1
EXHIBIT 10.24
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY
BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED,
(iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
PHOENIX NETWORK, INC.
WARRANT TO PURCHASE 200,000 SHARES
OF COMMON STOCK (this "Warrant")
PHOENIX NETWORK, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Foothill Capital Corporation, a
California corporation, or registered assigns, is the registered holder of
warrants (the "Warrants") to subscribe for and purchase Two Hundred Thousand
(200,000) shares of the fully paid and nonassessable Common Stock (as adjusted
pursuant to Section 4 hereof, the "Shares") of the Company, at the price of $2
15/16 per share (such price and such other price as shall result, from time to
time, from the adjustments specified in Section 4 hereof is herein referred to
as the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, (a) the term "Common Stock"
shall mean the Company's presently authorized Common Stock, no par value per
share, and any stock into or for which such Common Stock may hereafter be
converted or exchanged, (b) the term "Date of Grant" shall mean March 12, 1997,
and (c) the term "Other Warrants" shall mean any warrant issued upon transfer
or partial exercise of this Warrant. The term "Warrant" as used herein shall
be deemed to include Other Warrants unless the context hereof or thereof
clearly requires otherwise.
1. Term. The purchase right represented by this Warrant
is exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through and including March 12, 2002.
2. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this Warrant may
be exercised by the holder hereof, in whole or in part and from time to time,
by the surrender of this Warrant (with the notice of exercise form attached
hereto as Exhibit A duly executed) at the principal office of the Company and
by the payment to the Company of an amount equal to the then applicable Warrant
Price multiplied by the number of Shares then being purchased. The person or
persons in whose name(s) any certificate(s) representing shares of Common Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall
2
be deemed to have been issued) immediately prior to the close of business on
the date or dates upon which this Warrant is exercised. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within thirty (30) days after such exercise and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of the Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the holder
hereof as soon as possible and in any event within such thirty-day period.
3. Stock Fully Paid; Reservation of Shares. All Shares
that may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance pursuant to the terms and conditions herein, be fully paid
and nonassessable, and free from all taxes, liens, charges, and pre-emptive
rights with respect to the issue thereof. The Company shall pay all transfer
taxes, if any, attributable to the issuance of Shares upon the exercise of the
Warrants. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of this Warrant
and the Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
a. Reclassification or Merger. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is the acquiring and the surviving corporation and which does not
result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant), or in case of any sale of all or substantially
all of the assets of the Company, the Company, or such successor or purchasing
corporation, as the case may be, shall duly execute and deliver to the holder
of this Warrant a new Warrant (in form and substance satisfactory to the holder
of this Warrant), so that the holder of this Warrant shall have the right to
receive, at a total purchase price not to exceed that payable upon the exercise
of the unexercised portion of this Warrant, and in lieu of the shares of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount
of shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of the number of shares of
Common Stock then purchasable under this Warrant. Such new Warrant shall
provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. The provisions
of this subparagraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
b. Subdivision or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its outstanding shares of Common Stock, the Warrant Price
shall be proportionately decreased in the case of
2
3
a subdivision or increased in the case of a combination, effective at the close
of business on the date the subdivision or combination becomes effective.
c. Stock Dividends and Other Distributions. If
the Company at any time while this Warrant is outstanding and unexpired shall
(i) pay a dividend with respect to Common Stock payable in Common Stock, or
(ii) make any other distribution with respect to Common Stock (except any
distribution specifically provided for in the foregoing sub-paragraphs (a) and
(b)) of Common Stock, then the Warrant Price shall be adjusted, from and after
the date of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
d. Rights Offerings. In case the Company shall
issue rights, options or warrants to any person or persons who are at the time
of such issuance the holders of equity securities of the Company, entitling
them to subscribe for or purchase shares of Common Stock (or securities
convertible or exchangeable into Common Stock) at a price per share of Common
Stock (or having a conversion or exchange price per share of Common Stock if a
security convertible or exchangeable into Common Stock) less than the fair
market value per share of Common Stock on the record date for such issuance (or
the date of issuance, if there is no record date), the Warrant Price to be in
effect on and after such record date (or issuance date, as the case may be)
shall be determined by multiplying the Warrant Price in effect immediately
prior to such record date (or issuance date, as the case may be) by a fraction
(i) the numerator of which shall be the number of shares of Common Stock
outstanding on such record date (or issuance date, as the case may be) plus the
number of shares of Common Stock which the aggregate offering price of the
total number of shares of such Common Stock so to be offered (or the aggregate
initial exchange or conversion price of the exchangeable or convertible
securities so to be offered) would purchase at such fair market value on such
record date (or issuance date, as the case may be) and (ii) the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date (or issuance date, as the case may be) plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into
which the convertible securities to be offered are initially exchangeable or
convertible). In case such subscription price may be paid in part or in whole
in a form other than cash, the fair value of such consideration shall be
determined by the Board of Directors of the Company in good faith as set forth
in a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary. Such adjustment shall be made successively whenever such
an issuance occurs; and in the event that such rights, options, warrants, or
convertible or exchangeable securities are not so issued or expire or cease to
be convertible or exchangeable before they are exercised, converted, or
exchanged (as the case may be), then the Warrant Price shall again be adjusted
to be the Warrant Price that would then be in effect if such issuance had not
occurred, but such subsequent adjustment shall not affect the number of Shares
issued upon any exercise of Warrants prior to the date such subsequent
adjustment is made.
3
4
e. Special Distributions. In case the Company
shall fix a record date for the making of a distribution to all holders of
shares of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the surviving corporation) or
evidences of indebtedness or assets (other than dividends and distributions
referred to in subparagraphs (b) and (c) above and other than cash dividends)
or of subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any
class of equity securities of the Company (excluding those referred to in
subparagraph (d) above), the Warrant Price to be in effect on and after such
record date shall be adjusted by multiplying the Warrant Price in effect
immediately prior to such record date by a fraction (i) the numerator of which
shall be the fair market value per share of Common Stock on such record date,
less the fair value (as determined by the Board of Directors of the Company in
good faith as set forth in a duly adopted board resolution certified by the
Company's Secretary or Assistant Secretary) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights,
options, warrants, or exchangeable or convertible securities applicable to one
(1) share of the Common Stock outstanding as of such record date, and (ii) the
denominator of which shall be such fair market value per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Warrant
Price shall again be adjusted to be the Warrant Price which would then be in
effect if such record date had not been fixed, but such subsequent adjustment
shall not affect the number of Shares issued upon any exercise of Warrants
prior to the date such subsequent adjustment was made.
f. Other Issuances of Securities. Except with
respect to that certain issuance of 150,000 shares of Series G Preferred Stock,
$0.001 par value per share, of the Company to be made on April 4, 1997, in case
the Company or any subsidiary shall issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock (excluding (i)
shares, rights, options, warrants, or convertible or exchangeable securities
described in subparagraphs (f) or (g) of Section 11 hereof or issued in any of
the transactions described in subparagraphs (b), (c), (d) or (e) above, (ii)
shares issued upon the exercise of such rights, options or warrants or upon
conversion or exchange of such convertible or exchangeable securities, and
(iii) the Warrants and any shares issued upon exercise thereof), at a price per
share of Common Stock (determined in the case of such rights, options,
warrants, or convertible or exchangeable securities by dividing (x) the total
amount receivable by the Company in consideration of the sale and issuance of
such rights, options, warrants, or convertible or exchangeable securities, plus
the total minimum consideration payable to the Company upon exercise,
conversion, or exchange thereof by (y) the total maximum number of shares of
Common Stock covered by such rights, options, warrants, or convertible or
exchangeable securities) lower than the fair market value per share of Common
Stock on the date the Company fixes the offering price of such shares, rights,
options, warrants, or convertible or exchangeable securities, then the Warrant
Price shall be adjusted so that it shall equal the price determined by
multiplying the Warrant Price in effect immediately prior thereto by a fraction
(i) the numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such sale and issuance plus (B)
the number of shares of Common Stock which the aggregate consideration received
(determined as provided below) for such sale or issuance would purchase at such
fair market value per share, and (ii) the
4
5
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such sale and issuance. Such adjustment shall be
made successively whenever such an issuance is made. For the purposes of such
adjustment, the maximum number of shares of Common Stock which the holder of
any such rights, options, warrants or convertible or exchangeable securities
shall be entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale and issuance and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum consideration or premium stated in
such rights, options, warrants, or convertible or exchangeable securities to be
paid for the shares of Common Stock covered thereby. In case the Company shall
sell and issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in determining the
price per share of Common Stock and the consideration received by the Company
for purposes of the first sentence of this subparagraph (f), the Board of
Directors of the Company shall determine, in good faith, the fair value of said
property, and such determination shall be described in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary. In
case the Company shall sell and issue rights, options, warrants, or convertible
or exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock together with one or more other securities as a part of
a unit at a price per unit, then in determining the price per share of Common
Stock and the consideration received by the Company for purposes of the first
sentence of this subparagraph (f), the Board of Directors of the Company shall
determine, in good faith, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights, options, warrants, or convertible or
exchangeable securities then being sold as part of such unit. Such adjustment
shall be made successively whenever such an issuance occurs, and in the event
that such rights, options, warrants, or convertible or exchangeable securities
expire or cease to be convertible or exchangeable before they are exercised,
converted, or exchanged (as the case may be), then the Warrant Price shall
again be adjusted to the Warrant Price that would then be in effect if such
sale and issuance had not occurred, but such subsequent adjustment shall not
affect the number of Shares issued upon any exercise of Warrants prior to the
date such subsequent adjustment is made.
g. Adjustment of Number of Shares. Upon each
adjustment in the Warrant Price, the number of Shares of Common Stock
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
h. Determination of Fair Market Value. For
purposes of this Section 4, "fair market value" of a share of Common Stock as
of a particular date (the "Determination Date") shall mean (i) if shares of
Common Stock are traded as a national securities exchange (an "Exchange"), the
average of the closing prices of a share of the Common Stock of the Company on
the last five (5) trading days prior to the Determination Date reported
5
6
on such Exchange as reported in The Wall Street Journal, or (ii) if shares of
Common Stock are not traded on an Exchange but trade in the over-the-counter
market and such shares are quoted on the National Association of Securities
Dealers Automated Quotations System ("NASDAQ"), (A) the average of the last
sale prices reported on NASDAQ or (B) if such shares are an issue for which
last sale prices are not reported on NASDAQ, the average of the closing bid and
ask prices, in each case on the last five (5) trading days (or if the relevant
price or quotation did not exist on any of such days, the relevant price or
quotation on the next preceding business day on which there was such a price or
quotation) prior to the Determination Date as reported in The Wall Street
Journal.
5. Notice of Adjustments. Whenever the Warrant Price or
the number of Shares purchasable hereunder shall be adjusted pursuant to
Section 4 hereof, the Company shall make a certificate signed by its chief
financial officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price and the number of Shares purchasable
hereunder after giving effect to such adjustment, which shall be mailed
(without regard to Section 13 hereof, by first class mail, postage prepaid) to
the holder of this Warrant.
6. Fractional Shares. No fractional shares of Common
Stock will be issued in connection with any exercise hereunder, but in lieu of
such fractional shares the Company shall make a cash payment therefor based on
the fair market value (as determined in accordance with Section 4(h) above) of
a share of Common Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of
Warrant or Shares of Common Stock.
a. Compliance with Securities Act. The holder
of this Warrant, by acceptance hereof, agrees that this Warrant, the shares of
Common Stock to be issued upon exercise hereof are being acquired for
investment and that such holder will not offer, sell or otherwise dispose of
this Warrant, or any shares of Common Stock to be issued upon exercise hereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Act"). Upon exercise of this Warrant,
the holder hereof shall confirm in writing, by executing the form attached as
Schedule 1 to Exhibit A hereto, that the shares of Common Stock so purchased
are being acquired for investment and not with a view toward distribution or
resale. This Warrant and all shares of Common Stock issued upon exercise of
this Warrant (unless registered under the Act) shall be stamped or imprinted
with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER(S)
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS
6
7
OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED
DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant,
the holder specifically represents to the Company by acceptance of this Warrant
as follows:
(1) The holder is aware of the Company's
business affairs and financial condition, and has acquired information about
the Company sufficient to reach an informed and knowledgeable decision to
acquire this Warrant. The holder is acquiring this Warrant for its own account
for investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof for purposes of the Act.
(2) The holder understands that this
Warrant and the Shares have not been registered under the Act in reliance upon
a specific exemption therefrom, which exemption depends upon, among other
things, the bona fide nature of the holder's investment intent as expressed
herein. In this connection, the holder understands that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if the holder's representation was predicated
solely upon a present intention to hold the Warrant and the Shares for the
minimum capital gains period specified under applicable tax laws, for a
deferred sale, for or until an increase or decrease in the market price of the
Warrant and the Shares, or for a period of one (1) year or any other fixed
period in the future.
(3) The holder further understands that
this Warrant and the Shares must be held indefinitely unless subsequently
registered under the Act and any applicable state securities laws, or unless
exemptions from registration are otherwise available.
(4) The holder is aware of the
provisions of Rule 144 and 144A, promulgated under the Act, which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly, from the issuer thereof (or from an affiliate of such
issuer), in a non-public offering subject to the satisfaction of certain
conditions, if applicable, including, among other things: the availability of
certain public information about the Company, the resale occurring not less
than two (2) years after the party has purchased and paid for the securities to
be sold; the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the amount
of securities being sold during any three-month period not exceeding the
specified limitations stated therein.
(5) The holder further understands that
at the time it wishes to sell this Warrant and the Shares there may be no
public market upon which to make such a sale, and that, even if such a public
market then exists, the Company may not be satisfying the current public
information requirements of Rule 144 and 144A, and that, in such event, the
holder may be precluded from selling this Warrant and the Shares under Rule 144
and 144A even if the two (2)-year minimum holding period had been satisfied.
(6) The holder further understands that
in the event all of the requirements of Rule 144 and 144A are not satisfied,
registration under the Act, compliance with
7
8
Regulation A, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 and 144A is not exclusive, the Staff of
the SEC has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rule 144 and 144A will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
b. Disposition of Warrant or Shares. With
respect to any offer, sale or other disposition of this Warrant, or any Shares
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or Shares, the holder hereof and each subsequent holder of this Warrant
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such holder's counsel,
if reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such Shares and indicating whether or not under the Act certificates
for this Warrant or such Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with applicable law. Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, the Company, as
promptly as practicable, shall notify such holder that such holder may sell or
otherwise dispose of this Warrant or such Shares, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subsection (b) that the opinion of counsel for the holder is
not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly after such determination has been made. The foregoing
notwithstanding, this Warrant or such Shares may, as to such federal laws, be
offered, sold or otherwise disposed of in accordance with Rule 144 and 144A
under the Act, provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 and 144A have been satisfied. Each
certificate representing this Warrant or the Shares thus transferred (except a
transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent or, if acting as its own
transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions.
8. Rights as Shareholders; Information. No holder of
this Warrant, as such, shall be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of the directors or upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant shall
have been exercised and the Shares purchasable upon the exercise hereof shall
have become deliverable, as provided herein. The foregoing notwithstanding,
the Company will transmit to the holder of this Warrant such information,
documents and reports as are generally
8
9
distributed to the holders of any class or series of the securities of the
Company concurrently with the distribution thereof to the shareholders.
9. Registration Rights.
9.1.a. The Company covenants and agrees that at any
time after receipt of a written request (a "Demand Registration Request") from
the holders of this Warrant and the Other Warrants and/or holders of Shares
(this Warrant, the Other Warrants, and the Shares are referred to herein,
collectively, as the "Securities") (hereinafter, the "Securityholders") then
eligible for inclusion in a registration pursuant to this Section 9.1, stating
that the Initiating Securityholders (as defined below) desire and intend to
transfer all or a portion of the Securities held by them under such
circumstances, the Company shall give notice (the "Registration Notice") to all
of the Securityholders within thirty (30) days of the Company's receipt of such
registration request, and the Company shall cause to be included in such
registration all Securities requested to be included therein by any such
Securityholder within fifteen (15) days after such Registration Notice is
effective (subject to the provisions of the final sentence of this Section
9.1(a)). After such fifteen (15)-day period, the Company shall file as
promptly as practicable a registration statement and use its reasonable best
efforts to cause such registration statement to become effective under the Act
and remain effective for one hundred and twenty (120) days or such shorter
period as may be required if all such Securities covered by such registration
statement are sold prior to the expiration of such one hundred twenty (120)-day
period; provided that the Company shall not be obligated to effect any such
registration pursuant to this Section 9.1 after the Company has effected one
(1) such registration pursuant to this Section 9.1; provided further that to
the extent that any Securities requested to be included in the initial
registration requested under this Section 9.1(a) are not so included as the
result of the provisions of the final sentence of this Section 9.1(a), the
Company shall be obligated to effect one (1) additional registration pursuant
to this Section 9.1. Each Securityholder making a demand for registration
under this Section 9.1 is referred to herein as an "Initiating Securityholder."
For purposes of this Section 9, a registration shall not be deemed to have been
effected unless a registration statement with regard thereto has been declared
effective and remained effective for a period of one hundred and twenty (120)
days (or such shorter period as is permitted in the second sentence of this
Section 9.1). The foregoing notwithstanding, in the event of an underwritten
offering pursuant to this Section 9.1, if the managing underwriter of such
offering shall advise the Securityholders in writing that, in its opinion, the
distribution of a specified portion of the securities requested to be included
in the registration would materially adversely affect the distribution of such
securities by increasing the aggregate amount of the offering in excess of the
maximum amount of securities which such managing underwriter believes can
reasonably be sold in the contemplated distribution, then the securities to be
included in the registration shall be included in the following order: (i)
first, all of the Securities requested to be included therein by the Initiating
Securityholders, (ii) second, the Securities requested to be included therein
by the other Securityholders, pro rata among such Securityholders according to
the number of Securities requested to be included by each such Securityholder
requesting inclusion therein, and (iii) third, such other securities requested
to be included therein by the Company and the holders of such other securities,
pro rata among the Company and the holders of such other securities according
to the number of securities requested to be included by the Company and each
such holder requesting inclusion therein.
9
10
b. For purposes of this Section 9.1,
the Securityholders who have requested registration of Shares to be acquired
upon the exercise of Warrants not theretofore exercised shall furnish the
Company with an undertaking that they or the underwriters or other persons to
whom such Warrants will be transferred have undertaken to exercise such
Warrants and to sell, transfer or otherwise dispose of the Shares received upon
exercise of such Warrants in such registration.
c. In the event of an underwritten
offering pursuant to this Section 9.1, the Company shall be entitled to select
the underwriter; provided, that the underwriter so selected shall be subject to
approval by the Securityholders requesting registration of the Securities being
registered, which approval shall not be withheld unreasonably.
d. Notwithstanding the terms of Section
9.1(a), the Company shall not be required to register the Securities of
Securityholders pursuant to Section 9.1, if the Company elects, at its sole
option and to the extent that it may legally do so, to purchase such Securities
and completes such purchase pursuant to the provisions of this Section 9.1(d).
Within fifteen (15) days after receipt of a Demand Registration Request, the
Company may elect to purchase all and not less than all of the Securities that
would otherwise be subject to registration pursuant to Section 9.1(a) by
providing written notice (the "Purchase Notice") to all of the Securityholders
setting forth (i) its election to purchase such Securities, (ii) the purchase
price of the Securities, and (iii) the closing date for such purchase. The
Company shall thereafter purchase all of the Securities requested to be
included in such purchase by the Securityholders within fifteen (15) days after
the Purchase Notice becomes effective. The purchase price for each Share shall
be the fair market value (as defined in Section 4) of a share of Common Stock
on the date of the Demand Registration Request; the purchase price for each
Warrant shall be (x) the fair market value (as defined in Section 4) of a share
of Common Stock on the date of the Demand Registration Request less (y) the
Warrant Price. The closing of the purchase of the Securities shall take place
on the date set forth in the Purchase Notice, which date shall be not less than
fifteen (15) not more than forty-five (45) days after the date of the Purchase
Notice. At the closing, the Company shall deliver to each Securityholder, in
cash, the purchase price for the Securities surrendered by such Securityholder.
9.2.a. The Company covenants and agrees with the
Securityholders that in the event that the Company proposes to file a
registration statement under the Act with respect to any of its equity
securities (other than pursuant to registration statements on Form S-4 or Form
S-8 or any successor or similar forms), whether or not for its own account,
then the Company shall give written notice of such proposed filing to all
Securityholders promptly (and in any event at least twenty (20) days before the
anticipated filing date). Such notice shall offer to such Securityholders,
together with others who have similar rights, the opportunity to include in
such registration statement such number of Securities as they may request. The
Company shall cause the managing underwriter of a proposed underwritten
offering (unless the offering is an underwritten offering of a class of the
Company's equity securities other than Common Stock and the managing
underwriter has advised the Company in writing that, in its opinion, the
inclusion in such offering of Common Stock would materially adversely affect
the distribution of such offering) to permit the holders of Securities
requested to be included in the registration to include such Securities in the
proposed offering and the Company shall use its reasonable best
10
11
efforts to include such Securities in such proposed offering on the same terms
and conditions as any similar securities of the Company included therein. If
the offering of which the Company gives notice is a public offering involving
an underwriter, the right of a Securityholder to registration pursuant to this
Section 9.2 shall be conditioned upon such Securityholder's participation in
such underwriting and the inclusion of the Securities to be sold by such
Securityholder in the underwriting. All Securityholders proposing to
distribute Securities through such underwriting shall enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters. The foregoing notwithstanding, in the case of a
firm commitment offering on underwriting terms appropriate for such a
transaction, other than a registration requested by Securityholders pursuant to
Section 9.1, if any such managing underwriter of recognized standing shall
advise the Company and the Securityholders in writing that, in its opinion, the
distribution of all or a specified portion of the Securities requested to be
included in the registration concurrently with the securities being registered
by the Company would materially adversely affect the distribution of such
securities by increasing the aggregate amount of the offering in excess of the
maximum amount of securities which such managing underwriter believes can
reasonably be sold in the contemplated distribution, then the securities to be
included in a registration which is a primary underwritten offering on behalf
of the Company shall be included in the following order: (i) first, the
securities the Company proposes to include therein and (ii) second, such other
securities (including the Securities) requested to be included, pro rata among
the holders (including the Securityholders) of such other securities according
to the number of securities requested to be included by each such holder
requesting inclusion therein.
b. In the event that a holder or
holders of the Company's securities (other than a Securityholder or
Securityholders) requests, pursuant to rights granted to such holder or
holders, that the Company file a registration statement for the public offering
of securities and the Company and the other holders of the Company's securities
(including the Securityholders) who have rights to be included in such
registration, request to be included in such registration and the managing
underwriter of such offering shall advise the Company and the holders
requesting inclusion in the offering that, in its opinion, the distribution of
a specified portion of the securities requested to be included in the
registration would materially adversely affect the distribution of such
securities by increasing the aggregate amount of the offering in excess of the
maximum amount of securities which such managing underwriter believes can
reasonably be sold in the contemplated distribution then, the securities to be
included in the registration shall be included in the following order: (i)
first, all of the securities requested to be included therein by the holder or
holders making the initial request for the registration, and (ii) second, such
other securities requested to be included therein by the Company and the
holders of such other securities, pro rata among the Company and the holders of
such other securities according to the number of securities requested to be
included by the Company and each such holder requesting inclusion therein. For
purposes of this Section 9.2(b), the Company agrees to request for inclusion in
the registration only that number of securities that the Company intends, in
good faith, to sell, if all such securities so requested by the Company were
permitted to be included by the managing underwriter in such registration and
sold pursuant thereto.
11
12
c. The registration rights granted to
the Securityholders pursuant to this Section 9.2 shall not apply to the
registration of an aggregate of 8,872,710 shares of Common Stock of the Company
representing (i) 5,191,064 shares of Common Stock issued upon the conversion of
all outstanding shares of Series F Preferred Stock, $0.001 par value per share,
of the Company and 470,422 shares of Common Stock underlying certain warrants
issued in connection with the original issuance of the Series F Preferred Stock
and (ii) 3,211,224 shares of Common Stock underlying 150,000 shares of Series G
Preferred Stock, $0.001 par value per share, of the Company and certain
warrants issued in connection with the original issuance of the Series G
Preferred Stock; provided, however, that if the registration statements with
respect to such 8,872,710 shares of Common Stock of the Company are not filed
with and declared effective by the Securities and Exchange Commission by August
1, 1997, the Securityholders shall be entitled to all rights granted pursuant
to this Section 9.2.
9.3.a. In connection with the registration of
Securities on behalf of the holders thereof (such Securityholders being
referred to herein as "Sellers") in accordance with Section 9.1 or Section 9.2
above, the Company agrees to:
(i) enter into a cross-indemnity
agreement, in customary form, with each underwriter, if any, and each Seller;
(ii) subject to the provisions of
Section 9.1(a) and Section 9.2(a) regarding reductions by the managing
underwriter, include in the registration statement filed with the SEC, the
Securities for which requests for registration have been made; provided,
however, that promptly after filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall furnish to each Seller
copies of all such documents proposed to be filed including documents
incorporated by reference in the registration statement; and notify each Seller
of any stop order issued or threatened by the SEC and use its best efforts to
prevent the entry of such stop order or to remove it if entered;
(iii) prepare and file with the
SEC such amendments of and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective (A) in the case of a registration pursuant to
Section 9.1, for a period of one hundred and twenty (120) days, or, in the case
of a registration pursuant to Section 9.2, for a period of ninety (90) days or
(B) such shorter period as may be required if all such Securities covered by
such registration statement are sold prior to the expiration of such periods,
and comply with the provisions of the Act with respect to the disposition of
all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Sellers set forth in
such registration statement;
(iv) furnish to each Seller and
each underwriter, if any, without charge, such number of copies of the
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
such Seller may reasonably request in order to facilitate the disposition of
the Securities proposed to be sold by such Seller;
12
13
(v) use its reasonable best
efforts to register or qualify such Securities under such other securities or
Blue Sky laws of such jurisdictions as any Seller or any such underwriter
reasonably requests and keep such registrations or qualifications in effect for
so long as such registration statement remains in effect and do any and all
acts and things which may be reasonably necessary or advisable to enable such
Seller to consummate the disposition in such jurisdictions of the Securities
owned by such Seller; provided, however, that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection (v), (ii) subject
itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any jurisdiction;
(vi) notify each Seller, at any
time when a prospectus relating to such Seller's Securities is required to be
delivered under the Act, of the occurrence of any event as a result of which
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact necessary to
make the statements therein not misleading, and as soon as practicable prepare
a supplement or amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(vii) cause all such Securities to
be listed on any Exchange on which similar securities issued by the Company are
then listed;
(viii) provide a transfer agent,
registrar and CUSIP number for all such Securities not later than the effective
date of such registration statement;
(ix) enter into such customary
agreements (including an underwriting agreement in customary form) and take all
such other actions that the Sellers or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Securities;
(x) make available for
inspection by the Sellers and their counsel, any underwriter participating in
any disposition pursuant to such registration statement, and any counsel
retained by any such underwriter, all pertinent financial and other information
and corporate documents of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such Seller, underwriter or counsel in connection with such registration
statement;
(xi) use its reasonable best
efforts to obtain a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by "cold comfort" letters as the Sellers or any underwriter may
reasonably request;
(xii) obtain an opinion of counsel
to the Company, addressed to the Sellers and any underwriter, in customary form
and including such matters as are customarily covered by such opinions in
underwritten registered offerings of equity securities
13
14
as the Sellers or any underwriter may reasonably request, such opinion to be
reasonably satisfactory in form and substance to each Seller; and
(xiii) otherwise use its best
efforts to comply with all applicable rules and regulations of the SEC, and
make available to its securityholders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve (12) months
subsequent to the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder.
b. Any other provisions of this Section
9 notwithstanding, upon receipt by the Securityholders of a written notice
signed by the chief executive officer, chief operating officer or chief
financial officer of the Company to the effect set forth below, the Company
shall not be obligated during a reasonable period of time thereafter to effect
any registrations pursuant to this Section 9, and the Securityholders agree
that they will immediately suspend sales of shares under any effective
registration statement for a reasonable period of time, in either case not to
exceed ninety (90) days, at any time at which, in the Company's reasonable
judgment, (i) there is a development involving the Company or any of its
affiliates which is material but which has not yet been publicly disclosed or
(ii) sales pursuant to the registration statement would materially and
adversely affect an underwritten public offering for the account of the Company
or any other material financing project or a proposed or pending material
merger or other material acquisition or material business combination or
material disposition of the Company's assets, to which the Company or any of
its affiliates is, or is expected to be, a party. In the event a registration
is postponed or sales by the Securityholders pursuant to an effective
registration statement are suspended in accordance with this Section 9.3(b),
there shall be added to the period during which the Company is obligated to
keep a registration effective the number of days for which the registration was
postponed or sales were suspended pursuant to this Section 9.3(b).
c. The Company may require each Seller
to furnish to the Company such information regarding the distribution of the
Securities proposed to be sold by such Seller as the Company may from time to
time reasonably request in writing.
d. Each Seller agrees that, upon
receipt of any notice from the Company of the occurrence of any event of the
kind described in subsection (vi) of Section 9.3(a) above, such Seller shall
forthwith discontinue disposition of Securities pursuant to the registration
statement covering such Securities until such Seller's receipt of copies of the
supplemented or amended prospectus contemplated by Section 9.3(a)(vi) above
and, if so directed by the Company, such Seller will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies in such
Seller's possession, of the prospectus covering such Securities current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the period mentioned in Section 9.3(a)(iii) above shall be extended by
the number of days during the period from and including the date of giving of
such notice to and including the date when each Seller shall have received the
copies of the supplemented or amended prospectus contemplated by Section
9.3(a)(vi) above.
14
15
e. The Company shall not file or permit
the filing of any registration or comparable statement which refers to any
Seller by name or otherwise as the Seller of any securities of the Company
unless such reference to such Seller is specifically required by the Act or any
similar federal statute then in force.
9.4 All expenses incident to the Company's
performance of or compliance with this Warrant, including without limitation
all registration and filing fees, fees and expenses relating to filings with
any Exchange, fees and expenses of compliance with securities or Blue Sky laws
in jurisdictions reasonably requested by any Seller or underwriter pursuant to
Section 9.3(a)(v) (including reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Securities), all word
processing, duplicating and printing expenses, messenger and delivery expenses,
fees and disbursements of counsel for the Company and one (1) counsel for the
Sellers, independent public accountants (including the expenses of any special
audit or "cold comfort" letters required by or incident to such performance)
and underwriters (excluding discounts, commissions or fees of underwriters,
selling brokers, dealer managers or similar securities industry professionals
attributable to the securities being registered, which discounts, commissions
or fees with respect to any Seller's respective shares shall be paid by such
Seller, and legal expenses of any person other than the Company and the
Sellers, but including liability insurance if the Company so desires), all the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the expense of any liability insurance (if the
Company determines to obtain such insurance) and the fees and expenses incurred
in connection with the listing of the securities to be registered on each
Exchange on which such securities issued by the Company are then listed, the
reasonable fees and expenses of any special experts (including attorneys)
retained by the Company (if it so desires) in connection with such registration
and fees and expenses of other persons retained by the Company (all such
expenses being herein called "Registration Expenses"), shall be borne by the
Company.
9.5 In connection with the preparation and filing
of each registration statement under the Act pursuant to this Section 9, the
Company shall give the Sellers under such registration statement, their
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of
such Sellers' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Act.
9.6.a. In the event of any registration of any
securities of the Company under the Act, the Company shall, and hereby does,
indemnify and hold harmless in the case of any registration statement filed
pursuant to Section 9.1 or Section 9.2, the Seller of any Securities covered by
such registration statement, its directors, officers, employees and agents,
each other person who participates as an underwriter in the offering or sale of
such Securities and each other person, if any, who controls such Seller or any
such underwriter within the
15
16
meaning of the Act against any losses, claims, damages, or liabilities (or
actions or proceedings whether commenced or threatened in respect thereof),
joint or several, to which such Seller or any such director or officer or
employee or agent or underwriter or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Securities were registered under the Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company shall reimburse such Seller
and each such director, officer, employee, agent, underwriter and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action, or proceeding; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding, whether commenced or threatened in respect thereof), or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus,
amendment, or supplement in reliance upon and in conformity with written
information furnished to the Company by such Seller for the express purpose of
use in the preparation thereof and, provided, further, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding, whether commenced or threatened, in respect
thereof), or expense arises out of such person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or amended,
within the time required by the Act to the person asserting an untrue statement
or alleged untrue statement or omission or alleged omission if such statement
or omission was corrected in such final prospectus. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Seller or any such director, officer, employee, agent,
underwriter or controlling person and shall survive the transfer of such
Securities by such Seller.
b. In the event that the Company
includes any Securities of a prospective Seller in any registration statement
filed pursuant to Section 9.3, such prospective Seller shall, and hereby does,
indemnify and hold harmless the Company, its directors, officers, employees and
agents, each other person who participates as an underwriter in the offering or
sale of such Securities and each other person, if any, who controls the Company
or any such underwriter within the meaning of the Act against any losses,
claims, damages, or liabilities (or actions or proceedings whether commenced or
threatened in respect thereof), joint or several, to which the Company or any
such director, officer, employee, agent, underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Securities were registered under the
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and such
prospective Seller shall reimburse the
16
17
Company and any such director, officer, employee, agent, underwriter or
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action, or proceeding if, and only if, such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment, or supplement. In no event
shall the liability of any Seller hereunder be greater in amount than the
dollar amount of the proceeds received by such Seller upon the sale of the
Securities giving rise to such indemnification obligation. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Company or any such director, officer, employee, agent,
underwriter or controlling person and shall survive the transfer of such
Securities by such Seller.
c. The Company shall be entitled to
receive indemnities from underwriters, selling brokers, dealer managers, and
similar securities industry professionals participating in the distribution to
the same extent as provided above with respect to information so furnished in
writing by such persons specifically for inclusion in any prospectus or
registration statement.
d. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in this Section 9.6, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided, however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 9.6, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
In case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. If, in the indemnified party's reasonable judgment a conflict
of interest between such indemnified and indemnifying parties may exist in
respect of such claim, the indemnified party may assume the defense of such
claim, jointly with any other indemnified party that reasonably determines such
conflict of interest to exist, and the indemnifying party shall be liable to
such indemnified parties for the reasonable legal fees and expenses of one
counsel for all such indemnified parties and for other expenses reasonably
incurred in connection with the defense thereof incurred by the indemnified
party. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement of any
such action which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability, or a covenant not to sue, in respect of such
17
18
claim or litigation. No indemnified party shall consent to entry of any
judgment or enter into any settlement of any such action the defense of which
has been assumed by an indemnifying party without the consent of such
indemnifying party.
e. Indemnification and contribution
similar to that specified in this Section 9.6 (with appropriate modifications)
shall be given by the Company and each Seller with respect to any required
registration or other qualification of Securities under any Federal or state
law or regulation of any governmental authority, other than the Act.
f. The indemnification required by this
Section 9.6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
g. If the indemnification provided for
in this Section 9.6 from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities, or expenses referred to herein, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of losses, claims,
damages, liabilities, or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified party in
connection with the actions which resulted in such losses, claims, damages,
liabilities, or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities, and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding. In no event shall the liability of any
Seller hereunder be greater in amount than the dollar amount of the proceeds
received by such Seller upon the sale of the Securities giving rise to such
contribution obligation. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 9.6(g) were determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in this Section 9.6(g).
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
9.7 If requested by the managing underwriter of
an offering for which Shares of such Securityholder have been registered, a
Securityholder shall not sell or otherwise transfer or dispose of any
Securities held by such Securityholder (other than those included in the
registration) during such period following the effective date of such
registration as is usual and customary at such time in similar public offerings
of similar securities; provided, however, that the Company shall use its
reasonable best efforts to cause each holder of a material number of shares of
Common Stock to enter into similar "lock-up" agreements in respect of such
18
19
offering. The obligations described in this Section 9.7 shall not apply to
offerings pursuant to a registration statement on Form S-4 or Form S-8 or any
successor or similar form.
10. Additional Rights.
10.1 Secondary Sales. The Company agrees that it
will cooperate with the holder of this Warrant in obtaining liquidity if
opportunities to make secondary sales of the Company's securities become
available. To this end, the Company will promptly provide the holder of this
Warrant with notice of any offer to acquire from the Company's security holders
more than five percent (5%) of the total voting power of the Company and will
cooperate with the holder in arranging the sale of this Warrant to the person
or persons making such offer.
10.2 Mergers. In the event that the Company
undertakes to (i) sell, lease, exchange, convey or otherwise dispose of all or
substantially all of its property or business, or (ii) merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary of
the Company), or effect any transaction (including a merger or other
reorganization) or series of related transactions, in which more than 50% of
the voting power of the Company is disposed of, the Company will use its best
efforts to provide at least thirty (30) days notice of the terms and conditions
of the proposed transaction. The Company will cooperate with the holder in
consummating the sale of this Warrant in connection with any such transaction.
10.3 Right to Convert Warrant into Common Stock;
Net Issuance.
a. Right to Convert. In addition to and without
limiting the rights of the holder under the terms of this Warrant, the holder
shall have the right to convert this Warrant or any portion thereof (the
"Conversion Right") into shares of Common Stock as provided in this Section
10.3 at any time or from time to time during the term of this Warrant. Upon
exercise of the Conversion Right with respect to a particular number of shares
subject to this Warrant (the "Converted Warrant Shares"), the Company shall
deliver to the holder (without payment by the holder of any exercise price or
any cash or other consideration) that number of shares of fully paid and
nonassessable Common Stock equal to the quotient obtained by dividing (i) the
value of this Warrant (or the specified portion hereof) on the Conversion Date
(as defined in subsection (b) hereof), which value shall be equal to (A) the
aggregate fair market value of the Converted Warrant Shares issuable upon
exercise of this Warrant (or the specified portion hereof) on the Conversion
Date less (B) the aggregate Warrant Price of the Converted Warrant Shares
immediately prior to the exercise of the Conversion Right by (ii) the fair
market value of one share of Common Stock on the Conversion Date.
19
20
Expressed as a formula, such conversion shall be computed as
follows:
X= A - B
-----
Y
Where: X = the number of shares of Common Stock that
may be issued to holder
Y = the fair market value (FMV) of one share of
Common Stock
A = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the
Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date. For purposes of Section 9
of this Warrant, shares issued pursuant to the Conversion Right shall be
treated as if they were issued upon the exercise of this Warrant.
b. Method of Exercise. The Conversion Right may
be exercised by the holder by the surrender of this Warrant at the principal
office of the Company together with a written statement specifying that the
holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to this Warrant which are being surrendered (referred
to in subsection (a) hereof as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the
Company of this Warrant together with the aforesaid written statement, or on
such later date as is specified therein (the "Conversion Date"). Certificates
for the shares issuable upon exercise of the Conversion Right and, if
applicable, a new warrant evidencing the balance of the shares remaining
subject to this Warrant, shall be issued as of the Conversion Date and shall be
delivered to the holder within thirty (30) days following the Conversion Date.
c. Determination of Fair Market Value. For
purposes of this Section 10.3, "fair market value" of a share of Common Stock
shall have the meaning set forth in Section 4(h) above.
11. Representations and Warranties. The Company
represents and warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and
executed by the Company and is a valid and binding obligation of the Company
enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief
20
21
of debtors and the rules of law or principles at equity governing specific
performance, injunctive relief and other equitable remedies;
b. The Shares have been duly authorized and
reserved for issuance by the Company and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and
restrictions granted to or imposed upon the Common Stock and the holders
thereof are as set forth in the articles or certificate of incorporation of the
Company, as amended to the Date of Grant (as so amended, the "Charter"), a true
and complete copy of which has been delivered to the original holder of this
Warrant;
d. The execution and delivery of this Warrant
are not, and the issuance of the Shares upon exercise of this Warrant in
accordance with the terms hereof will not be, inconsistent with the Charter or
by-laws of the Company, do not and will not contravene, in any material
respect, any governmental rule or regulation, judgment or order applicable to
the Company, and do not and will not conflict with or contravene any provision
of, or constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or filing
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person, except for the filing of
notices pursuant to federal and state securities laws, which filings will be
effected by the time required thereby;
e. There are no actions, suits, audits,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company in any court or before any governmental
commission, board or authority which, if adversely determined, will have a
material adverse effect on the ability of the Company to perform its
obligations under this Warrant;
f. The authorized capital stock of the Company
consists of Fifty Million (50,000,000) shares of Common Stock, of which
approximately Twenty-Five Million Nine Hundred Ten Thousand Three Hundred
Sixty-Nine (25,910,369) shares were issued and outstanding as of the close of
business on the Date of Grant, and Five Million (5,000,000) shares of Preferred
Stock, $0.001 value per share, of which Five Hundred Forty-Five Thousand
Eighty-Three (545,083) shares were issued and outstanding as of the close of
business on the Date of Grant. All such outstanding shares have been validly
issued and are fully paid, nonassessable shares free of preemptive rights;
g. Except for the Warrants and as set forth on
Schedule 11(g) attached hereto and incorporated herein, there are no
subscriptions, rights, options, warrants, or calls relating to any shares of
the Company's capital stock, including any right of conversion or exchange
under any outstanding security or other instrument; and
h. Except as disclosed in the Company's most
recent Proxy Statement and Form 10-K, the Company is not subject to any
obligation (contingent or otherwise) to
21
22
repurchase or otherwise acquire or retire any shares of its capital stock or
any security convertible into or exchangeable for any of its capital stock.
12. Modification and Waiver. This Warrant and any
provision hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the same
is sought.
13. Notices. Any notice, request, communication or other
document required or permitted to be given or delivered to the holder hereof or
the Company shall be delivered, or shall be sent by private courier or
certified or registered mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor on the signature page of this Warrant.
14. Binding Effect on Successors. This Warrant shall be
binding upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Common Stock issuable upon the
exercise or conversion of this Warrant shall survive the exercise, conversion
and termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall
continue to be entitled after such exercise or conversion in accordance with
this Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company
covenants to the holder hereof that, upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of any loss, theft or
destruction, upon receipt of an executed lost securities bond or indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant or stock certificate, the
Company will make and deliver a new Warrant or stock certificate, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
16. Descriptive Headings. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of Delaware.
18. Survival of Representations, Warranties and
Agreements. All representations and warranties of the Company and the holder
hereof contained herein shall survive the Date of Grant, the exercise or
conversion of this Warrant (or any part hereof) or the termination or
expiration of rights hereunder. All agreements of the Company and the holder
22
23
hereof contained herein shall survive indefinitely until, by their respective
terms, they are no longer operative.
19. Remedies. In case any one or more of the covenants
and agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited
to, an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
20. Acceptance. Receipt of this Warrant by the holder
hereof shall constitute acceptance of and agreement to the foregoing terms and
conditions.
21. No Impairment of Rights. The Company will not, by
amendment of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment.
PHOENIX NETWORK, INC.
By: /s/ Xxx X. Xxxxxx
-------------------------------
Title: CFO
-----------------------------
Address: 0000 Xxxx Xxxx.
-----------------------------------
Golden, CO 80401
-----------------------------------
Dated: as of March 12, 1997
23
24
EXHIBIT A
NOTICE OF EXERCISE
To: PHOENIX NETWORK, INC.
1. The undersigned hereby elects to purchase
shares of Common Stock of PHOENIX NETWORK, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates
representing said shares in the name of the undersigned or in such other name
or names as are specified below:
----------------------------
(Name)
----------------------------
----------------------------
(Address)
3. The undersigned represents that the aforesaid shares
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. In support thereof, the undesigned has executed an Investment
Representation Statement attached hereto as Schedule 1.
---------------------------------------
(Signature)
--------------------
(Date)
25
Schedule 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: PHOENIX NETWORK, INC.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities
(the "Securities"), the undersigned (the "Purchaser") represents to the Company
as follows:
(a) The Purchaser is aware of the Company's business
affairs and financial condition, and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Securities. The Purchaser is purchasing the Securities for its own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof for purposes of the Securities Act
of 1933, as amended (the "Act").
(b) The Purchaser understands that the Securities have
not been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Securities and
Exchange Commission ("SEC"), the statutory basis for such exemption may be
unavailable if the Purchaser's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under applicable tax laws, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
(c) The Purchaser further understands that the Securities
must be held indefinitely unless subsequently registered under the Act or
unless an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased.
26
(d) The Purchaser is aware of the provisions of Rule 144
and 144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: The availability of certain public information about the
Company, the resale occurring not less than two (2) years after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934, as amended) and the amount of securities being sold during any
three-month period not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it
wishes to sell the Securities there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company
may not be satisfying the current public information requirements of Rule 144
and 144A, and that, in such event, the Purchaser may be precluded from selling
the Securities under Rule 144 and 144A even if the two-year minimum holding
period had been satisfied.
(f) The Purchaser further understands that in the event
all of the requirements of Rule 144 and 144A are not satisfied, registration
under the Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
or proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
Purchaser:
------------------------------
Date:
----------------------
