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EXHIBIT 4.3
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CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
PHOENIX NETWORK, INC.
and
JNC OPPORTUNITY FUND LTD.
______________________________
Dated as of March 31, 1997
______________________________
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CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of March
31, 1997 (this "Agreement"), between Phoenix Network, Inc., a Delaware
corporation (the "Company"), and JNC Opportunity Fund Ltd., a corporation
organized and existing under the laws of the Cayman Islands (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire shares of the Company's Series G Convertible
Preferred Stock, par value $.001 per share (the "Preferred Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement,
unless the context requires a different meaning, the following terms have the
meanings indicated in this Section 1.1:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement" shall have the meaning set forth in the recitals
hereto.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a Federal legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
actions to close.
"Certificate of Designation" shall have the meaning set forth in
Section 2.1(a).
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section
2.1(b).
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"Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value $.001
per share.
"Company" shall have the meaning set forth in the recitals
hereto.
"Conversion Ratio" shall have the meaning set forth in the
Certificate of Designation.
"Escrow Agent" means Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx
LLP.
"Escrow Agreement" means the escrow agreement, dated as of the
date hereof, by and among the Company, the Purchaser and the Escrow Agent, in
the form of Exhibit E, as the same may be amended, supplemented or otherwise
modified in accordance with its terms.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, right of first refusal, charge, security interest or encumbrance of any
kind in or on such asset or the revenues or income thereon or therefrom.
"Material Adverse Effect" shall have the meaning set forth in
Section 3.1(a).
"Original Issue Date" shall mean the first issuance of any
Shares, regardless of the number of transfers of any particular Share and
regardless of the number of certificates which may be issued to evidence any
particular Share.
"Per Share Market Value" shall have the meaning set forth in the
Certificate of Designation.
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" shall have the meaning set forth in the
recitals hereto.
"Purchase Price" shall have the meaning set forth in Section
2.1(a).
"Purchaser" shall have the meaning set forth in the recitals
hereto.
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"Registration Rights Agreement" means the registration rights
agreement, dated as of the date hereof, between the Company and the Purchaser,
in the form of Exhibit B, as the same may be amended, supplemented or otherwise
modified in accordance with its terms.
"Required Approvals" shall have the meaning set forth in Section
3.1(f).
"SEC Documents" shall have the meaning set forth in Section
3.1(l).
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Preferred Stock to be purchased by
the Purchaser pursuant to this Agreement.
"Stated Value" shall have the meaning set forth in Section
2.1(a).
"Subsequent Financing" shall have the meaning set forth in
Section 4.9.
"Subsequent Financing Notice" shall have the meaning set forth in
Section 4.9.
"Subsidiaries" shall have the meaning set forth in Section
3.1(a).
"Trading Day" shall have the meaning set forth in the Certificate
of Designation.
"Transaction Documents" shall have the meaning set forth in
Section 3.1(b).
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Shares in accordance with the terms hereof and the
Certificate of Designation.
"Underlying Shares Registration Statement" shall have the meaning
set forth in Section 3.1(f).
ARTICLE II
PURCHASE OF SHARES
Section 2.1. Purchase of Shares; Closing.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company on the Closing Date 150,000 Shares, which shall
have the respective rights, preferences and privileges set forth in Exhibit A
(the "Certificate of Designation"), at a price per Share of $20 (the "Stated
Value"). The aggregate "Purchase Price" for the Shares is $3,000,000.
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(b) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of the Escrow Agent, 0000 Xxxxxx xx
xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, immediately following the execution
hereof, or at such other time and/or place as the Purchaser and the Company may
agree. The date of the Closing is referred to herein as the "Closing Date".
(c) At the Closing, the Escrow Agent, in accordance with and
subject to the terms and conditions of the Escrow Agreement, shall, pursuant to
instructions of the Company and the Purchaser, deliver (i) to the Purchaser,
(A) one or more stock certificates representing the Shares purchased hereunder,
registered in the name of the Purchaser, and (B) the legal opinion addressed to
it and dated the Closing Date, of Xxxxxx Xxxxxxxx Xxxxxx & X'Xxxxxxx, P.C.,
counsel for the Company, substantially in the form of Exhibit C; (ii) to the
Company, the Purchase Price, less the amounts to be deducted in accordance with
the Escrow Agreement, in United States dollars in immediately available funds
by wire transfer to an account designated in writing by the Company prior to
the Closing; and (iii) to the party entitled thereto, all documents,
instruments and writings required to have been delivered at or prior to Closing
by either the Company or the Purchaser pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on
its business as currently conducted. The Company has no subsidiaries other
than as set forth in the SEC Documents or in Schedule 3.1(a) (collectively, the
"Subsidiaries"). Each of the Subsidiaries is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any of the
Transaction Documents, (y) have a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Company and the
Subsidiaries, taken as a whole or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under the Transaction Documents
(a "Material Adverse Effect").
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(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Registration Rights Agreement, the Escrow
Agreement and Certificate of Designation (collectively with this Agreement, the
"Transaction Documents") and to otherwise carry out its obligations hereunder
and thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company, including, without limitation, approval thereof by the
Company's Board of Directors. Each of the Transaction Documents has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, bylaws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
Schedule 3.1(c). No shares of Common Stock are entitled to preemptive or
similar rights. Except as specifically disclosed in Schedule 3.1(c), there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares hereunder, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common
Stock. To the knowledge of the Company, except as specifically disclosed in
the SEC Documents or Schedule 3.1(c), no Person beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Exchange Act) or has
the right to acquire by agreement with or by obligation binding upon the
Company beneficial ownership of in excess of 5% of the Common Stock.
(d) Issuance of Shares and Underlying Shares. The Shares have
been duly authorized and, when paid for in accordance with the terms hereof,
shall be validly issued, fully paid and nonassessable, free and clear of any
Liens. The Company has and at all times while any Shares are outstanding will
maintain a reserve of shares of Common Stock to enable it to perform its
conversion and other obligations under this Agreement and the Certificate of
Designation, which reserve shall be no less than the sum of twice the number of
shares of Common Stock issuable upon conversion of all of the then outstanding
and previously unconverted Shares into Common Stock pursuant to the terms
hereof and the Certificate of Designation, assuming such conversion occurred on
the Original Issue Date. When issued in accordance with the terms hereof and
the Certificate of Designation, the Underlying Shares will have been duly
authorized, validly issued, fully paid and nonassessable, and free and clear of
any Liens.
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(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation or bylaws (each as
amended through the date hereof) or (ii) subject to obtaining the consents
specified in Section 3.1(f), conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, loans or credit agreement or other
instrument or agreement to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company
is subject (including Federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except in such case
where the conduct of such business in violation of any law, ordinance or
regulation of any governmental authority, could not, individually or in the
aggregate, have or result in a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 3.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other Federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, except
for (i) the filing of the Certificate of Designation with respect to the Shares
with the Secretary of State of Delaware, which filing shall be effected on or
prior to the Closing Date, (ii) the filing of the registration statement
covering the Underlying Shares (the "Underlying Shares Registration Statement")
with the Commission and the making of the applicable blue-sky filings under
state securities laws, each as contemplated by the Registration Rights
Agreement, and (iii) other than, in all other cases, where the failure to
obtain such consent, waiver, authorization or order, or to give or make such
notice or filing, could not, individually or in the aggregate, have or would
result in a Material Adverse Effect (together with the consents, waivers,
authorizations, orders, notices and filings referred to in Schedule 3.1(f), the
"Required Approvals").
(g) Litigation; Proceedings. There is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which relates to or challenges the legality, validity
or enforceability of the Transaction Documents, Shares, or Underlying Shares or
which could, individually or in the aggregate, have or result in a Material
Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or
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instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not, in any case of (i) above,
individually or in the aggregate, have or result in a Material Adverse Effect.
(i) Certain Fees. Except for fees payable by the Company to
Xxxxxxx Capital Partners, Ltd. and Xxxxx X. Xxxxxx, no fees or commissions are
or will be payable by the Company to any broker, finder, investment banker or
bank with respect to the consummation of the transactions contemplated hereby.
The Purchaser shall have no obligation with respect to such fees or with
respect to any claims made by other Persons for fees of a type contemplated in
this Section due in connection with this transaction.
(j) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of securities of the Company under circumstances which
would require the integration of such offering with the offering of the Shares
or the Underlying Shares under the Securities Act) which might subject the
offering, issuance or sale of the Shares or the Underlying Shares to the
registration requirements of Section 5 of the Securities Act.
(k) SEC Documents. The Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a)
or 15(d) thereof, for the three years preceding the date hereof (or such
shorter period as the Company was required by law to file such material) (the
foregoing materials being collectively referred to herein as the "SEC
Documents") on a timely basis, or has received a valid extension of such time
of filing (in which case it has made all such filings in the time required by
such extension). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the published rules and regulations of the Commission
promulgated thereunder, and none of the SEC Documents, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specifically indicated in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal year-end audit adjustments. The Company last filed
audited financial statements with the Commission on March 31, 1997, and the
Company has not received any comments from the Commission in respect of such
audited financial statements. Since the date of the financial statements
included in the last filed Annual Report on Form 10-K, there has been no event,
occurrence or development that has had, could have or would result in a
Material Adverse Effect which has not been specifically disclosed to the
Purchaser.
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(l) Seniority. No class of equity securities of the Company
is senior to the Shares in right of payment, whether upon liquidation,
dissolution or otherwise.
(m) Form S-3 Eligibility. The Company is, and at the Closing
Date will be, eligible to register securities for resale with the Commission
under Form S-3 promulgated under the Securities Act.
(n) Investment Company. The Company is not and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(o) Exclusivity. The Company shall not issue and sell the
Preferred Stock to any Person other than the Purchaser other than with the
specific prior written consent of the Purchaser.
(p) Listing and Maintenance Requirements Compliance. Other
than as specifically listed in Schedule 3.1(q), the Company has not in the two
years prior to the date hereof received written notice from any stock exchange
or market on which the Common Stock is or has been listed (or on which it is or
has been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such exchange or market. The Company
has provided to the Purchaser true and complete copies of any notices
referenced in Schedule 3.1(q).
Section 3.2. Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated hereby and by the Registration Rights Agreement and the Escrow
Agreement and otherwise to carry out its obligations hereunder and thereunder.
The purchase of the Shares by the Purchaser hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement,
the Registration Rights Agreement and the Escrow Agreement has been duly
executed and delivered by or on behalf of the Purchaser and constitutes the
valid and legally binding obligation of the Purchaser, enforceable against it
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity.
(b) Investment Intent. The Purchaser is acquiring the Shares
and the Underlying Shares for its own account (and/or on behalf of managed
accounts who are purchasing solely for their own accounts for investment) for
investment purposes only and not with a view to or for distributing or
reselling such Shares or Underlying Shares or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of the Transaction Documents, at all times to sell or otherwise
dispose of all or any
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part of such Shares or Underlying Shares under an effective registration
statement under the Securities Act and in compliance with applicable State
securities laws or under an exemption or exclusion from such registration.
(c) Purchaser Status. At the time the Purchaser (and any
account for which it is purchasing) was offered the Shares, it (and any managed
account for which it is purchasing) was, and at the date hereof, it (and any
managed account for which it is purchasing) is, and at the Closing Date, it
(and any managed account for which it is purchasing) will be, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Shares and,
at the present time, is able to afford a complete loss of such investment.
(f) Prohibited Transactions. The Shares are not being
acquired, directly or indirectly, with the assets of any "employee benefit
plan", within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended.
(g) Access to Information. The Purchaser acknowledges that it
or its representatives has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of an investment therein; (ii)
access to information about the Company and the Company's financial condition,
results of operations, business, properties and management sufficient to enable
it to evaluate such investment; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the Shares. The Purchaser has made detailed inquiry
concerning the Company, its business and its personnel. The Company has made
available to Purchaser any and all written information that it has requested
and has answered to Purchaser's satisfaction all inquiries made by Purchaser.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Shares are being offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption depends in part on, and that the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such reliance.
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The Company acknowledges and agrees that the Purchaser makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Transfer Restrictions. (a) If the Purchaser
should decide to dispose of any of the Shares (and upon conversion thereof, any
Underlying Shares), the Purchaser understands and agrees that it may do so only
pursuant to an effective registration statement under the Securities Act, to
the Company or pursuant to an available exemption from the registration
requirements thereof. In connection with any transfer of any of the Shares or
Underlying Shares other than pursuant to an effective registration statement or
to the Company, the Company may require the transferor of such Shares to
provide to the Company an opinion of counsel experienced in the area of United
States securities laws selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such Shares or Underlying
Shares under the Securities Act.
(b) The Purchaser agrees to the imprinting, so long as
is required by this Section 4.1(b), of the following legend on certificates
representing the Shares or Underlying Shares:
[NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE [THE SECURITIES REPRESENTED HEREBY] HAVE
[NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND CONVERSION SET FORTH IN A CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MARCH 31, 1997 BETWEEN
THE COMPANY AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICE OF PHOENIX NETWORK, INC.
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The Underlying Shares issuable upon conversion of Shares shall not
contain the legend set forth above if the conversion of Shares occurs at any
time while the Underlying Shares Registration Statement is effective under the
Securities Act or in the event there is not an effective Underlying Shares
Registration Statement at such time, if in the opinion of counsel to the
Company experienced in the area of United States securities laws determines
that such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The certificates representing the Shares and the
Underlying Shares shall also bear any other legends required by applicable
Federal or state securities laws, which legends shall be removed when not
required in accordance with this Section 4.1(b). The Company agrees that it
will provide the Purchaser, upon request, with a certificate or certificates
representing Underlying Shares, free from such legend at such time as such
legend is no longer required in accordance with this Section 4.1(b). The
Purchaser agrees that it will not offer or sell any Underlying Shares except
pursuant to an effective registration statement under the Securities or
pursuant to an available exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act and in accordance with
applicable State securities laws and in connection with any transfer of
Underlying Shares by it pursuant to an effective registration statement under
the Securities Act, it will comply with the prospectus delivery requirements of
the Securities Act.
Section 4.2. Stop Transfer Instruction. The Company may not be
entitled to make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in Section 4.1 above.
Section 4.3. Furnishing of Information. For so long as the
Purchaser owns Shares or Underlying Shares, the Company covenants to timely
file (or obtain valid extensions in respect thereof) all reports required to be
filed by the Company after the date hereof pursuant to Section 13(a) or 15(d)
of the Exchange Act and to promptly furnish the Purchaser with true and
complete copies of all such filings. If the Company is not at the time
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchaser annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act in the time
period that such filings would have been required to have been made under the
Exchange Act.
Section 4.4. [INTENTIONALLY OMITTED]
Section 4.5. Increase in Authorized Shares. At such time as the
Company would be, if a notice of conversion were to be delivered on such date,
precluded from converting the full number of Shares that remain unconverted at
such date due to the unavailability of authorized but unissued or re-acquired
Common Stock, the Board of Directors of the Company shall promptly (and in any
case within 14 Business Days from such date prepare and mail to the
shareholders of the Company proxy materials requesting authorization to amend
the Company's certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least 60,000,000
shares. In connection therewith, the Board of Directors
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shall (a) adopt proper resolutions authorizing such increase, (b) recommend to
and otherwise use its best efforts to promptly and duly obtain stockholder
approval to carry out such resolutions (and hold a special meeting of the
shareholders no later than the 30th day after delivery of the proxy materials
relating to such meeting) and (c) within 5 Business Days of obtaining such
shareholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase.
Section 4.6. Blue Sky Laws. In accordance with the Registration
Rights Agreement, the Company shall qualify the Underlying Shares under the
securities or Blue Sky laws of such jurisdictions as the Purchaser may
reasonably request and continue such qualification at all times until the
earlier of (i) the date the Underlying Shares Registration Statement is no
longer effective pursuant to the Registration Rights Agreement or (ii)
Purchaser notifies the Company in writing that it no longer owns Shares or
Underlying Shares; provided, however, that neither the Company nor its
Subsidiaries shall be required in connection therewith to qualify as a foreign
corporation where they are not now so qualified.
Section 4.7. Integration. The Company shall not and shall use
its best efforts to ensure that no Affiliate shall sell, offer for sale or
solicit offers to buy security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Shares or the Underlying
Shares in a manner that would require the registration under the Securities Act
of the sale of the Shares or Underlying Shares to the Purchaser.
Section 4.8. Solicitation Materials. The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Shares or Underlying Shares and any amendments and supplements thereto
prepared in compliance herewith or (ii) solicit any offer to buy or sell the
Shares or Underlying Shares by means of any form of general solicitation or
advertising.
Section 4.9. Right of First Refusal; Subsequent Registrations;
Certain Corporate Actions. (a) The Company shall not, directly or indirectly,
without the prior written consent of the Purchaser, offer, sell, grant any
option to purchase, or otherwise dispose (or announce any offer, sale, grant or
any option to purchase or other disposition) of any of its or its Affiliates
equity or equity-equivalent securities at a price which is on the face thereof
or implied therein, less than either the market price or fair market value for
such securities (a "Subsequent Financing") for a period of 180 days after
Closing Date, except (i) the granting of options to employees, officers and
directors, and the issuance of shares upon exercise of options granted, under
any stock option plan heretofore or hereinafter duly adopted by the Company,
(ii) shares of Common Stock issued upon exercise of any currently outstanding
warrants and upon conversion of any currently outstanding convertible preferred
stock in each case disclosed in Schedule 3.1(c), (iii) shares of Common Stock
issued for the acquisition of another company by the Company by merger,
purchase of substantially all of the assets of such company, or other
reorganization resulting in the ownership by the Company of more than 50% of
the voting power of such company, and (iv) shares of Common Stock issued upon
conversion of Shares in accordance herewith and the Certificate of Designation,
unless (A) the Company delivers to the
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Purchaser a written notice (the "Subsequent Financing Notice") of its intention
to effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing shall be effected, and an executed term sheet or
similar document relating thereto shall be attached to such Subsequent
Financing Notice and (B) the Purchaser shall not have notified the Company by
5:00 p.m. (Eastern Time) on the seventh Business Day after its receipt of the
Subsequent Financing Notice of its willingness to provide (or to cause its sole
designee to provide) financing to the Company on substantially the terms set
forth in the Subsequent Financing Notice and provide such Subsequent Financing
within 20 Business Days after its receipt of the Subsequent Financing Notice,
provided, that this 20 Business Day period shall be extended to the extent that
such Subsequent Financing is not provided by such date due to the delay or bad
faith of the Company. If the Purchaser shall fail to notify the Company of its
intention to commit within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on substantially the terms set forth in such Subsequent Financing Notice
within 60 Business Days after the date of the initial Subsequent Financing
Notice with the Person (or an Affiliate of such Person) identified in the
Subsequent Financing Notice.
(b) Except Underlying Shares and other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to
be registered in accordance with the Registration Rights Agreement and as set
forth in Schedule 3.1(c), the Company shall not, without the prior written
consent of the Purchaser, (i)issue or sell any of its or any of its Affiliates'
equity or equity-equivalent securities pursuant to Regulation S promulgated
under the Securities Act, or (ii) register for resale any securities of the
Company, in either case of (i) or (ii) above, for a period of not less than 90
days after the date that the Underlying Shares Registration Statement is
declared effective by the Commission. Any days that the Purchaser is unable to
sell Underlying Shares under the Underlying Shares Registration Statement as a
result of the failure of the Underlying Shares Registration Statement being
effective and not subject to any suspension or blackout; any action taken by
the Company to prevent such ability to sell Underlying Shares under the
Underlying Shares Registration Statement; or a delisting or a suspension of
trading of the Common Stock, shall be added to such 90 day period for the
purposes of (i) and (ii) above.
(c) As long as there are Shares outstanding, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, (i) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Purchaser; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock other than as to the Underlying Shares; or (iii) enter into any
agreement with respect to any of the foregoing.
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Section 4.10. Purchaser Ownership of Common Stock. The
Purchaser may not use its ability to convert Shares hereunder or under the
terms of the Certificate of Designation to the extent that such conversion
would result in the Purchaser beneficially owning (for purposes of Rule 13d-3
under the Exchange Act) more than 4.9% of the outstanding shares of the Common
Stock; provided, however, that if ten days shall have elapsed since the
Purchaser has declared an event of default under any Transaction Document and
such event shall not have been cured to the Purchaser's satisfaction prior to
the expiration of such ten-day period, the provisions of this Section 4.10
shall be null and void ab initio.
Section 4.11. Listing of Underlying Shares. The Company shall
(a) not later than the fifth Business Day following the Closing Date, prepare
and file with the American Stock Exchange (and each other national securities
exchange or market on which the Common Stock is then listed) an additional
shares listing application covering at least 3,211,224 Underlying Shares, (b)
take all steps necessary to cause such shares to be approved for listing on
such exchanges and markets as soon as possible thereafter, and (c) provide to
the Purchaser evidence of such filing and listing, and the Company shall
maintain the listing of its Common Stock on such exchange.
Section 4.12. Purchaser's Rights if Trading in Common Stock is
Suspended or Delisted. In the event that at any time within the three-year
period after the Closing Date trading in the shares of the Common Stock is
suspended on or delisted from the American Stock Exchange or any other
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally or
temporary suspensions pending the release of material information) for more
than three Trading Days, at the Purchaser's option exercisable by five Business
Days prior written notice to the Company, the Company shall redeem all Shares
and Underlying Shares then held by the Purchaser, at an aggregate purchase
price equal to the sum of (I) the number of Shares then held by the Purchase
multiplied by the product of (1) the average Per Share Market Value for the
five (5) Trading Days immediately preceding (a) the day of such notice or (b)
the date of payment in full of the redemption price calculated under this
Section 4.12, whichever is greater, multiplied by (2) the Conversion Ratio on
the date of the repurchase notice, (II) the number of Underlying Shares then
held by the Purchaser multiplied by the average Per Share Market Value for the
five (5) Trading Days immediately preceding (A) the date of the notice or (B)
the date of payment in full by the Company of the redemption price calculated
under this Section 4.12, whichever is greater, and (III) interest on the
amounts set forth in I - II above accruing from the 5th day after such notice
until the redemption price under this Section 4.12 is paid in full at the rate
of 15% per annum.
Section 4.13. No Violation of Applicable Law. Notwithstanding
any provision of this Agreement to the contrary, if any redemption of Shares or
Underlying Shares otherwise required under the Transaction Documents would be
prohibited by the relevant provisions of the Delaware General Corporation Law,
such redemption shall be effected as soon as it is permitted under such law;
provided, however, that, interest payable by the Company with respect to any
such redemption shall continue to accrue in accordance with Section 4.12 during
any such period.
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Section 4.14. Redemption Restrictions. Notwithstanding any
provision of this Agreement to the contrary, if any redemption of Shares or
Underlying Shares otherwise required under this Agreement would be prohibited
in the absence of consent from any lender of the Company or of any Subsidiary,
or by the holders of any class of securities of the Company, the Company shall
use its best efforts to obtain such consent as promptly as practicable after
the redemption is required. Interest payable by the Company with respect to
any such redemption shall continue to accrue in accordance with Section 4.12
until such consent is obtained. Nothing contained in this Section shall be
construed as a waiver by the Purchaser of any rights it may have by virtue of
any breach of any representation or warranty of the Company herein as to the
absence of any requirement to obtain any such consent.
Section 4.15. Notice of Breaches. Each of the Company and the
Purchaser shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to the Closing Date, which could reasonably be
likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained herein or therein to be incorrect or
breached as of such Closing Date. However, no disclosure by either party
pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Registration Rights Agreement. Neither the Company, any Subsidiary nor the
Purchaser will take, or agree to commit to take, any action that is intended to
make any representation or warranty of the Company or the Purchaser, as the
case may be, contained herein or in the Registration Rights Agreement
inaccurate in any respect at the Closing Date.
Notwithstanding the generality of the foregoing, the Company
shall promptly notify the Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by any of the Transaction
Documents violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly furnish by
facsimile to the holders of the Shares a copy of any written statement in
support of or relating to such claim or notice.
Section 4.16. Conversion Procedures. Exhibit D attached hereto
sets forth the procedures with respect to the conversion of the Shares,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such
other information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
Section 4.17. Conversion Obligations of the Company. The
Company covenants to convert Shares and to deliver Underlying Shares in
accordance with the terms and conditions and time periods set forth in the
Certificate of Designation.
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ARTICLE V
MISCELLANEOUS
Section 5.1. Fees and Expenses. Except as set forth in the
Registration Rights Agreement, each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay
all stamp and other taxes and duties levied in connection with the issuance of
the Shares (and upon conversion thereof, the Underlying Shares) pursuant
hereto. The Purchaser shall be responsible for its own tax liability that may
arise as a result of the investment hereunder or the transactions contemplated
by this Agreement.
Section 5.2. Entire Agreement; Amendments. This Agreement,
together with the Exhibits and Schedules hereto, the Escrow Agreement, the
Certificate of Designation, the Registration Rights Agreement (together with
the respective Exhibits and Schedules thereto) and that certain letter
agreement contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.
Section 5.3. Notices. Any and all notices or other
communications or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
4:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later
than 4:30 p.m. (New York City time) on any date and earlier than 11:59 p.m.
(New York City time) on such date, (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
If to the Company: Phoenix Network, Inc.
0000 Xxxx Xxxx.
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Chief Executive Officer
With copies to: Xxxxxx Xxxxxxxx Xxxxxx & X'Xxxxxxx, P.C.
0000 00xx Xx., Xxxxx 0000
Xxxxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
If to JNC: JNC Opportunity Fund Ltd.
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Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Xxxxxxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxxxx XX00
Xxxxxxx
Facsimile No.: (000) 000-0000
Attn: Xxxxxx Xxxxx
with copies to: Encore Capital Management, L.L.C.
00000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxx
- and -
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
Section 5.4. Amendments; Waivers. No provision of this
Agreement may be waived or amended except in a written instrument signed, in
the case of an amendment, by both the Company and the Purchaser, or, in the
case of a waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right accruing to it thereafter.
Section 5.5. Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
Section 5.6. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder
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without the prior written consent of the other, except that the Purchaser may
assign its rights hereunder and under the Registration Rights Agreement to an
Affiliate thereof or to a managed account of either the Purchaser or such
Affiliate, provided, that such assignee demonstrates to the reasonable
satisfaction of the Company its satisfaction of the representations and
warranties set forth in Section 3.2 herein. The assignment by a party of this
Agreement or any rights hereunder shall not affect the obligations of such
party under this Agreement.
Section 5.7. No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and, other than with respect to permitted assignees
under Section 5.6, is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 5.8. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof.
Section 5.9. Survival. The representations and warranties of
the Company and the Purchaser contained in Article III and the agreements and
covenants of the parties contained in Article IV and this Article V shall
survive the Closing (or any earlier termination of this Agreement) and any
conversion of Shares and exercise of Warrants hereunder until five (5) years
after the date hereof.
Section 5.10. Counterpart Signatures. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party,
it being understood that both parties need not sign the same counterpart. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same force
and effect as if such facsimile signature page were an original thereof.
Section 5.11. Publicity. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby and
neither party shall issue any such press release or otherwise make any such
public statement without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
Section 5.12. Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall
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be a reasonable substitute therefor, and upon so agreeing, shall incorporate
such substitute provision in this Agreement.
Section 5.13. Remedies. In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Purchaser will be entitled to specific performance of the
obligations of the Company under this Agreement and the Company will be
entitled to specific performance of the obligations of the Purchaser hereunder
with respect to the subsequent transfer of Shares and the Underlying Shares.
Each of the Company and the Purchaser agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first indicated above.
Company:
PHOENIX NETWORK, INC.
By: /s/ Xxx Xxxxxx
----------------------------------
Name: Xxx Xxxxxx
Title: Chief Financial Officer
Purchaser:
JNC OPPORTUNITY FUND LTD.
By: /s/ Xxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxx X. Xxxxx
Title: Secretary
