Exhibit 10.16
EXECUTION COPY
SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of May 6, 1999
among
SKYLYNX COMMUNICATIONS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Preferred Stock 1
Section 1.1 Purchase and Sale of Stock 1
Section 1.2 The Conversion Shares 1
Section 1.3 Purchase Price and Closing 1
Section 1.4 Warrants 2
ARTICLE II Representations and Warranties 2
Section 2.1 Representation and Warranties of the Company 2
(a) Organization, Good Standing and Power 2
(b) Authorization; Enforcement 2
(c) Capitalization 3
(d) Issuance of Shares 4
(e) No Conflicts 4
(f) Commission Documents, Financial Statements 5
(g) Subsidiaries 5
(h) No Material Adverse Change 6
(i) No Undisclosed Liabilities 6
(j) No Undisclosed Events or Circumstances 6
(k) Indebtedness 6
(l) Title to Assets 6
(m) Actions Pending 7
(n) Compliance with Law 7
(o) Taxes 7
(p) Certain Fees 7
(q) Disclosure 7
(r) Intellectual Property 8
(s) Environmental Compliance 8
(t) Books and Record Internal Accounting Controls 8
(u) Material Agreements 9
(v) Transactions with Affiliates 9
(w) Securities Act of 1933 9
(x) Governmental Approvals 9
(y) Employees 10
(z) Absence of Certain Developments 10
(aa) Use of Proceeds 11
(ab) Public Utility Holding Company Act and Investment Company Act Status 11
(ac) ERISA 12
(ad) Dilutive Effect 12
(ae) Other Sales 12
(af) Listing 12
(ag) Series D Convertible Preferred Stock 12
(ah) Section 3.18 Letter Agreements 12
Section 2.2 Representations and Warranties of the Purchasers 12
(a) Organization and Standing of the Purchasers 13
(b) Authorization and Power 13
(c) No Conflicts 13
(d) Acquisition for Investment 13
(e) Accredited Purchasers 14
(f) Rule 144 14
(g) Conversion Restrictions 14
(h) General 14
ARTICLE III Covenants 15
Section 3.1 Securities Compliance 15
Section 3.2 Registration and Listing 15
Section 3.3 Inspection Rights 15
Section 3.4 Compliance with Laws 16
Section 3.5 Keeping of Records and Books of Account 16
Section 3.6 Reporting Requirements 16
Section 3.7 Amendments 16
Section 3.8 Other Agreements 16
Section 3.9 Distributions 16
Section 3.10 Status of Dividends 17
Section 3.11 Rule 144A 17
Section 3.12 Regulation S 18
Section 3.13 Reservation of Shares 18
Section 3.14 Transfer Agent Instructions 18
Section 3.15 Lock-up Agreements by Company Stockholders 19
Section 3.16 Limitations on the Transfer of Shares by the Purchasers 19
Section 3.17 Purchase Option 19
Section 3.18 Letter Agreements 20
ARTICLE IV Conditions 20
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the Shares 20
(a) Accuracy of each of the Purchaser's Representations and Warranties 20
(b) Performance by the Purchasers 20
(c) No Injunction 20
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares 20
(a) Accuracy of the Company's Representations and Warranties 21
(b) Performance by the Company 21
(c) No Suspension, etc 21
(d) No Injunction 21
(e) No Proceedings or Litigation 21
(f) Certificate of Designations of Rights and Preferences 21
(g) Registration Rights Agreement 21
(h) Preferred Stock Certificates 22
(i) Resolutions 22
(j) Reservation of Shares 22
(k) Transfer Agent Instructions 22
(l) Secretary's Certificate 22
(m) Opinion of Counsel, Etc 22
ARTICLE V Registration Rights 22
ARTICLE VI Stock Certificate Legend 23
Section 6.1 Legend 23
ARTICLE VII Termination 24
Section 7.1 Termination by Mutual Consent 24
Section 7.2 Other Termination 24
Section 7.3 Effect of Termination 24
ARTICLE VIII Indemnification 24
Section 8.1 General Indemnity 24
Section 8.2 Indemnification Procedure 24
ARTICLE IX Miscellaneous 25
Section 9.1 Fees and Expenses 25
Section 9.2 Consent to Jurisdiction 26
Section 9.3 Entire Agreement; Amendment 26
Section 9.4 Notices 26
Section 9.5 Waivers 27
Section 9.6 Headings 27
Section 9.7 Successors and Assigns 27
Section 9.8 No Third Party Beneficiaries 27
Section 9.9 Governing Law 28
Section 9.10 Survival 28
Section 9.11 Counterparts 28
Section 9.12. Publicity 28
Section 9.13 Severability 28
Section 9.14 Further Assurances 29
SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of May 6, 1999 by and between SkyLynx Communications,
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Inc., a Colorado corporation (the "Company"), and the Purchasers of shares of
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Series E Convertible Preferred Stock of the Company whose names are set forth on
Exhibit A hereto (the "Purchasers").
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The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
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conditions, the Company shall issue and sell to each Purchaser and each
Purchaser shall purchase from the Company, the number of shares of the Company's
Series E Convertible Preferred Stock, par value $.01 per share (the "Preferred
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Shares"), at a purchase price of $1,000 per share, set forth opposite such
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Purchaser's name on Exhibit A hereto. Upon the following terms and conditions,
each Purchaser shall be issued a Warrant, in substantially the form attached
hereto as Exhibit B (each, a "Warrant" and collectively, the "Warrants"), to
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purchase the Company's Common Stock, par value $.001 per share (the "Common
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Stock"). The designation, rights, preferences and other terms and provisions of
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the Series E Convertible Preferred Stock are set forth in the Certificate of
Designation attached hereto as Exhibit C (the "Certificate of Designation").
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The Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
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United States Securities and Exchange Commission (the "Commission") under the
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Securities Act of 1933, as amended (the "Securities Act").
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Section 1.2 The Conversion Shares. The Company has authorized and has
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reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock, to effect the conversion of
the Preferred Shares and exercise of each Warrant. Any shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(and such shares when issued) are herein referred to as the "Conversion Shares"
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and the "Warrant Shares", respectively. The Preferred Shares, the Conversion
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Shares and the Warrant Shares are sometimes collectively referred to as the
"Shares".
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Section 1.3 Purchase Price and Closing. The Company agrees to issue and
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sell to the each Purchaser and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, each Purchaser agrees to purchase that number of the Preferred Shares
set forth opposite such Purchaser's respective name
on Exhibit A. The aggregate purchase price of the Preferred Shares being
acquired by the each Purchaser (the "Purchase Price") is set forth opposite such
Purchaser's name on Exhibit A. The closing of the purchase and sale of the
Preferred Shares to be acquired by the Purchasers from the Company under this
Agreement shall take place at the offices of Xxxxxx Xxxx & Xxxxxx LLP, 000 Xxxx
Xxxxxx Xxx Xxxx, Xxx Xxxx (the "Closing") at 11:00 a.m. New York Time on the
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earlier of the following: (i) May 7, 1999, (ii) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith,
or (iii) such other time and place or on such date as the Purchasers and the
Company may agree upon (the "Closing Date"). On the Closing Date, the Company
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shall deliver to each Purchaser a certificate for the number and series of
Preferred Shares set forth opposite the Purchaser's name under the heading
"Number of Preferred Shares Purchased" on Exhibit A hereto, registered in such
Purchaser's name (or its nominee) and such Purchaser shall pay the Purchase
Price by wire transfer of funds into the Company's account at Norwest Bank
Colorado, N.A., ABA #000000000, Account #1063047378.
Section 1.4 Warrants. On the Closing Date, the Company agrees to issue to
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each Purchaser a Warrant to purchase 30,588 shares of Common Stock per
$1,000,000 of Preferred Shares purchased (or such pro rata amount if more or
less than $1,000,000 is purchased) as set forth on Exhibit A hereto. Each
Warrant shall have an exercise price per share of $8.17 (as such price may be
adjusted from time to time as shall result from the adjustments specified in
Section 4 of such Warrant) and shall expire as provided in such Warrant.
ARTICLE II
Representations and Warranties
Section 2.1 Representation and Warranties of the Company. The Company
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hereby makes the following representations and warranties to each of the
Purchasers:
(a) Organization, Good Standing and Power. The Company is a
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corporation duly incorporated, validly existing and in good standing under the
laws of the State of Colorado and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries except as set
forth in the Company's Form 10-KSB for the year ended December 31, 1998,
including the accompanying financial statements (the "Form 10-KSB"), or on
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Schedule 2.1(a) hereto. The Company and each such subsidiary is duly qualified
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as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary except for any jurisdiction(s) (alone or
in the aggregate) in which the failure to be so qualified will not have a
Material Adverse Affect (as defined in Section 2.1(e) hereof).
(b) Authorization; Enforcement. The Company has the requisite
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corporate power and authority to enter into and perform this Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 3.14), the
Registration Rights Agreement attached hereto as
Exhibit D (the "Registration Rights Agreement") and the Warrants (collectively,
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the "Transaction Documents") and to issue and sell the Shares in accordance with
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the terms of this Agreement, the Certificate of Designation and the Warrants.
The execution, delivery and performance of the Transaction Documents and the
Certificate of Designation by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement and the Certificate of Designation has been duly
executed and delivered by the Company. The Registration Rights Agreement and the
Warrants will have been duly executed and delivered by the Company at the
Closing. Each of the Transaction Documents constitutes, or shall constitute when
executed and delivered, a 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, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
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the shares thereof currently issued and outstanding as of May 5, 1999 are set
forth on Schedule 2.1(c) hereto. All of the issued and outstanding shares of
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the Common Stock, Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible
Preferred Stock have been duly and validly authorized and issued and are fully-
paid and nonassessable. Except as set forth in the Form 10-KSB, the Articles or
on Schedule 2.1(c) hereto, no shares of Common Stock or of any series of the
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Company's preferred stock are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the Form 10-KSB, the Articles
or on Schedule 2.1(c), there are no contracts, commitments, understandings, or
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arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1 (c) hereto,
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the Company is not a party to any agreement granting registration or anti-
dilution rights to any person with respect to any of its equity or debt
securities. Except as provided on Schedule 2.1(c), the Company is not a party
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to, and it has no knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of the Company. Except as set forth on
Schedule 2.1(c) hereto, the offer and sale of all capital stock, convertible
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securities, rights, warrants, or options of the Company issued prior to the
Closing complied with all applicable Federal and state securities laws, and no
stockholder has a right of rescission or damages with respect thereto which
would have a Material Adverse Effect. Company has furnished to each Purchaser a
true, complete and correct copy of the Company's Articles of Incorporation, with
any and all amendments thereto, as in effect on the date hereof (the
"Articles"), and the Company's Bylaws, with any and all amendments thereto, as
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in effect on the date hereof (the "Bylaws").
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(d) Issuance of Shares. The Preferred Shares to be issued at the
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Closing have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Preferred Shares
shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designation. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designation and the Warrants, respectively, such shares will be
validly issued and outstanding, fully paid and nonassessable, and the holders
shall be entitled to all rights accorded to a holder of Common Stock. A number
of shares of Common Stock equal to not less than 200% of the aggregate number of
shares of Common Stock needed for the issuance of the Conversion Shares and the
Warrant Shares has been duly authorized and reserved for issuance upon
conversion of the Preferred Shares and upon exercise of the Warrants.
(e) No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Articles or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which the Company's assets are bound,
(iii) create or impose a lien, charge or encumbrance on any property of the
Company under any agreement or any commitment to which the Company is a party or
by which the Company is bound or by which any of its respective properties or
assets are bound, or (iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including Federal
and state securities laws and regulations) applicable to the Company or any of
its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries are bound or affected, except, in all cases other than violations
pursuant to clause (i) above, for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. For the
purposes of this Agreement, "Material Adverse Effect" means any adverse effect
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on the business, operations, properties, prospects, or financial condition of
the Company or its subsidiaries and which is material to such entity or other
entities controlling or controlled by such entity. The business of the Company
and its subsidiaries is not being conducted in violation of any laws, ordinances
or regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents or the Certificate of Designation, or issue and sell the Preferred
Shares, the Conversion Shares and the Warrant Shares in accordance with the
terms hereof or thereof (other than any filings which may be required to be made
by the Company with the Commission or state securities administrators subsequent
to the Closing, and any registration statement which may be filed pursuant
hereto, and the filing of the Certificate of Designation with the Secretary of
State of the State of Colorado); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchasers
herein.
(f) Commission Documents, Financial Statements. The Common Stock is
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registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, except as disclosed in the Form 10-KSB or on
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Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules,
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forms, statements and other documents required to be filed by it with the
Commission pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of
the foregoing, including filings incorporated by reference therein, being
referred to herein as the "Commission Documents"). The Company has delivered or
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made available to each of the Purchasers true and complete copies of the
Commission Documents filed with the Commission since December 16, 1998. The
Company has not provided to any of the Purchasers any material non-public
information or other information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of their respective dates, the Commission Documents complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Commission Documents 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 Commission Documents comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission or other applicable rules
and regulations with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
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applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present the
financial position of the Company and its subsidiaries as of 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).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary
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of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each applicable person's ownership of the
outstanding stock or other interests of such subsidiary. Each subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation and has the requisite corporate power to
own, lease and operate its properties and assets and to conduct its business as
it is now being conducted. For the purposes of this Agreement, "subsidiary"
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shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares of capital
stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, or has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No Material Adverse Change. Since September 30, 1998, the date
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through which the most recent quarterly report of the Company on Form 10-QSB has
been prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.
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(i) No Undisclosed Liabilities. To the best of the Company's
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knowledge, except as disclosed on Schedule 2.1(i) hereto, neither the Company
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nor any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of the
Company's or its subsidiaries respective businesses since December 31, 1998 and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect.
(j) No Undisclosed Events or Circumstances. No event or circumstance
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has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. The Form 10-KSB or Schedule 2.1(k) hereto sets
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forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any subsidiary or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
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any liabilities for borrowed money or amounts owed in excess of $25,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has
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good title to all of its real and personal property as reflected in the
Commission Documents, free of any
mortgages, pledges, charges, liens, security interests or other encumbrances,
except which, individually or in the aggregate, do not cause a Material Adverse
Effect. All leases of the Company and each of its subsidiaries are valid and
subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation
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or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth on Schedule 2.1(m) hereto, there is no
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action, suit, claim, investigation or proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
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subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as that, individually or in the aggregate, do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, would not have a Material Adverse
Effect.
(o) Taxes. The Company and each of the subsidiaries has accurately
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prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the subsidiaries
for all current taxes and other charges to which the Company or any subsidiary
is subject and which are not currently due and payable, except for taxes, if
unpaid, individually or in the aggregate, do not and would not have a Material
Adverse Effect. None of the federal income tax returns of the Company or any
subsidiary for the years subsequent to December 31, 1996 has been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
pending or threatened against the Company or any subsidiary for any period, nor
of any basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no
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brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary or the Purchasers with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
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Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with
the transactions contemplated by this Agreement contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which
they were made herein or therein, not misleading.
(r) Intellectual Property. The Company and each of the subsidiaries
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owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Form 10-KSB and on
Schedule 2.1(r) hereto, and all rights with respect to the foregoing, which are
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necessary for the conduct of its business as now conducted without any conflict
with the rights of others.
(s) Environmental Compliance. Except as disclosed in the Form 10-KSB
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or on Schedule 2.1(s) hereto, the Company and each of its subsidiaries have
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obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any
Environmental Laws. The Form 10-KSB or Schedule 2.1(s) hereto sets forth all
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material permits, licenses and other authorizations issued under any
Environmental Laws to the Company or its subsidiaries. "Environmental Laws"
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shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth in the Form 10-KSB or on Schedule 2.1(s) hereto, the Company has all
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necessary governmental approvals required under all Environmental Laws and used
in its business or in the business of any of its subsidiaries. The Company and
each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing or that may
give rise to any Environmental Liabilities, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
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liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(t) Books and Record Internal Accounting Controls. The records and
---------------------------------------------
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any subsidiary.
(u) Material Agreements. Except as set forth in the Form 10-KSB or
-------------------
on Schedule 2.1(u) hereto, neither the Company nor any subsidiary is a party to
---------------
any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to a registration statement on Form S-3 or applicable
form (collectively, "Material Agreements") if the Company or any subsidiary were
-------------------
registering securities under the Securities Act. The Company and each of its
subsidiaries have in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result of which
could cause a Material Adverse Effect. No written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement of the Company or of any
subsidiary limits or shall limit the payment of dividends on the Preferred
Shares, other preferred stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the Form
----------------------------
10-KSB or on Schedule 2.1(v) hereto, there are no loans, leases, agreements,
---------------
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions exceeding $50,000 between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person owning any capital stock of
the Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply
----------------------
with all applicable Federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares, Conversion Shares and the
Warrant Shares. Neither the Company nor anyone acting on its behalf, directly
or indirectly, has or will sell, offer to sell or solicit offers to buy the
Preferred Shares, the Warrants or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of the Preferred Shares, the
Conversion Shares and the Warrant Shares under the registration provisions of
the Securities Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Preferred Shares, the Conversion Shares and the Warrant Shares.
(x) Governmental Approvals. Except as set forth in the Form 10-KSB
----------------------
or on Schedule 2.1(x) hereto, and except for the filing of any notice prior or
---------------
subsequent to the Closing that may be required under applicable state and/or
Federal securities laws (which if required,
shall be filed on a timely basis), including the filing of a registration
statement or statements pursuant to the Registration Rights Agreement, and the
filing of the Certificate of Designation with the Secretary of State for the
State of Colorado, no authorization, consent, approval, license, exemption of,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution or delivery of the Preferred
Shares, or for the performance by the Company of its obligations under the
Transaction Documents or the Certificate of Designation.
(y) Employees. Neither the Company nor any subsidiary has any
---------
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB or on Schedule 2.1(y) hereto. Except as
---------------
set forth in the Form 10-KSB or on Schedule 2.1(y) hereto, neither the Company
---------------
nor any subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since December 31, 1998,
no officer, consultant or key employee of the Company or any subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has been terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided in the Form
-------------------------------
10-KSB or on Schedule 2.1(z) hereto, since December 31, 1998, neither the
---------------
Company nor any subsidiary has:
(i) issued any stock, bonds or other securities or any rights,
options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the
Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any
shares of its capital stock;
(v) sold, assigned or transferred any tangible assets, or
canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the
ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) other than the transactions contemplated by this Agreement,
entered into any other transaction other than in the ordinary course
of business, or entered into any other material transaction, whether
or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Preferred
---------------
Shares will be used by the Company for working capital and acquisitions.
(ab) Public Utility Holding Company Act and Investment Company Act
-------------------------------------------------------------
Status. The Company is not a "holding company" or a "public utility company" as
------ --------------- ----------------------
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
------------------
company," within the meaning of the Investment Company Act of 1940, as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty Corporation
-----
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if the Purchasers, or any person or entity that owns
a beneficial interest in any Purchaser, is an "employee pension benefit plan"
-----------------------------
(within the meaning of Section 3(2) of ERISA) with respect to which the Company
is a "party in interest" (within the meaning of Section 3(14) of ERISA), t he
-----------------
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.
As used in this Section 2.1(ac), the term "Plan" shall mean an "employee pension
----
benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(ad) Dilutive Effect. The Company understands and acknowledges that
---------------
the number of Conversion Shares issuable upon conversion of the Preferred Shares
and the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designation and its obligations to
issue the Warrant Shares upon the exercise of the Warrants in accordance with
this Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
(ae) Other Sales. The Company has not and will not sell any shares
-----------
of Series E Convertible Preferred Stock to any person or entity other than the
Purchasers or their affiliates.
(af) Listing. The Common Stock is listed and traded on the over-the-
--------
counter electronic bulletin board (the "OTC Bulletin Board").
------------------
(ag) Series D Convertible Preferred Stock. The designations, powers,
------------------------------------
preferences, relative and other rights, terms and conditions of the Series E
Convertible Preferred Stock are materially the same as the designations, powers,
preferences, relative and other rights, terms and conditions of the Series D
Convertible Preferred Stock.
(ah) Section 3.18 Letter Agreements. From and after the Closing, all
------------------------------
of the letter agreements between the Company and the purchasers of Series D
Convertible Preferred Stock as described in Section 3.18 will be in force and
effect.
Section 2.2 Representations and Warranties of the Purchasers. Each
------------------------------------------------
Purchaser hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is
-------------------------------------------
an entity, the Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite power
-----------------------
and authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by each
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate or partnership
action (if the Purchaser is an entity), and no further consent or authorization
of such Purchaser or its Board of Directors, stockholders, or partners, as the
case may be, is required. Each of this Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by each Purchaser.
(c) No Conflicts. The execution, delivery and performance of this
------------
Agreement and the Registration Rights Agreement and the consummation by each
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Purchaser
is a party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a material adverse effect
on such Purchaser). No Purchaser is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement or to
purchase the Preferred Shares in accordance with the terms hereof, provided that
for purposes of the representation made in this sentence, such Purchaser is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(d) Acquisition for Investment. Each Purchaser is purchasing the
--------------------------
Preferred Shares solely for its own account for the purpose of investment and
not with a view to or for sale in connection with distribution. No Purchaser
has a present intention to sell the Preferred Shares, nor a present arrangement
(whether or not legally binding) or intention to effect any distribution of the
Preferred Shares to or through any person or entity; provided, however, that by
-------- --------
making the representations herein and subject to Section 2.2(f) below, none of
the Purchasers agrees to hold the Preferred Shares for any minimum or other
specific term and each of the Purchasers reserves the right to dispose of the
Preferred Shares at any time in accordance with Federal securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Preferred Shares
and that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it has
deemed necessary or appropriate to conduct its due diligence investigation.
Notwithstanding any investigation made by such Purchaser, this representation
shall not be deemed to limit the Company's representations and warranties
contained in Article II of this Agreement or such Purchaser's right to rely on
such representations and warranties.
(e) Accredited Purchasers. Each Purchaser is an "accredited
--------------------- ----------
investor" as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144. Each Purchaser understands that the Shares must be
--------
held indefinitely unless such Shares are registered under the Securities Act or
an exemption from registration is available. Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
--------
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Each Purchaser understands that to the extent that Rule
144 is not available, such person will be unable to sell any Preferred Shares
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(g) Conversion Restrictions. Notwithstanding anything to the
-----------------------
contrary set forth herein or in the Certificate of Designation, in no event
shall any holder be entitled to convert Series E Preferred Stock in excess of
that number of shares of Series E Convertible Preferred Stock which, upon giving
effect to such conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For purposes
of the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of the shares of Series E
Convertible Preferred Stock with respect to which the determination of such
proviso is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining, nonconverted
shares of Series E Convertible Preferred Stock beneficially owned by the holder
and its affiliates, and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company (including, without
limitation, any warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 2(g), beneficial ownership shall be calculated in accordance
with Section 13(d) of Exchange Act.
(h) General. Each Purchaser understands that the Shares are being
-------
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
ARTICLE III
Covenants
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of each of the Purchasers and its permitted
assignees (as defined herein).
Section 3.1 Securities Compliance.
---------------------
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred
Shares, Warrants, Conversion Shares and Warrants Shares as required under
Regulation D, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Preferred Shares, Warrants, the Conversion Shares and
the Warrant Shares to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of the
Purchasers to acquire the Preferred Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
------------------------
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or any relevant market or system, if applicable, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of NASD, the Nasdaq system or any relevant
market or system.
Section 3.3 Inspection Rights. The Company shall permit, during normal
-----------------
business hours and upon reasonable request and reasonable notice, the Purchasers
or any employees, agents or representatives thereof, so long as the Purchasers
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, to examine and make reasonable copies of and
extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
--------------------
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with
which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
---------------------------------------
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
----------------------
following to the Purchasers so long as the Purchasers shall be obligated
hereunder to purchase the Preferred Shares or shall beneficially own any
Preferred Shares, or shall own Conversion Shares which, in the aggregate,
represent more than 2% of the total combined voting power of all voting
securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as
soon as available, and in any event within 45 days after the end of each of the
first three fiscal quarters of the Company or such later date pursuant to an
extension granted by the Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as available, and in any event within 90 days after the end of each fiscal
year of the Company or such later date pursuant to an extension granted by the
Commission; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
----------
provision of the Articles or Bylaws of the Company or Registration Rights
Agreement in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of the
holders of the Preferred Shares.
Section 3.8 Other Agreements. The Company shall not enter into any
----------------
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designation.
Section 3.9 Distributions. So long as any Preferred Shares or Warrants
--------------
remain outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.10 Status of Dividends. The Company covenants and agrees that
-------------------
(i) no Federal income tax return or claim for refund of Federal income tax or
other submission to the Internal Revenue Service will adversely affect the
Preferred Shares, any other series of its
Preferred Stock, or the Common Stock, and any deduction shall not operate to
jeopardize the availability to Purchasers of the dividends received deduction
provided by Section 243(a)(1) of the Code or any successor provision, (ii) in no
report to shareholders or to any governmental body having jurisdiction over the
Company or otherwise will it treat the Preferred Shares other than as equity
capital or the dividends paid thereon other than as dividends paid on equity
capital unless required to do so by a governmental body having jurisdiction over
the accounts of the Company or by a change in generally accepted accounting
principles required as a result of action by an authoritative accounting
standards setting body, and (iii) other than pursuant to this Agreement or the
Certificate of Designation, it will take no action which would result in the
dividends paid by the Company on the Preferred Shares out of the Company's
current or accumulated earnings and profits being ineligible for the dividends
received deduction provided by Section 243(a)(1) of the Code. The preceding
sentence shall not be deemed to prevent the Company from designating the
Preferred Stock as "Convertible Preferred Stock" in its annual and quarterly
financial statements in accordance with its prior practice concerning other
series of preferred stock of the Company. In the event that the Purchasers have
reasonable cause to believe that dividends paid by the Company on the Preferred
Shares out of the Company's current or accumulated earnings and profits will not
be treated as eligible for the dividends received deduction provided by Section
243(a)(1) of the Code, or any successor provision, the Company will, at the
request of the Purchasers of 51% of the outstanding Preferred Shares, join with
the Purchasers in the submission to the Service of a request for a ruling that
dividends paid on the Shares will be so eligible for Federal income tax
purposes. In addition, the Company will reasonably cooperate with the Purchasers
(at the Purchasers' expense) in any litigation, appeal or other proceeding
challenging or contesting any ruling, technical advice, finding or determination
that earnings and profits are not eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision to the
extent that the position to be taken in any such litigation, appeal, or other
proceeding is not contrary to any provision of the Code or incurred in
connection with any such submission, litigation, appeal or other proceeding.
Notwithstanding the foregoing, nothing herein contained shall be deemed to
preclude the Company from claiming a deduction with respect to such dividends if
(i) the Code shall hereafter be amended, or final Treasury regulations
thereunder are issued or modified, to provide that dividends on the Preferred
Shares or Conversion Shares should not be treated as dividends for Federal
income tax purposes or that a deduction with respect to all or a portion of the
dividends on the Shares is allowable for Federal income tax purposes, or (ii) in
the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.
Section 3.11 Rule 144A. The Company covenants and agrees that if the
---------
Company fails to register the Conversion Shares and the Warrant Shares within
120 days from the Closing Date under the terms and conditions of the
Registration Rights Agreement attached hereto as Exhibit D, then for so long as
any of the Preferred Shares, the Conversion Shares and the Warrants Shares
remain outstanding and continue to be "restricted securities" within the meaning
---------------------
of Rule 144 under the Securities Act, the Company shall make available to the
Purchasers in connection with any sale thereof, the information required by Rule
144A(d)(4) under the Securities Act in
order to permit resales of the Preferred Shares, the Conversion Shares and the
Warrant Shares pursuant to Rule 144A, if applicable.
Section 3.12 Regulation S. The Company covenants and agrees that if the
------------
Company fails to (i) file a registration statement within 30 days from the
Closing Date and/or (ii) register the Conversion Shares and the Warrant Shares
within 90 days from the Closing Date, under the terms and conditions of the
Registration Rights Agreement attached hereto as Exhibit D, then for so long as
any of the Preferred Shares, the Conversion Shares or the Warrant Shares remain
outstanding and continue to be "restricted securities" within the meaning of
---------------------
Rule 144 under the Securities Act, the Company shall, in order to permit resales
of the Preferred Shares, the Conversion Shares or the Warrant Shares pursuant to
Regulation S under the Securities Act, (a) continue to file all material
required to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act, and
(b) not knowingly engage in directed selling efforts in connection with the
resale of securities by any Purchasers under Regulation S.
Section 3.13 Reservation of Shares. So long as any of the Preferred
---------------------
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the aggregate number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and the Warrant
Shares.
Section 3.14 Transfer Agent Instructions. The Company shall issue
---------------------------
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchasers or their
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by the Purchasers to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit E attached hereto (the "Irrevocable Transfer Agent Instructions").
---------------------------------------
Prior to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 6.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way the
Purchasers' obligations and agreements set forth in Section 6.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If any Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of Shares may be made without registration under the Securities Act or
such Purchaser provides the Company with reasonable assurances that Shares can
be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transactions
contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.14 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.14, that the Purchasers shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
Section 3.15 Lock-up Agreements by Company Stockholders. The Company
------------------------------------------
shall have each of the current stockholders listed on Schedule 3.15 attached
-------------
hereto (the "Primary Stockholders") holding shares of Common Stock or other
--------------------
Company securities convertible into Common Stock, including, without limitation,
the Series A, B, C and D Convertible Preferred, Stock to execute a lock-up
agreement, whereby each of such Primary Stockholders agrees not to sell, assign
or otherwise transfer (except as otherwise provided on Schedule 3.15) any of
-------------
his/her shares of Common Stock or other Company securities convertible into
Common Stock, including, without limitation, the Series A, B, C and D
Convertible Preferred Stock for a period beginning on the Closing Date and
ending on February 1, 2000,
Section 3.16 Limitations on the Transfer of Shares by the Purchasers.
-------------------------------------------------------
The Purchasers shall not, without the prior written consent of the Company,
offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase
or otherwise dispose of ("Transfer"), directly or indirectly, any Shares on or
--------
before June 30, 1999. After June 30, 1999, upon the reasonable request of an
underwriter (the "Underwriter") of an underwritten public offering of the Common
Stock (the "Offering"), the Purchasers shall not Transfer, directly or
indirectly, any Shares for a period of seventy-five (75) consecutive days from a
date, prior to December 31, 1999, as may be designated, in writing, by the
Underwriter. Notwithstanding any other provision hereof, the Purchasers may
Transfer any Preferred Shares so long as the transferees shall agree to be bound
by the terms and provisions of this Agreement, the Certificate of Designation,
the Registration Rights Agreement and the Irrevocable Transfer Agent
Instructions; and, provided further, that if on December 31, 1999 an Offering
--- ----------------
has not been completed, the Purchasers may sell Shares without any restriction.
Section 3.17 Purchase Option. If the Company (i) fails to complete an
---------------
Offering within one (1) year of the Closing Date and (ii) at such time the
Company's Common Stock has a five (5) Five Day Average Share Price of less than
$3.00 (which Five Day Average Share Price may be adjusted for stock splits,
subdivision or combination of shares of Common Stock, or reclassification), each
Purchaser shall have the option upon forty-five (45) days prior written notice
to purchase in an equitable manner any assets (other than those assets located
within the city limits of Fresno, California) (the "Assets") acquired by the
Company at any time after the Closing Date, on a pro rata basis, for up to the
Purchase Price paid by such Purchaser at a purchase price equal to the purchase
price paid for the Assets by the Company at the time of acquisition. The
Company shall not sell any of the Assets on or before the second anniversary of
the Closing Date without the prior written consent of the Purchasers.
Capitalized terms used in this Section 3.17 and not otherwise defined in this
Agreement shall have the respective meanings specified in the Certificate of
Designations.
Section 3.18 Letter Agreements. Prior to the Closing, the Company and
-----------------
each purchaser of Series D Convertible Preferred Stock shall have executed a
letter agreement substantially in the form of Exhibit F attached hereto. After
the Closing, the Company will cause any purchaser of Series D Convertible
Preferred Stock to execute such letter agreement. Following the Closing, the
Company will not amend or terminate (i) the letter agreements referred to in
this Section 3.18 or (ii) amend or terminate Section 3.17 of any Series D
Convertible Preferred Stock Purchase Agreement, in each case in a way that would
adversely affect the rights of the Purchasers under Section 3.17 hereof or under
any of the Company's letter agreements with the Purchasers relating to such
Section 3.17 without the prior written consent of the Purchasers.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
-------------------------------------------------------------
the Shares. The obligation hereunder of the Company to issue and sell the
----------
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties.
----------------------------------------------------------
The representations and warranties of the Purchasers shall be true and correct
in all material respects as of the date when made and as of the Closing as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. The Purchasers shall have
-----------------------------
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
-----------------------------------------------------------
Purchase the Shares. The obligation hereunder of the Purchasers to acquire and
-------------------
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for the Purchasers' sole benefit and may be waived by the
Purchasers at any time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
--------------------------------------------------------
Each of the representations and warranties of the Company shall be true and
correct in all material respects as
of the date when made and as of the Closing as though made at that time, except
for representations and warranties that speak as of a particular date, which
shall be true and correct in all material respects as of such date.
(b) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) No Suspension, etc. From the date hereof to the Closing Date,
------------------
trading in the Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to Closing), and, at any
time prior to the Closing, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
---------
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, or on the
OTC Bulletin Board, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of the Purchasers, makes it impracticable or inadvisable to purchase
the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
----------------------------
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company, any subsidiary thereof or any Purchaser, or any of the
officers, directors or affiliates of the Company, any subsidiary thereof or any
Purchaser seeking to restrain, prevent or change the transactions contemplated
by this Agreement, or seeking damages in connection with such transactions.
(f) Certificate of Designation of Rights and Preferences. Prior
----------------------------------------------------
to the Closing, the Certificate of Designation for the Preferred Shares in the
form of Exhibit C attached hereto shall have been filed with the Secretary of
State of Colorado.
(g) Registration Rights Agreement. At the Closing, the Company
-----------------------------
shall have executed and delivered the Registration Rights Agreement to the
Purchasers.
(h) Preferred Stock Certificates. The Company shall have executed
----------------------------
and delivered each Purchasers a stock certificate or certificates (in such
denominations as the such Purchaser shall request) for the Preferred Shares
being purchased by such Purchaser at the Closing.
(i) Resolutions. The Board of Directors of the Company shall have
-----------
adopted resolutions consistent with Section 2.1(b) above in a form reasonably
acceptable to the Purchasers (the "Resolutions").
-----------
(j) Reservation of Shares. As of the Closing Date, the Company
---------------------
shall have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares and the exercise
of the Warrants, a number of shares of Common Stock equal to at least 200% of
the aggregate number of Conversion Shares issuable upon conversion of the
Preferred Shares outstanding on the Closing Date and the number of Warrant
Shares issuable upon exercise of the number of Warrants (after giving effect to
the Preferred Shares to be issued on the Closing Date and assuming all such
Preferred Shares and Warrants were fully convertible or exercisable on such date
regardless of any limitation on the timing or amount of such conversions or
exercises).
(k) Transfer Agent Instructions. The Irrevocable Transfer Agent
---------------------------
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(l) Secretary's Certificate. The Company shall have delivered to
----------------------
the Purchasers a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate
of Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
(m) Opinion of Counsel, Etc. At the Closing, the Purchasers shall
-----------------------
have received opinions of counsel to the Company, dated the Closing Date, in
substantially the form of Exhibit G hereto and such other certificates and
documents as the Purchasers or their counsel shall reasonably require incident
to the Closing.
ARTICLE V
Registration Rights
At the Closing, the Company and the Purchasers shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit D (the
"Registration Rights Agreement").
------------------------------
ARTICLE VI
Stock Certificate Legend
Section 6.1 Legend. Each certificate representing the Preferred Shares,
------
and, if appropriate, securities issued upon conversion thereof, shall be stamped
or otherwise imprinted
with a legend substantially in the following form (in addition to any legend
required by applicable state securities or "blue sky" laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. (THE
"COMPANY") SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION OF SUCH SECURITIES UNDER THAT
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
The Company agrees to reissue certificates representing the Preferred
Shares or Conversion Shares without the legend set forth above if at such time,
prior to making any transfer of any Preferred Shares or Conversion Shares, such
holder thereof shall give written notice to the Company describing the manner
and terms of such transfer and removal as the Company may reasonably request.
Such proposed transfer will not be effected until: (a) the Company has notified
such holder that either (i) in the opinion of counsel reasonably satisfactory to
the Company, the registration of such Preferred Shares or Conversion Shares
under the Securities Act is not required in connection with such proposed
transfer; or (ii) a registration statement under the Securities Act covering
such proposed disposition has been filed by the Company with the Commission and
has become effective under the Securities Act; and (b) the Company has notified
such holder that either: (i) in the opinion of Company counsel, the registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected. The Company
will use its best efforts to respond to any such notice from a holder within ten
(10) days. In the case of any proposed transfer under this Section 6, the
Company will use reasonable efforts to comply with any such applicable state
securities or "blue sky" laws, but shall in no event be required, in connection
therewith, to qualify to do business in any state where it is not then qualified
or to take any action that would subject it to tax or to the general service of
process in any state where it is not then subject. The restrictions on transfer
contained in Section 6.1 shall be in addition to, and not by way of limitation
of, any other restrictions on transfer contained in any other section of this
Agreement.
ARTICLE VII
Termination
Section 7.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Purchasers.
Section 7.2 Other Termination. This Agreement may be terminated by the
-----------------
action of the Board of Directors of the Company or by the Purchasers at any time
if the Closing shall not have been consummated by the Closing Date, as long as
the failure to so consummate is not the fault of the terminating party.
Section 7.3 Effect of Termination. In the event of termination by the
---------------------
Company or the Purchasers, written notice thereof shall forthwith be given to
the other party and the transactions contemplated by this Agreement and the
Registration Rights Agreement shall be terminated without further action by
either party. If this Agreement is terminated as provided in Section 7.1 or 7.2
herein, this Agreement shall become void and of no further force and effect,
except for Sections 9.1 and 9.2, and Article VIII herein. Nothing in this
Section 7.3 shall be deemed to release the Company or the Purchasers from any
liability for any breach under this Agreement or the Registration Rights
Agreement.
ARTICLE VIII
Indemnification
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
-----------------
harmless the Purchasers (and their directors, officers, partners, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers, severally but not jointly, agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.
Section 8.2 Indemnification Procedure. Any party entitled to
-------------------------
indemnification under this Article VIII (an "indemnified party") will give
-----------------
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole
cost and expense, any action, proceeding or claim (or discontinues its defense
at any time after it commences such defense), then the indemnified party may, at
its option, defend, settle or otherwise compromise or pay such action or claim.
In any event, unless and until the indemnifying party elects in writing to
assume and does so assume the defense of any such claim, proceeding or action,
the indemnified party's costs and expenses arising out of the defense,
settlement or compromise of any such action, claim or proceeding shall be losses
subject to indemnification hereunder. The indemnified party shall cooperate
fully with the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the indemnified party
which relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VIII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VIII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.
ARTICLE IX
Miscellaneous
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
-----------------
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, 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 or other similar taxes and
duties levied in connection with issuance of the Preferred Shares pursuant
hereto.
Section 9.2 Consent to Jurisdiction. Each of the Company and the
-----------------------
Purchasers (i) hereby irrevocably submits to the jurisdiction of the United
States District Court sitting in the Southern District of New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement or the Registration Rights Agreement and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 9.2 shall affect
or limit any right to serve process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designation, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and all of the holders of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
-------
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: SkyLynx Communications, Inc.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, President and CEO
Fax: (000) 000-0000
with copies to: Xxxxxx Xxxx & Xxxxxx LLP
000 Xxxxxxx Xxxxxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: X. Xxxxxxx Xxxxxx
Telephone Number: (000) 000-0000
Fax: (000) 000-0000
If to the Purchasers: At the address of the Purchasers set forth on
Exhibit A to this Agreement, with copies to
Purchasers' counsel as set forth on Exhibit A or as
specified in writing by the Purchasers.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party 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
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
--------
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties and their successors and assigns. After
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
----------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions.
Section 9.10 Survival. The representations and warranties of the Company
--------
and the Purchasers contained in: (i) Section 2.1(o) shall survive until the
expiration of the statute of limitations applicable to the matters covered
thereby (giving effect to any waiver, mitigation or extension thereof); (ii)
Section 2.1(s) shall survive until three years after the Closing Date; and (iii)
those contained in Article II, with the exception of Sections 2.1(o) and (s),
shall survive the execution and delivery hereof and the Closing until the date
two years from the Closing Date, and the agreements and covenants set forth in
Articles V and VIII of this Agreement shall survive the execution and delivery
hereof and Closing hereunder for an indefinite period and the agreements and
covenants set forth in Articles I, III and VII of this Agreement shall survive
the execution and delivery hereof and the Closing hereunder until the Purchasers
and their affiliates in the aggregate or their permitted transferees
beneficially own (on a fully-diluted basis, giving effect to the issuance of the
Conversion Shares and the Warrant Shares, and determined in
accordance with Rule 13d-3 under the Exchange Act) less than 2% of the total
combined voting power of all voting securities then outstanding, provided, that
Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.17
and 3.18 shall not expire until the Registration Statement required by Section 2
of the Registration Rights Agreement is no longer required to be effective under
the terms and conditions of Registration Rights Agreement and provided further
that the agreements and covenants set forth in this Article IX shall survive
indefinitely.
Section 9.11 Counterparts. This Agreement may be executed in any number
------------
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 9.12. Publicity. The Company agrees that it will not disclose,
---------
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
------------
Certificate of Designation and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designation or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designation or the Registration Rights Agreement and this Agreement, the
Certificate of Designation and the Registration Rights Agreement, as applicable,
shall be reformed and construed as if such invalid, illegal or unenforceable
provision, or part of such provision, to the extent of its invalidity,
illegality or unenforceability, had never been contained herein or therein.
Section 9.14 Further Assurances. From and after the date of this
------------------
Agreement, upon the request of any Purchasers or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate Designation, and the Registration Rights Agreement.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
SKYLYNX COMMUNICATIONS, INC.
By:_______________________________________________
Name:
Title:
SPECIAL SITUATIONS FUND III, L.P.
By:_______________________________________________
Name:
Title:
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By:_______________________________________________
Name:
Title:
SPECIAL SITUATIONS CAYMAN FUND, L.P.
By:_______________________________________________
Name:
Title:
SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.
By:_______________________________________________
Name:
Title:
EXHIBIT A to the
SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR SKYLYNX COMMUNICATIONS. INC.
Names and Address Number of Dollar Issuance Date Number of Shares of
of Purchaser Preferred Amount ------------- Common Stock Issuable
------------ Shares Purchased of Investment upon Exercise of Related
---------------- ------------- Warrant (Subject to
Adjustment as Provided
in the Warrant)
------------------------
Special Situations 1,250 $1,250,000 Closing Date 38,235
Fund III, L.P.
Special Situations 1,000 $1,000,000 Closing Date 30,588
Private Enquity Fund,
L.P.
Special Situations 400 $400,000 Closing Date 12,235
Cayman Fund, L.P.
Special Situations 350 $350,000 Closing Date 10,706
Technology Fund, L.P.
