
right or agreement (other than to the extent that any such term would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of
the
Uniform Commercial Code of any relevant jurisdiction or any other applicable
law
or principles of equity); provided,
however,
that
such security interest shall attach immediately to any portion of such lease,
license, contract, property rights or agreement that does not result in any
of
the consequences specified above.
2
EXHIBIT
B
EXISTING
SECURED CREDITORS
| 1. |
Liens
securing that certain Amended and Restated Secured Convertible
Minimum
Borrowing Note, dated June 2, 2006, in the principal amount of
$4,250,000,
payable to Laurus Master Fund, Ltd. and all amounts owing in respect
of
the agreements related thereto.
|
| 2. |
Liens
securing that certain Amended and Restated Secured Revolving Note,
dated
June 2, 2006, in the principal amount of $750,000, payable to Laurus
Master Fund, Ltd. and all amounts owing in respect of the agreements
related thereto.
|
SCHEDULE
Existing
Indebtedness
The
Indebtedness secured by the Liens described in Exhibit B.
Exhibit
F
Form
of Legal Opinion
EXHIBIT
F
Opinion
Points for Legal Opinion of Company Counsel
1. The
Company is validly existing as a corporation and in good standing under Delaware
law. The Company has the corporate power and authority to own, operate and
lease
its properties and to carry on any lawful business activity for which a
corporation may be organized under Delaware law.
2. Each
of
Atlantic and Communications is validly existing as a limited liability company
and in good standing under Delaware law. Each has the power and authority
to
own, operate and lease its properties and to carry on any lawful business
activity for which a limited liability company may be organized under Delaware
law.
3. The
Company has the corporate power and authority to execute, deliver and perform
its obligations under the Investment Documents and to consummate the
transactions contemplated thereby. The execution, delivery and performance
of
the Investment Documents by the Company and the consummation by the Company
of
the transactions contemplated thereby have been duly and validly approved
and
authorized by the Board of Directors of the Company, and no other corporate
proceeding or action on the part of the Board of Directors of the Company
is
necessary for the execution and delivery by the Company of the Investment
Documents and the performance by the Company of its obligations
thereunder.
4. The
Investment Documents have been duly and validly executed and delivered by
the
Company and subject, with respect to the convertibility into the Company’s
Common Stock of the Convertible Note attached as Exhibit B-4 to the Purchase
Agreement, to the approval of the Charter Amendment by the Company’s
stockholders and the filing thereof with the Secretary of State of Delaware,
constitute valid and binding obligations of the Company, enforceable against
the
Company in accordance with their terms.1
5. Neither
the execution and delivery of the Investment Documents by the Company nor
the
performance by the Company its obligations thereunder will violate (a) the
Company’s Certificate of Incorporation or Bylaws, (b) any order, writ,
injunction or decree known to us of any federal, Connecticut or Delaware
court
that is applicable to the Company, or (c) federal law or the DGCL.
We
are
not representing the Company or any Subsidiary in any Legal Proceeding that
is
pending or threatened in writing against (a) the Company or any Subsidiary,
(b) any officer, director, employee or agent of the Company or a Subsidiary
in
his, her or its capacity as such or relating to his, her or its employment,
services or relationship with the Company or Subsidiary, or (c) any asset
or
property owned or used by the Company or a Subsidiary, in each case before
any
governmental entity, court or arbitrator. To our knowledge, there is no
judgment, decree, injunction, rule or order of any federal, Connecticut or
Delaware governmental entity, court or arbitrator outstanding against the
Company that seeks to prohibit, restrain or enjoin the Company’s performance of
the Investment Documents or the transactions contemplated thereby.
1
Please
note that the opinion letter will assume for purposes of the opinion
on
enforceability of the conversion provisions of the Notes that the conversion
occurs immediately after the Closing.
Exhibit
G
Form
of Voting Agreement
EXHIBIT
G
FORM
OF VOTING AGREEMENT
VOTING
AGREEMENT,
dated
as of August __, 2006 (this “Agreement”),
between MegaPath Inc., a Delaware corporation
(“Parent”),
and
[______________]
(“Stockholder”).
W
I T N E S S E T H:
WHEREAS,
Parent
has entered into that certain Purchase Agreement, dated as of August __,
2006,
by and among Parent, MDS Acquisition, Inc., a Delaware corporation and wholly
owned subsidiary of Parent (“Buyer”),
and
XXX.xxx, Inc., a Delaware corporation (the “Company”)
(as
the same may be amended from time to time, the “Purchase
Agreement”;
capitalized terms used but not defined in this Agreement shall have the meanings
ascribed to them in the Purchase Agreement), which provides, upon the terms
and
subject to the conditions thereof, for the purchase by Buyer of certain Notes
issued by Company;
WHEREAS,
as of
the date hereof, Stockholder owns shares of common stock, par value $0.0005
per
share, of the Company (the “Company
Common Stock”);
WHEREAS,
as a
condition to the willingness of Parent and Buyer to purchase Notes under
the
terms of the Purchase Agreement, Parent has requested that Stockholder enter
into this Agreement.
NOW,
THEREFORE,
in
consideration of the promises and of the mutual agreements and covenants
set
forth herein and in the Purchase Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
and
intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE
I
VOTING
OF SHARES
SECTION
1.01 Vote
in Favor of the Charter Amendment.
Stockholder, solely in Stockholder’s capacity as a stockholder of the Company,
agrees to vote (or cause to be voted) all Shares (as defined below) at any
meeting of the stockholders of the Company or any adjournment thereof, and
in
any action by written consent of the stockholders of the Company, (i) in
favor of the Charter Amendment, and (ii) against any other action that
could reasonably be expected to delay or not to facilitate approval of the
Charter Amendment. “Shares”
shall
mean any securities of the Company that Stockholder now and hereafter owns
beneficially or of record or to which Stockholder otherwise has the power
to
vote, or directs the vote.
SECTION
1.02 Grant
of Irrevocable Proxy.
Concurrently with the execution of this Agreement, Stockholder agrees to
deliver
to Parent a proxy with respect to the Shares in the form attached hereto
as
Exhibit A,
which
shall be coupled with an interest and irrevocable to the fullest extent
permissible by law.
ARTICLE
II
REPRESENTATIONS,
WARRANTIES AND COVENANTS
OF
STOCKHOLDER
SECTION
2.01 Stockholder
hereby represents and warrants to Parent as follows:
(a) Authorization;
Binding Agreement.
Stockholder has all legal right, power, authority and capacity to execute
and
deliver this Agreement and to perform Stockholder’s obligations hereunder, and
to consummate the transactions contemplated hereby. This Agreement has been
duly
and validly executed and delivered by or on behalf of Stockholder and, assuming
its due authorization, execution and delivery by or on behalf of Parent,
constitutes a legal, valid and binding obligation of Stockholder, enforceable
against Stockholder in accordance with its terms, subject to (i) the effect
of any applicable bankruptcy, insolvency, moratorium or similar law affecting
creditors’ rights generally and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(b) No
Conflict; Required Filings and Consents.
(i) The
execution and delivery of this Agreement to Parent by Stockholder does not,
and
the performance of this Agreement by Parent and Stockholder will not,
(A) conflict with or violate, in a manner that would or would be reasonably
expected to prevent or materially delay the performance by Stockholder of
Stockholder’s obligations under this Agreement, any statute, law, rule,
regulation, order, judgment or decree applicable to Stockholder or by which
Stockholder or the Shares are bound or affected, (B) violate or conflict
with the Certificate of Incorporation, Bylaws or other equivalent organizational
documents of Stockholder (if any), or (C) result in or constitute (with or
without notice or lapse of time or both) any material breach of or default
under, or give to another party any right of termination, amendment,
acceleration or cancellation of, or result in the creation of any lien or
encumbrance or restriction on the Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Stockholder is a party or by which Stockholder
or the Shares are bound or affected, such that Stockholder would not, or
would
not be reasonably expected to, be able to perform, or would be materially
delayed in performing, its obligations under this Agreement. There is no
beneficiary or holder of a voting trust certificate or other interest of
any
trust of which Stockholder is a trustee whose consent is required for the
execution and delivery of this Agreement or the consummation by Stockholder
of
the transactions contemplated by this Agreement.
(ii) The
execution and delivery of this Agreement to Parent by Stockholder does not,
and
the performance of this Agreement by Parent and Stockholder will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any third party or any governmental or regulatory authority,
domestic or foreign, except where
the
failure to obtain such consents, approvals, authorizations or permits, or
to
make such filings or notifications, would not and would not reasonably be
expected to prevent or materially delay the performance by Stockholder of
Stockholder’s obligations under this Agreement. Stockholder does not have any
understanding in effect with respect to the voting or transfer of any
Shares.
SECTION
2.02 Further
Assurances.
From
time to time and without additional consideration, Stockholder shall execute
and
deliver, or cause to be executed and delivered, such additional transfers,
assignments, endorsements, proxies, consents and other instruments, and shall
take such further actions, as Parent may reasonably request for the purpose
of
carrying out and furthering the intent of this Agreement.
ARTICLE
III
GENERAL
PROVISIONS
SECTION
3.01 Entire
Agreement; Amendments.
This
Agreement constitutes the entire agreement of the parties, and supersedes
all
prior agreements and undertakings, both written and oral, between the parties,
with respect to the subject matter hereof. This Agreement may not be amended
or
modified except in an instrument in writing signed by, or on behalf of, the
parties hereto.
SECTION
3.02 Assignment.
The
provisions of this Agreement shall be binding upon and inure to the benefit
of
the parties hereto and their respective successors and permitted assigns;
provided that
any
assignment, delegation or attempted transfer of any rights, interests or
obligations under this Agreement by Stockholder without the prior written
consent of Parent shall be void.
SECTION
3.03 Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law or public policy, all other conditions
and
provisions of this Agreement shall nevertheless remain in full force and
effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon
such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely
as
possible to the fullest extent permitted by applicable law in an acceptable
manner.
SECTION
3.04 Specific
Performance.
The
parties agree that irreparable damage would occur in the event that any of
the
provisions of this Agreement is not performed in accordance with its specific
terms or is otherwise breached. Stockholder agrees that, in the event of
any
breach or threatened breach by Stockholder of any covenant or obligation
contained in this Agreement, Parent may (in addition to any other remedy
that
may be available to it, including monetary damages) seek and obtain (a) a
decree or order of specific performance to enforce the observance and
performance of such covenant or obligation, and (b) an injunction
restraining such breach or threatened breach. Stockholder further agrees
that
Parent shall not be required to obtain, furnish or post any bond or similar
instrument in connection with or as a condition to obtaining any remedy referred
to in this Section 3.04, and Stockholder irrevocably waives any
right
he,
she or it may have to require the obtaining, furnishing or posting of any
such
bond or similar instrument.
SECTION
3.05 Governing
Law; Forum.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of Delaware applicable to contracts executed in and to be performed
in
that state and without regard to any applicable conflicts of law.
SECTION
3.06 No
Waiver.
No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. Neither Parent nor Stockholder shall
be
deemed to have waived any claim available to it arising out of this Agreement,
or any right, power or privilege hereunder, unless the waiver is expressly
set
forth in writing duly executed and delivered on behalf of Parent or such
Stockholder, as applicable. The rights and remedies herein provided shall
be
cumulative and not exclusive of any rights or remedies provided by
law.
SECTION
3.07 Counterparts.
This
Agreement may be executed in two or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original but all of which taken together shall constitute
one
and the same agreement.
IN
WITNESS WHEREOF,
each of
Parent and Stockholder has executed or has caused this Voting Agreement to
be
executed by their respective duly authorized officers as of the date first
written above.
| MEGAPATH INC. | ||
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Name:
Title:
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[STOCKHOLDER]
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[Name:]
[Title:]
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| Title | ||
EXHIBIT
A
IRREVOCABLE
PROXY
The
undersigned stockholder of XXX.xxx, Inc., a Delaware corporation (the
“Company”), hereby irrevocably (to the fullest extent permitted by law)
appoints the directors on the Board of Directors of MegaPath Inc., a Delaware
corporation (“Parent”), and each of them, as the sole and exclusive
lawful attorneys-in-fact and proxies of the undersigned, with full power
of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the Shares (as defined in that certain Voting Agreement,
dated
as of even date herewith, by and between Parent and the undersigned (the
“Voting Agreement”)) in accordance with the terms of this Proxy. This
Proxy is irrevocable (to the fullest extent permitted by law), is coupled
with
an interest and is granted pursuant to the Voting Agreement, and is granted
in
consideration of Parent’s purchase of Notes pursuant to that certain Purchase
Agreement (the “Purchase Agreement”), dated as of August __, 2006, by and
among Parent, MDS Acquisition, Inc., a Delaware corporation and wholly owned
subsidiary of Parent, and the Company.
The
attorneys-in-fact and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned to act as the undersigned’s true and
lawful attorneys-in-fact and proxies to vote the Shares, and to exercise
all
voting, consent and similar rights of the undersigned with respect to the
Shares
(including, without limitation, the power to execute and deliver in the
undersigned’s name any consent, certificate or other document that may be
required by law) at every annual, special or adjourned meeting of stockholders
of the Company and in every written consent in lieu of such meeting in favor
of
adoption of the Charter Amendment (as defined in the Purchase
Agreement).
The
attorneys-in-fact and proxies named above may not exercise this Proxy on
any
other matter except as provided above. The undersigned may vote the Shares
on
all other matters. Any obligation of the undersigned hereunder shall be binding
upon the successors and assigns of the undersigned. This Proxy is irrevocable
(to the fullest extent permitted by law).
| Dated: August __, 2006 |
Signature
of Stockholder:
|
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Print Name of Stockholder:
|
Exhibit
H
Form
of Perfection Certificate
PERFECTION
CERTIFICATE
TO: MDS
ACQUISITION, INC.
The
undersigned, the
of
XXX.xxx, Inc. (the “Company”),
hereby represents and warrants to you on behalf of the Company as
follows:
|
1.
|
NAMES
OF THE COMPANY
|
a. The
name
of the Company as it appears in its current Articles or Certificate of
Incorporation is: XXX.xxx,
Inc.
b. The
federal employer identification number of the Company is:
c. The
Company is formed under
the
laws of the State of Delaware.
d. The
organizational identification number of the Company is:
e. The
Company transacts business in the following jurisdictions (list jurisdictions
other than jurisdiction of formation):
f. The
Company is duly qualified to transact business as a foreign entity in the
following jurisdictions (list jurisdictions other than jurisdiction of
formation):
g. The
following is a list of all other names (including fictitious names, d/b/a’s,
trade names or similar names) currently used by the Company or used within
the
past five years:
|
Name
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Period
of Use
|
|
|
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|
|
h. The
following are the names of all entities which have been merged into the Company
during the past five years:
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Name
of Merged Entity
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Year
of Merger
|
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|
-1-
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To:
MDS Acquisition, Inc.
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Perfection
Certificate
|
i. The
following are the names and addresses of all entities from whom the Company
has
acquired any personal property in a transaction not in the ordinary course
of
business during the past five years, together with the date of such acquisition
and the type of personal property acquired (e.g., equipment, inventory, etc.):
|
Name
|
Address
|
Date
of Acquisition
|
Type
of Property
|
|
|
|
|
|
|
|
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| 2. |
LOCATIONS
OF COMPANY
AND ITS SUBSIDIARIES
|
a. The
Company’s chief executive offices are presently located at the following
addresses:
|
Complete
Street and Mailing Address, including County and Zip Code
|
|
|
b. The
Company’s books and records are located at the following additional addresses
(if different from the above):
|
Complete
Street and Mailing Address, including County and Zip Code
|
|
|
c. The
following are all the locations where the Company owns, leases, or occupies
any
real property:
|
Complete
Street and Mailing Address, including County and Zip Code
|
|
|
d. The
following are all of the locations where the Company maintains any inventory,
equipment, or other property:
|
Complete
Address
|
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|
|
|
|
|
|
-2-
|
To:
MDS Acquisition, Inc.
|
Perfection
Certificate
|
e. The
following are the names and addresses of all warehousemen, bailees, or other
third parties who have possession of any of the Company’s inventory:
|
Name
|
Complete
Street and Mailing Address, including County and Zip Code
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
SPECIAL
TYPES OF COLLATERAL
|
a. The
Company owns the following kinds of assets. (If the answer is “Yes” to any of
the following questions)
|
Copyrights
or copyright applications registered with the U.S. Copyright
Office
|
Yes No
|
|
Software
registered with the U.S. Copyright Office
|
Yes No
|
|
Software
not
registered with the U.S. Copyright Office
|
Yes No
|
|
Patents
and patent applications
|
Yes No
|
|
Trademarks
or trademark applications (including any service marks, collective
marks
and certification marks)
|
Yes No
|
|
Licenses
to use trademarks, patents and copyrights of others
|
Yes No
|
|
Licenses,
permits (including environmental), authorizations, or certifications
issued by federal, state, or local governments issued to the Company
|
Yes No
|
|
Stocks,
bonds or other securities
|
Yes No
|
|
Promissory
notes, or other instruments or evidence of indebtedness
|
Yes No
|
|
Leases
of equipment, security agreements naming such person as secured party
or
other chattel paper
|
Yes No
|
|
Aircraft
|
Yes No
|
|
Vessels,
Boats or Ships
|
Yes No
|
|
Motor
Vehicles
|
Yes No
|
-3-
|
To:
MDS Acquisition, Inc.
|
Perfection
Certificate
|
b. The
following is a list of material contracts to which the Company is a party
(include any equipment leases) or in which the Company has an interest
(including whether such contract has a nonassignability provision which would
require the other party’s or another person’s consent to the granting of a
security interest in such contract):
|
Nonassignability
Clause
|
||||
|
Other
Party to Contract
|
Title/Date
of Contract
|
Asset
Sale (Y/N)
|
Security
Interest (Y/N)
|
Consent
Obtained
(Y/N)
|
c. The
following are all banks or savings institutions at which the Company maintains
deposit accounts:
|
Bank
Name
|
Account
Number
|
Branch
Address
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
d. Does
or
is it contemplated that the Company will regularly receive letters of credit
from customers or other third parties to secure payments of sums owed to the
Company? The following is a list of letters of credit naming the Company as
“beneficiary” thereunder:
|
LC
Number
|
Name
of LC Issuer
|
LC
Applicant
|
|
4.
|
ENCUMBRANCES
|
The
Company’s property is subject to the following liens or encumbrances:
|
Name
of Holder of
Lien/Encumbrance
|
Description
of Property Encumbered
|
-4-
|
To:
MDS Acquisition, Inc.
|
Perfection
Certificate
|
| 5. |
TAXES
|
The
following tax assessments are currently outstanding and unpaid:
|
Assessing
Authority
|
Amount
and Description
|
|
6.
|
INSURANCE
BROKER
|
The
following broker handles the Company’s property insurance:
|
Broker
|
Contact
|
Telephone
|
Fax
|
Email
|
|
|
|
|
|
|
The
Company agrees to advise you of any change or modification to any of the
foregoing information or any supplemental information provided on any
continuation pages attached hereto, and, until such notice is received by you,
you shall be entitled to rely upon such information and presume it is correct.
The Company acknowledges that your acceptance of this Perfection Certificate
and
any continuation pages does not imply any commitment on your part to enter
into
a loan transaction with the Company, and that any such commitment may only
be
made by an express written loan commitment, signed by one of your authorized
officers.
| XXX.xxx, Inc. | ||
| |
|
|
| Date: August __, 2006 | By: | |
|
Its: |
||
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|
||
-5-
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To:
MDS Acquisition, Inc.
|
Perfection
Certificate
|
Continuation
Page—Additional Information
-6-
