EXHIBIT 4.1
NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of July 2, 2002
between
VERTEL CORPORATION
and
THE PURCHASER LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Note and Warrant............................................ 1
Section 1.1 Purchase and Sale of Note and Warrant........................................ 1
Section 1.2 Purchase Price and Closing................................................... 1
Section 1.3 Warrant...................................................................... 2
Section 1.4 Conversion Shares / Warrant Shares........................................... 2
ARTICLE II Representations and Warranties................................................... 2
Section 2.1 Representations and Warranties of the Company................................ 2
Section 2.2 Representations and Warranties of the Purchaser.............................. 12
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......................................................... 15
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 Subsequent Financings; Right of First Refusal................................ 16
Section 3.11 Reservation of Shares........................................................ 18
Section 3.12 Transfer Agent Instructions.................................................. 18
Section 3.13 Disposition of Assets........................................................ 19
Section 3.14 Repayment of Other Indebtedness.............................................. 19
Section 3.15 Insiders Lock-Up............................................................. 19
Section 3.16 Non-Public Information....................................................... 20
Section 3.17 Form S-3 Eligibility......................................................... 20
Section 3.18 Stockholder Approval......................................................... 20
Section 3.19 Intentionally Omitted........................................................ 20
Section 3.20 Investment Banking Firm...................................................... 20
Section 3.21 Investment Relations Firm.................................................... 20
Section 3.22 Break-Up Fee................................................................. 20
Section 3.23 Amendment to Articles of Incorporation ...................................... 20
ARTICLE IV Conditions....................................................................... 21
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Note and Warrant....................................... 21
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Table of Contents
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(continued)
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Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Close and to Purchase the Note and Warrant................................... 21
ARTICLE V Certificate Legend............................................................... 24
Section 5.1 Legend....................................................................... 24
ARTICLE VI Termination...................................................................... 25
Section 6.1 Termination by Mutual Consent................................................ 25
Section 6.2 Effect of Termination........................................................ 25
ARTICLE VII Indemnification.................................................................. 25
Section 7.1 General Indemnity............................................................ 25
Section 7.2 Indemnification Procedure.................................................... 26
ARTICLE VIII Miscellaneous.................................................................... 27
Section 8.1 Fees and Expenses............................................................ 27
Section 8.2 Specific Enforcement; Consent to Jurisdiction................................ 27
Section 8.3 Entire Agreement; Amendment.................................................. 27
Section 8.4 Notices...................................................................... 28
Section 8.5 Waivers...................................................................... 29
Section 8.6 Headings..................................................................... 29
Section 8.7 Successors and Assigns....................................................... 29
Section 8.8 No Third Party Beneficiaries................................................. 29
Section 8.9 Governing Law................................................................ 29
Section 8.10 Survival..................................................................... 29
Section 8.11 Counterparts................................................................. 29
Section 8.12 Publicity.................................................................... 30
Section 8.13 Severability................................................................. 30
Section 8.14 Further Assurances........................................................... 30
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NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT is dated as of July 2, 2002
(this "Agreement") by and between Vertel Corporation, a California corporation
(the "Company"), and the entity listed on Exhibit A hereto (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Note and Warrant
Section 1.1 Purchase and Sale of Note and Warrant. Upon the following
terms and conditions, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company, a senior secured convertible
promissory note in the aggregate principal amount of Three Million One Hundred
Thousand Dollars ($3,100,000.00) bearing interest at the rate of eight percent
(8%) per annum, due ______ __, 2005, convertible into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), in substantially
the form attached hereto as Exhibit B (the "Note") and a warrant to purchase
shares of Common Stock, in substantially the form attached hereto as Exhibit C
(the "Warrant"). The Company and the Purchaser are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), including Regulation D ("Regulation D") as promulgated by the Commission
under the Securities Act, and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.
Section 1.2 Purchase Price and Closing. The Company agrees to issue
and sell to the Purchaser and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase the Note and Warrant for an
aggregate purchase price of Three Million One Hundred Thousand Dollars
($3,100,000.00) (the "Purchase Price"), which shall be payable as soon as
practicable but in no event later than five (5) business days after the
Securities and Exchange Commission (the "Commission") declares the Registration
Statement (as defined in the Registration Rights Agreement) effective (the
"Effectiveness Date"), subject to the satisfaction (or waiver) of the applicable
conditions set forth in Article IV hereof with respect to the purchase of the
Note and Warrant. The closing of the execution and delivery of this Agreement
shall occur upon delivery by facsimile of executed signature pages of this
Agreement and all other documents, instruments and writings required to be
delivered pursuant to this Agreement to the offices of Jenkens & Xxxxxxxxx
Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (the "Closing"), at 10:00 a.m., New York time (i) on the date on
which the last to be fulfilled or waived of the conditions set forth in Article
IV hereof and applicable to such Closing shall be fulfilled or waived in
accordance herewith or (ii) at such other time and place or on such
date as the Purchaser and the Company may agree upon (the "Closing Date").
Notwithstanding anything to the contrary contained herein, the aggregate
principal amount of the Note to be sold by the Company and purchased by the
Purchaser hereunder shall not exceed Three Million One Hundred Thousand Dollars
($3,100,000.00). Funding shall take place by wire transfer of immediately
available funds no later than three (3) business days following the
Effectiveness Date to Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, as escrow agent
(the "Escrow Agent") so long as the conditions set forth in Article IV hereof
shall be fulfilled or waived in accordance herewith (the "Funding Date"). The
Escrow Agent shall deliver the funds to the Company no later than five (5)
business days following the Effectiveness Date. The Note shall be dated as of
the date that the Company receives all of the funds from the Escrow Agent.
Section 1.3 Escrow. The parties agree to enter into a mutually
acceptable escrow agreement (the "Escrow Agreement") with the Escrow Agent, in
the form of Exhibit D attached hereto, which shall provide for the deposit of
the Warrant on the Closing Date and the deposit of the Purchase Price and the
Note on the Funding Date.
Section 1.4 Warrant. At the Closing, the Company shall have issued to
the Purchaser a Warrant to purchase 2,625,000 shares of Common Stock. The
Warrant shall be exercisable for five (5) years from the date of issuance and
shall have an exercise price equal to the Warrant Price (as defined in the
Warrant).
Section 1.5 Conversion Shares / Warrant Shares. The Company has
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders,
34,000,000 of its authorized but unissued shares of its Common Stock to effect
the conversion of the Note and any interest accrued and outstanding thereon and
exercise of the Warrant; provided, however, within one business day of the
Company filing the Charter Amendment (as defined in Section 3.23 hereof), the
Company shall take all action necessary to have authorized, and reserved for the
purpose of issuance, a number of shares of Common Stock, when aggregated with
the initial 34,000,000 shares of Common Stock previously reserved, equals at
least 200% of the maximum number of shares of Common Stock to effect the
conversion of the Note and any interest accrued and outstanding thereon and
exercise of the Warrant as of the Closing Date. Any shares of Common Stock
issuable upon conversion of the Note and any interest accrued and outstanding
thereon and exercise of the Warrant (and such shares when issued) are herein
referred to as the "Conversion Shares" and the "Warrant Shares," respectively.
The Note, the Conversion Shares and the Warrant Shares are sometimes
collectively referred to herein as the "Securities".
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. In order
to induce the Purchaser to enter into this Agreement and to purchase the Note,
the Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California 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 (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth in the Commission Documents (as defined in Section 2.1(f)) or on Schedule
2.1(g) hereto. The Company and each such Subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or
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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 Effect. For the purposes of this
Agreement, "Material Adverse Effect" means any adverse effect 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 or which is likely to materially hinder the
performance by the Company of its obligations hereunder and under the other
Transaction Documents (as defined in Section 2.1(b) hereof).
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Security Agreement, the Escrow Agreement, the
Lock-Up Agreement, the Note, the Warrant and the Irrevocable Transfer Agent
Instructions (as defined in Section 3.12) (collectively, the "Transaction
Documents") and to issue and sell the Securities in accordance with the terms
hereof and the Note and the Warrant, as applicable. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated 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 has been duly executed and delivered by the Company.
The other Transaction Document 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
the shares thereof currently issued and outstanding as of March 26, 2002 are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and any other security of the Company have been duly and validly
authorized. Except as set forth in this Agreement and as set forth in the
Commission Documents or on Schedule 2.1(c) hereto, no shares of Common Stock or
any other security of the Company 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 as set forth on
in the Commission Documents or on Schedule 2.1(c) hereto, there are no
contracts, commitments, understandings, or 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 in the Commission Documents or on Schedule 2.1(c) hereto, the
Company is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule 2.1(c), the Company
is not a party to, and it has no knowledge of, any agreement or understanding
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
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sale of all capital stock, convertible securities, rights, warrants, or options
of the Company issued prior to the Closing complied with all applicable federal
and state securities laws, and no holder of such securities has a right of
rescission or claim for damages with respect thereto which could have a Material
Adverse Effect. The Company has furnished or made available to the Purchaser
true and correct copies of the Company's Articles of Incorporation as in effect
on the date hereof (the "Articles"), and the Company's Bylaws as in effect on
the date hereof (the "Bylaws").
(d) Issuance of Securities. The Note and the Warrant to be issued at
the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Note shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind. When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Note and Warrant, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Articles or Bylaws or any Subsidiary's comparable
charter documents, (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 or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, (iii) create or impose
a lien, mortgage, security interest, charge or encumbrance of any nature on any
property or asset of the Company or any of its Subsidiaries under any agreement
or any commitment to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound or by which any of
their 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 clauses (i) or (iv) above, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. 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. Neither the
Company nor any of its Subsidiaries is required under federal, state, foreign 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 issue and sell the Note, 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, The
Nasdaq National Market or The Nasdaq SmallCap Market
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prior to or subsequent to the Closing, or state securities administrators
subsequent to the Closing, or any registration statement which may be filed
pursuant hereto).
(f) Commission Documents, Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
on Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules,
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 made
available to the Purchaser true and complete copies of the Commission Documents
filed with the Commission since March 31, 2002. The Company has not provided to
the Purchaser 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. At the time of its
filing, the Form 10-Q for the quarter ended March 31, 2002 (the "Form 10-Q")
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 Form 10-Q did not contain 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. As of their respective dates, 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")
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 in all
material respects 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. The Commission Documents or Schedule 2.1(g) hereto
set forth each Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such Subsidiary. For
the purposes of this Agreement, "Subsidiary" 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.
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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 except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor 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 March 31, 2002, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed in
the Commission Documents or on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the Commission
Documents or on Schedule 2.1(i) hereto, neither the Company 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 March 31, 2002 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since March 31, 2002,
except as disclosed on Schedule 2.1(j) hereto, no event or circumstance 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 Commission Documents or Schedule 2.1(k) hereto
set 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) any liabilities for borrowed money or amounts owed in excess of
$75,000 (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 $75,000 due under leases required to be
capitalized in accordance with GAAP. Except as disclosed on Schedule 2.1(k),
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 good
and marketable title to all of its real and personal property, free and clear of
any mortgages, pledges, charges, liens, security interests or other encumbrances
of any nature whatsoever, except for those indicated in the Commission Documents
or on Schedule 2.1(l) hereto or such that, individually or in the aggregate, do
not have a Material Adverse Effect. All said leases of the Company and each of
its Subsidiaries are valid and subsisting and in full force and effect.
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(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other 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, which individually or in the aggregate, would
have a Material Adverse Effect. 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, which
individually or in the aggregate, would have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
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 set forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate, the noncompliance
therewith would not have 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, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company
and each of the Subsidiaries has accurately 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 as disclosed on Schedule 2.1(o)
hereto, none of the federal income tax returns of the Company or any Subsidiary
have 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) of any nature whatsoever, whether 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, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser 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
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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) Operation of Business. To the best of the Company's knowledge, the
Company and each of the Subsidiaries owns or possesses all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations, including, but not limited to, those listed in the Commission
Documents or on Schedule 2.1(r) hereto, and all rights with respect to the
foregoing, which are necessary for the conduct of its business as now conducted
without any conflict with the rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have 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. Schedule 2.1(s)
hereto sets forth all material permits, licenses and other authorizations issued
under any Environmental Laws to the Company or its Subsidiaries. "Environmental
Laws" 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 on Schedule 2.1(s) hereto, the Company has all 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 liability, 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
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 Records; 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
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accounts receivable of the Company or any Subsidiary. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions are taken with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents and as
set forth in the Commission Documents 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 (collectively, "Material
Agreements") if the Company or any Subsidiary were registering securities under
the Securities Act. The Company and each of its Subsidiaries has 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 interest on the Note, or dividends on its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
Commission Documents or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions 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 Note, the Warrant, the Conversion Shares and the
Warrant Shares hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to buy
any of the Securities, 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 any of the Securities 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 any of the Securities.
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(x) Governmental Approvals. Except as set forth in the Commission
Documents 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), 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 Note and the
Warrant, or for the performance by the Company of its obligations under the
Transaction Documents.
(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 Commission Documents 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
March 31, 2002, 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 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 set forth in the
Commission Documents or on Schedule 2.1(z) hereto, since March 31, 2002, neither
the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate 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 other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
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(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 in the ordinary course of business or to the
Purchaser or its 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 $75,000;
(x) 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 cause a Material Adverse Effect; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. $1,500,000 of the proceeds from the sale of the
Note and the Warrant shall be used by the Company to repay outstanding
indebtedness as set forth on Schedule 2.1(aa) hereof. $100,000 of the proceeds
from the sale of the Note and the Warrant shall be reserved and used by the
Company in connection with services to be provided to the Company by the
Investment Relations Firm (as defined in Section 3.21 hereof). The remaining
proceeds from the sale of the Note and the Warrant Shares will be used by the
Company for working capital purposes.
(bb) 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.
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(cc) 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 cause a Material Adverse Effect. The execution
and delivery of this Agreement and the issue and sale of the Note, the
Conversion Shares and the Warrant 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 any Purchaser, 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), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(cc), 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.
(dd) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Note and the Warrant
Shares issuable upon exercise of the Warrant will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Note in accordance with this Agreement
and its obligations to issue the Warrant Shares upon the exercise of the Warrant
in accordance with this Agreement and the Warrant, 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.
Section 2.2 Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. If the Purchaser is an
entity, such Purchaser is a corporation, limited liability company 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. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Note and Warrant being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by the Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of the Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by the Purchaser. The other Transaction
Documents constitute, or shall constitute when executed and delivered, a valid
and binding obligations of the Purchaser enforceable against the Purchaser in
accordance with their 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.
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(c) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated hereby and thereby do not and will not (i) violate
any provision of the Purchaser's 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 Purchaser is a party or by which the Purchaser's properties or
assets are bound, (iii) create or impose a lien, mortgage, security interest,
charge or encumbrance of any nature on any property or asset of the Purchaser
under any agreement or any commitment to which the Purchaser is a party or by
which the Purchaser is bound or by which any of its 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 Purchaser or by which
any property or asset of the Purchaser are bound or affected, except, in all
cases other than violations pursuant to clauses (i) or (iv) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Purchaser 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 Purchaser is not required under
federal, state, foreign 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 to purchase the Note, the
Conversion Shares and the Warrant Shares in accordance with the terms hereof or
thereof.
(d) Acquisition for Investment. The Purchaser is purchasing the Note
and acquiring the Warrant solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
The Purchaser does not have a present intention to sell any of the Securities,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of any of the Securities to or through any person or
entity; provided, however, that by making the representations herein and subject
to Section 2.2(f) below, the Purchaser does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of any of the Securities at any time in accordance with federal and
state securities laws applicable to such disposition. The Purchaser acknowledges
that it (i) has such knowledge and experience in financial and business matters
such that Purchaser is capable of evaluating the merits and risks of Purchaser's
investment in the Company and is (ii) able to bear the financial risks
associated with an investment in the Securities and (iii) 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.
(e) Rule 144. The Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. The 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 the Purchaser has been advised that Rule 144 permits resales only under
certain circumstances. The Purchaser understands that to the extent that Rule
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144 is not available, the Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. The Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements 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 the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Securities. Purchaser understands that no United States
federal or state agency or any government or governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
(g) Opportunities for Additional Information. The Purchaser
acknowledges that the Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of the Purchaser's personal
knowledge of the Company's affairs, the Purchaser has asked such questions and
received answers to the full satisfaction of the Purchaser, and the Purchaser
desires to invest in the Company.
(h) No General Solicitation. The Purchaser acknowledges that the
Securities were not offered to the Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which the Purchaser was invited by any of the foregoing means of communications.
(i) Accredited Investor. The Purchaser is an accredited investor (as
defined in Rule 501 of Regulation D), and the Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. The Purchaser acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.
(j) Limitations on Short Sales. The Purchaser agrees that it will not
enter into any Short Sales (as hereinafter defined) from the period commencing
on the Closing Date and ending on the date which all of the Note has been
converted and all of the Warrant has been exercised and such Conversion Shares
and Warrant Shares are covered by the Registration Statement (as defined in the
Registration Rights Agreement). For purposes of this Section 2.2(j), a "Short
Sale" by a Purchaser shall mean a sale of Common Stock by the Purchaser that is
marked as a short sale and that is made at a time when there is no equivalent
offsetting long position in Common Stock held by the Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in Common
Stock held by the Purchaser, Conversion Shares that have not yet been converted
pursuant to the Note and Warrant Shares that have not yet been issued upon
exercise of the Warrant shall be deemed to be held long by the Purchaser, and
the amount of shares of Common Stock held in a long position shall be the number
of Conversion Shares issuable pursuant to the Note assuming such holder
converted all the
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outstanding principal amount of the Note on such date and (ii) with respect to
Warrant Shares, the number of Warrant Shares issuable pursuant to the Warrant.
ARTICLE III
Covenants
The Company covenants with the Purchaser as follows, which covenants are
for the benefit of the Purchaser and its respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents 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 Securities to
the Purchaser, or its respective subsequent holders.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 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, 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, except as permitted herein. The Company shall use its
reasonable best efforts to take all action necessary to continue the listing or
trading of its Common Stock on The Nasdaq National Market, The Nasdaq SmallCap
Market or any successor market. The Company will promptly file the "Listing
Application" for, or in connection with, the issuance and delivery of the
Conversion Shares and the Warrant Shares.
Section 3.3 Inspection Rights. Subject in each instance to the
execution of the Company's standard non-disclosure agreement, the Company shall
permit, during normal business hours and upon reasonable request and reasonable
notice, the Purchaser or any employees, agents or representatives thereof, so
long as the Purchaser shall be obligated hereunder to purchase the Note or shall
beneficially own the Note, or shall own Conversion Shares, Warrant Shares or the
Warrant to purchase Warrant Shares which, in the aggregate, represent more than
two percent (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, during the term of the
Note, 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.
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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 three
(3) copies of the following to the Purchaser in a timely manner so long as the
Purchaser shall be obligated hereunder to purchase the Note or shall
beneficially own the Note or Warrant, or shall own Conversion Shares or Warrant
Shares which, in the aggregate, represent more than one percent (1%) of the
total combined voting power of all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon
as available, and in any event within forty-five (45) days after the end of each
of the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within one hundred six (106) days after the end of
each fiscal year of the Company; 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 in any way that would
adversely affect the exercise rights, voting rights, prepayment rights or
redemption rights of the holder of the Note or the Warrant.
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.
Section 3.9 Distributions. So long as any Securities remain
outstanding, the Company agrees that it shall not, without the prior written
consent of the Purchaser pursuant to Section 8.3, which consent may be granted
or denied in the sole discretion of the Purchaser (i) declare or pay any
dividends (other than a stock dividend or stock split) 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 Subsequent Financings; Right of First Refusal. (a) During
the period commencing on the Closing Date and ending on the two hundred
seventieth (270th) day after the Effectiveness Date, the Company covenants and
agrees that it will not, without the prior written consent of the Purchaser,
enter into any subsequent offer or sale to, or exchange with (or other type of
distribution to), any third party (a "Subsequent Financing"), of Common Stock or
any securities convertible, exercisable or exchangeable into Common Stock,
including
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convertible and non-convertible debt securities (collectively, the "Financing
Securities") at a price per share less than $1.00. For purposes of this
Agreement, a Permitted Financing (as defined hereinafter) shall not be
considered a Subsequent Financing. A "Permitted Financing" shall mean any
transaction involving the Company's (i) issuance of any Financing Securities
(other than for cash) in connection with a Strategic Merger (as defined below),
(ii) Common Stock issued or issuable to employees, consultants or directors of
the Company directly or pursuant to stock option plan(s) or restricted stock
plan(s) approved by the Board of Directors of the Company prior to the date
hereof; (iii) the issuance of securities pursuant to the conversion or exercise
of convertible or exercisable securities issued or outstanding prior to the date
hereof; (iv) Common Stock, issued, or issuable upon exercise of warrants, issued
to customers, vendors, financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar arrangements
provided that such issuances are for other than equity financing purposes and
are approved by the Board of Directors of the Company; or (v) a transaction
described in Section 3.22 hereof. "Strategic Merger" means (a) a merger,
acquisition or consolidation of the Company with or into another entity or any
other corporate reorganization, so long as fifty percent (50%) or more of the
combined voting power of the continuing or surviving entity's securities
outstanding immediately after such merger, consolidation or other reorganization
is owned by persons who were shareholders of the Company immediately prior to
such merger, consolidation or reorganization, or (b) a transaction where the
sole purpose is to change the state of the Company's incorporation; provided,
that in either case, the surviving entity shall be a reporting company pursuant
to the Exchange Act and the securities to be issued to the shareholders of the
Company are registered pursuant to an effective registration statement filed
with the Commission.
(b) So long as the Note remains outstanding and commencing ninety (90)
days after the date hereof, the Company covenants and agrees to promptly notify
(in no event later than five (5) days after making or receiving an applicable
offer) in writing (a "Rights Notice") the Purchaser of the terms and conditions
of any proposed Subsequent Financing. The Rights Notice shall describe, in
reasonable detail, the proposed Subsequent Financing, the proposed closing date
of the Subsequent Financing, which shall be within thirty (30) calendar days
from the date of the Rights Notice, including, without limitation, all of the
terms and conditions thereof. The Rights Notice shall provide the Purchaser an
option (the "Rights Option") during the thirty (30) calendar day period
following delivery of the Rights Notice (the "Option Period") to purchase such
amount as the Company and the Purchaser may agree to up to such Purchaser's pro
rata portion of the Purchase Price, of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights"). Delivery of any
Rights Notice constitutes a representation and warranty by the Company that
there are no other material terms and conditions, arrangements, agreements or
otherwise except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
Purchase Price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date of a
Subsequent Financing. If the Company does not receive notice of exercise of the
Rights Option from the Purchaser within the Option Period, the Company shall
have the right to close the Subsequent Financing on the scheduled closing date
with a third party; provided that all of the terms and conditions of the closing
are the same as those provided to the Purchaser in the Rights Notice. If the
closing of the
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proposed Subsequent Financing does not occur on that date, any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.10, including, without
limitation, the delivery of a new Rights Notice.
(c) Commencing on the Closing Date and ending on the date that the
Note is no longer outstanding, if the Company enters into any Subsequent
Financing on terms more favorable than the terms governing the Note and Warrant,
then the Purchaser in its sole discretion may exchange the Note and Warrant
together with accrued but unpaid interest (which interest shall be payable, at
the sole option of the Purchaser, in cash or in the form of the new securities
to be issued in the Subsequent Financing) for the securities issued or to be
issued in the Subsequent Financing. The Company covenants and agrees to promptly
notify in writing the Purchaser of the terms and conditions of any such proposed
Subsequent Financing.
Section 3.11 Reservation of Shares. So long as the Note or Warrant
remains outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, 34,000,000 shares of
Common Stock to effect the conversion of the Note and any interest accrued and
outstanding thereon and exercise of the Warrant; provided, however, within one
business day of the Company filing the Charter Amendment (as defined in Section
3.23 hereof), the Company shall take all action necessary to have authorized,
and reserved for the purpose of issuance, a number of shares of Common Stock,
when aggregated with the initial 34,000,000 shares of Common Stock previously
reserved, equals at least 200% of the maximum number of shares of Common Stock
to effect the conversion of the Note and any interest accured and outstanding
thereon and exercise of the Warrant as of the Closing Date.
Section 3.12 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 Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by the Purchaser to the Company upon
conversion of the Note or exercise of the Warrant, 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 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.12 will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement. Nothing in this
Section 3.12 shall affect in any way the Purchaser's obligations and agreements
set forth in Section 5.1 to comply with all applicable prospectus delivery
requirements, if any, upon the resale of the Conversion Shares and the Warrant
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, substance and scope, to the effect that a public
sale, assignment or transfer of the Securities may be made without registration
under the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Securities 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 the Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.12 will cause irreparable harm to the Purchaser by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.12 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.12, that
the Purchaser shall be entitled, in addition to all other available remedies, to
an
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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 3.13 Disposition of Assets. So long as the Note remains
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, in an amount exceeding
$25,000 individually or $100,000 in the aggregate, to any person except for
sales to customers in the ordinary course of business or with the prior written
consent of the Purchaser, such consent not to be unreasonably withheld or
delayed. Notwithstanding the foregoing, the Company may dispose of its holdings
of shares of common stock of Nortel Networks, Anda and Airtel ATN as more
specifically set forth on Schedule 3.13 hereto, from time to time in its sole
discretion and without the prior written consent of the Purchaser.
Section 3.14 Repayment of Other Indebtedness. So long as the Note
remains outstanding, the Company shall not repay any indebtedness for borrowed
money owed by the Company to any officer, director, affiliate or insider of the
Company.
Section 3.15 Insiders Lock-Up. The Company shall cause the persons
listed on Schedule 3.15 hereto to covenant to the Purchaser that none of such
persons will sell, transfer or dispose of its shares of the Company's Common
Stock during the one year period following the Closing Date. If the Company's
Common Stock is no longer listed on The Nasdaq SmallCap Market or the Company
has received a delisting notification from the NASD Market Watch notifying the
Company that it is not in compliance with the listing requirements of The Nasdaq
SmallCap Market, then the persons listed on Schedule 3.15 hereto will not sell,
transfer or dispose of their shares of Company Common Stock for a three year
period after the Closing Date.
Section 3.16 Non-public Information. Neither the Company nor any of
its officers or agents shall disclose any material non-public information about
the Company to the Purchaser and neither the Purchaser nor any of its
affiliates, officers or agents will solicit any material non-public information
from the Company.
Section 3.17 Form S-3 Eligibility. The Company meets the requirements
for the use of Form S-3 under the Securities Act to register for re-sale the
shares of Common Stock pursuant to the Registration Rights Agreement.
Section 3.18 Stockholder Approval. If the Purchaser is unable to
exercise its conversion rights or exercise rights due to the limitations set
forth in Section 3.4(c) of the Note or Section 7(c) of the Warrant, the Board of
Directors of the Company shall use its best efforts to present and recommend to
the stockholders of the Company within sixty (60) days of such date upon which
the Purchaser is not able to exercise its conversion rights or exercise rights
due to the limitations set forth in Section 3.4(c) of the Note or Section 7(c)
of the Warrant, a proposal to approve such holder acquiring in excess of 19.99%
of the issued and outstanding shares of Common Stock upon conversion of the Note
and/or exercise of the Warrant.
Section 3.19 Intentionally Omitted.
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Section 3.20 Investment Banking Firm. The Company covenants and
agrees, within twenty-one (21) days after receipt by the Company of written
notice from the Purchaser, to retain the services of a nationally recognized
investment banking firm satisfactory to the Purchaser.
Section 3.21 Investment Relations Firm. Prior to the Effectiveness
Date, the Company shall have retained the services of a nationally recognized
investment relations firm satisfactory to the Purchaser (the "Investment
Relations Firm").
Section 3.22 Break-Up Fee. If at any time prior to the Funding Date
the Company: (i) consummates a financing with a third party of at least
$1,500,000, (ii) sells all or substantially all of its assets or merges or
consolidates with another entity, or (iii) consummates a transaction with a
customer not in the ordinary course of business whereby the Company has received
$1,500,000 in proceeds from such transaction and the Purchaser confirms with the
customer the terms of the transaction, then, in each such case, the Company
shall have the right, in its sole discretion, not to consummate the transactions
contemplated by this Agreement. If the Company exercises its right not to
consummate the transactions contemplated by this Agreement as set forth above,
this Agreement and any Transaction Documents entered into in connection herewith
shall automatically terminate and have no further force and effect and the
Company shall have no obligations thereunder, including, without limitation, no
obligation to issue to the Purchaser the Note and the Warrant, and the sole
liability of the Company shall be to (i) pay to the Purchaser a break-up fee of
one hundred fifty thousand dollars ($150,000) less any management fees and (ii)
pay all reasonable attorneys' fees and expenses incurred by the Purchaser in
accordance with Section 8.2 hereof, each of which shall be due and payable upon
closing any of the transactions described above. In addition, if the Company
exercises its right not to consummate the transactions contemplated by this
Agreement as set forth in this Section 3.22, such action will not trigger any
right to prepayment contained in Section 3.7 of the Note.
Section 3.23 Amendment to Articles of Incorporation. The Company
covenants and agrees, no later than January 31, 2003, to obtain the approval of
its shareholders to (i) file an amendment to its Articles with the Secretary of
State of the State of California increasing the number of its authorized shares
of Common Stock (the "Charter Amendment") and (ii) issue in excess of 19.99% of
the issued and outstanding shares of Common Stock upon conversion of the Note
and/or exercise of the Warrant as contemplated by Section 3.18 hereof. The
Charter Amendment shall be filed with the Secretary of State of California no
later than January 31, 2003.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Note and Warrant. The obligation hereunder of the Company
to close and issue and sell the Note and the Warrant to the Purchaser at the
Closing and/or Funding Date is subject to the satisfaction or waiver, at or
before the Closing 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 Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing Date 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 Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions
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required by this Agreement to be performed, satisfied or complied with by the
Purchaser at or prior to the Closing Date.
(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.
(d) Delivery of Purchase Price. The Purchase Price for the Note has
been delivered to the Escrow Agent at the Funding Date.
(e) Delivery of Transaction Documents. The Transaction Documents have
been duly executed and delivered by the Purchaser to the Company at the Closing
Date or the Funding Date, as applicable.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Close and to Purchase the Note and Warrant. The obligation hereunder of the
Purchaser to consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, at or before the Closing Date and/or the
Funding Date, of each of the conditions set forth below. These conditions are
for the Purchaser's sole benefit and may be waived by the Purchaser 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 Closing Date and the Funding Date, 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 Date and the Funding Date.
(c) No Suspension, Etc. From the date hereof to the Funding Date,
trading in the Company's 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 the Closing), and,
at any time prior to such Funding Date, 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, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall the Company have suffered a
Material Adverse Effect.
(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.
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(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 or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel, Etc. At the Closing, the Purchaser shall have
received an opinion of counsel to the Company, dated the date of such Closing,
in the form of Exhibit F hereto and such other certificates and documents as the
Purchaser or its counsel shall reasonably require incident to such Closing.
(g) Warrant and Note. At the Closing, the Company shall have delivered
to the Escrow Agent the originally executed Warrant (in such denominations as
the Purchaser may request) being acquired by the Purchaser and at the Funding
Date, the Company shall have delivered to the Escrow Agent the originally
executed Note (in such denominations as the Purchaser may request).
(h) Resolutions. Prior to the Closing Date, the Board of Directors of
the Company shall have adopted resolutions consistent with Section 2.1(b) hereof
in a form reasonably acceptable to the Purchaser (the "Resolutions").
(i) 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 Note and the exercise of the Warrant,
34,000,000 shares of Common Stock.
(j) 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.
(k) Secretary's Certificate. The Company shall have delivered to the
Purchaser a secretary's certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, 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.
(l) Officer's Certificate. On the Funding Date, the Company shall have
delivered to the Purchaser a certificate of an executive officer of the Company,
dated as of the Funding Date, confirming the accuracy of the Company's
representations, warranties and covenants as of the Funding Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of the Funding Date.
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(m) Lock-Up Agreement. As of the Closing Date, each of the persons
listed on Schedule 3.15 hereto shall have delivered to the Purchaser a fully
executed lock-up agreement in the form of Exhibit G attached hereto.
(n) Escrow Agreement. The parties shall have entered into the Escrow
Agreement in the Form of Exhibit D attached hereto.
(o) Fees and Expenses. All fees and expenses required to be paid by the
Company shall have been or authorized to be paid by the Company as of the
Funding Date.
(p) Registration Rights Agreement. The parties shall have entered into
the Registration Rights Agreement in the Form of Exhibit H attached hereto.
(q) Material Adverse Effect. No Material Adverse Effect shall have
occurred.
(r) Minimum Quarterly Revenue. The Company shall have a minimum revenue
for its most recent quarter of $1,500,000.
(s) Minimum Cash Balance. As of June 30, 2002, the Company shall have a
minimum cash balance of $400,000.
(t) Security Agreement. The parties shall have entered into the
security agreement in the form of Exhibit I attached hereto.
(u) UCC-1 Financing Statements. The Company shall have filed all UCC-1
financing statements in form and substance satisfactory to the Purchaser at the
appropriate offices to create a valid and perfected security interest in the
Collateral (as defined in the Security Agreement).
(v) Judgment, Lien and UCC Search. A judgment, lien and UCC financing
statement search shall have been completed by the Purchaser.
(w) Investment Relations Firm. The Company shall have retained the
services of the Investment Relations Firm.
ARTICLE V
Certificate Legend
Section 5.1 Legend. Each certificate representing the Note, the
Conversion Shares, the Warrant and the Warrant Shares 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):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR
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ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR VERTEL CORPORATION SHALL HAVE RECEIVED AN OPINION
OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
The Company agrees to reissue certificates representing any of the
Securities, without the legend set forth above if at such time, prior to making
any transfer of any such Securities, 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 Company counsel, the registration of the Note, Conversion Shares,
Warrant or Warrant 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 five (5) days. In the case of any proposed transfer under
this Section 5, 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 5.1 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 VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchaser.
Section 6.2 Effect of Termination. In the event of termination by the
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 herein, this Agreement shall become void
and of no further force and effect, except for Sections 8.1 and 8.2, and Article
VII herein. Nothing in this Section 6.2 shall be deemed to release the Company
or any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company
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and the Purchaser to compel specific performance by the other party of its
obligations under this Agreement.
ARTICLE VII
Indemnification
Section 7.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchaser (and its respective 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 Purchaser as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein. The Purchaser agrees 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 Purchaser herein.
Section 7.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VII (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 VII 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 to 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
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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 VII
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 VII 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 VIII
Miscellaneous
Section 8.1 Fees and Expenses. 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, provided,
however, that the Company shall pay such fees and expenses set forth on Schedule
2.1(p) hereto, including a documentation and due diligence fee of $15,000 and
all reasonable attorneys' fees and expenses (exclusive of disbursements and
out-of-pocket expenses) incurred by the Purchaser in connection with the
preparation, negotiation, execution and delivery of this Agreement and the other
Transaction Documents and the transactions contemplated thereunder up to
$50,000. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchaser in connection with any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents or incurred
in connection with the enforcement of this Agreement and any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees, disbursements and expenses.
Section 8.2 Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchaser (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court
sitting in the Xxxxxxxx Xxxxxxxx xx
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Xxx Xxxx and the courts of the State of New York located in New York county for
the purposes of any suit, action or proceeding arising out of or relating to
this Agreement or any of the other Transaction Documents or the transactions
contemplated hereby or thereby 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 Purchaser 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 8.3 shall affect
or limit any right to serve process in any other manner permitted by law.
Section 8.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
the Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority of the
principal amount of the Notes then outstanding, and no provision hereof may be
waived other than by 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 Notes 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 unless the same consideration is also offered to
all of the parties to the Transaction Documents or holders of Notes, as the case
may be.
Section 8.4 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 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: Vertel Corporation
00000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: President and Chief Executive Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
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with copies (which copies
shall not constitute notice
to the Company) to: Xxxxxxx Coie LLP
0000 00xx Xxxxxx, Xxxxx Xxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement
with copies to: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
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 8.5 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
provision, 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 8.6 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 8.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
The Purchaser may assign the Note, the Warrant and its rights under this
Agreement and the other Transaction Document and any other rights hereto and
thereto without the consent of the Company.
Section 8.8 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 8.9 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
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the choice of law provisions. This Agreement shall not be interpreted or
construed with any presumption against the party causing this Agreement to be
drafted.
Section 8.10 Survival. The representations and warranties of the
Company and the Purchaser contained in Sections 2.1(o) and 2.1(s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and 2.1(s), shall survive the execution and delivery hereof and the
Closing until the date two (2) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VII and VIII of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.
Section 8.11 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.
Section 8.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchaser
without the consent of the Purchaser in accordance with Section 8.3, which
consent shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to
the extent of such requirement.
Section 8.13 Severability. The provisions of this 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 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 and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 8.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser 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 Note, the
Warrant and the other Transaction Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-29-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
VERTEL CORPORATION
By:_____________________________________
Name:
Title:
SDS MERCHANT FUND, L.P.
By:_____________________________________
Name: Xxxxx Xxxxx
Title: Managing Member
-30-
EXHIBIT A to the
NOTE AND WARRANT PURCHASE AGREEMENT
FOR VERTEL CORPORATION
Name and Address of Purchaser
SDS Merchant Fund, L.P.
c/o SDS Capital Partners, LLC
00 Xxxxxx Xxxxxx, Xxxxxx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx Xxxxx
EXHIBIT B
FORM OF NOTE
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
FORM OF ESCROW AGREEMENT
EXHIBIT E
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
VERTEL CORPORATION
as of July 2, 2002
Mellon Investor Services, LLC
000 Xxxxx Xxxx Xxxxxx, 0/xx/ Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
Reference is made to that certain Note and Warrant Purchase Agreement,
dated as of July 2, 2002, by and among Vertel Corporation, a California
corporation (the "Company"), and the purchaser named therein (the "Purchaser")
pursuant to which the Company is issuing to the Purchaser a senior secured
convertible promissory note, (the "Note") and a warrant (the "Warrant") to
purchase shares of the Company's common stock, par value $.01 per share (the
"Common Stock"). This letter shall serve as our irrevocable authorization and
direction to you (provided that you are the transfer agent of the Company at
such time) to issue shares of Common Stock upon conversion of the Note (the
"Conversion Shares") and exercise of the Warrant (the "Warrant Shares") to or
upon the order of a Purchaser from time to time upon (i) surrender to you of a
properly completed and duly executed Conversion Notice or Exercise Notice, as
the case may be, in the form attached hereto as Exhibit I and Exhibit II,
respectively, (ii) in the case of the conversion of the Note, a copy of the Note
(with the originals delivered to the Company) or, in the case of Warrant being
exercised, a copy of the Warrant (with the original Warrant delivered to the
Company) being exercised (or, in each case, an indemnification undertaking with
respect to such Note or the Warrant in the case of their loss, theft or
destruction), and (iii) delivery of a treasury order or other appropriate order
duly executed by a duly authorized officer of the Company. So long as you have
previously received (x) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act"), and no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness and (y) a copy of such
registration statement, and if the Purchaser represents in writing that the
Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant
to the Registration Statement, then certificates representing the Conversion
Shares and the Warrant Shares, as the case may be, shall not bear any legend
restricting transfer of the Conversion Shares and the Warrant Shares, as the
case may be, thereby and should not be subject to any stop-transfer restriction.
Provided, however, that if you have not previously received (i) written
confirmation from counsel to the Company that a registration statement covering
resales of the Conversion Shares or Warrant Shares, as applicable, has been
declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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 THE
SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR
VERTEL CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchaser is relying upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, the Purchaser
is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
VERTEL CORPORATION
By:________________________________
Name:_________________________
Title:________________________
ACKNOWLEDGED AND AGREED:
MELLON INVESTOR SERVICES, LLC
By: _______________________________
Name: _______________________________
Title: _______________________________
Date: _______________
EXHIBIT I
VERTEL CORPORATION
CONVERSION NOTICE
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of VERTEL
CORPORATION (the "Maker") according to the conditions hereof, as of the date
written below.
Date of Conversion _________________________________________________________
Applicable Conversion Price __________________________________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
_______________________________________________________________________
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
VERTEL CORPORATION
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Vertel
Corporation covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Mellon Investor Services, LLC
000 Xxxxx Xxxx Xxxxxx, 0/xx/ Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Re: Vertel Corporation
Ladies and Gentlemen:
We are counsel to Vertel Corporation, a California corporation (the
"Company"), and have represented the Company in connection with that certain
Note and Warrant Purchase Agreement (the "Purchase Agreement"), dated as of July
2, 2002, by and among the Company and the purchaser named therein (collectively,
the "Purchaser") pursuant to which the Company issued to the Purchaser a senior
secured convertible promissory note (the "Note") and a warrant (the "Warrant")
to purchase shares of the Company's common stock, par value $.01 per share (the
"Common Stock"). Pursuant to the Purchase Agreement, the Company has also
entered into a Registration Rights Agreement with the Purchaser (the
"Registration Rights Agreement"), dated as of July 2, 2002, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of
Common Stock issuable upon conversion of the Note and exercise of the Warrant,
under the Securities Act of 1933, as amended (the "1933 Act"). In connection
with the Company's obligations under the Registration Rights Agreement, on
________________, 2002, the Company filed a Registration Statement on Form S-3
(File No. 333-________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the resale of the Registrable
Securities which names the Purchaser as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
XXXXXXX COIE LLP
By:____________________________
cc: SDS Merchant Fund, L.P.
EXHIBIT F
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California and has the
requisite corporate power to own, lease and operate its properties and assets,
and to carry on its business as presently conducted. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the failure to so qualify would have a Material
Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Transaction Documents and to
issue the Note, the Conversion Shares, the Warrant and the Warrant Shares. The
execution, delivery and performance of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated 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 is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Note and the Warrant have been duly executed, issued and
delivered by the Company and each of the Transaction Documents constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its respective terms. The Conversion Shares and the
Warrant Shares are not subject to any preemptive rights under the Articles of
Incorporation or the Bylaws.
3. The Note has been duly authorized and, when delivered against
payment in full as provided in the Purchase Agreement, will be validly issued,
fully paid and nonassessable. The Warrant Shares, have been duly authorized and
reserved for issuance, and, when delivered upon exercise or against payment in
full as provided in the Warrant, will be validly issued, fully paid and
nonassessable. The Conversion Shares, have been duly authorized and reserved for
issuance, and, when delivered upon exercise or against payment in full as
provided in the Note, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Note, the Conversion
Shares, the Warrant and the Warrant Shares do not (a) violate any provision of
the Articles of Incorporation or Bylaws, (b) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party and which is known to us, (c) create or impose a
lien, charge or encumbrance on any property of the Company under any agreement
or any commitment known to us 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 (d) result in a violation of any Federal, state, local or foreign
statute, rule, regulation, order, judgment, injunction or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, except, in
all cases other than violations pursuant to clauses (a) and (d) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
5. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required under Federal, state or local law, rule or regulation in connection
with the valid execution, delivery and performance of the Transaction Documents,
or the offer, sale or issuance of the Note, the Conversion Shares, the Warrant
or the Warrant Shares other than filings as may be required by applicable
Federal and state securities laws and regulations and the Nasdaq rules and
regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto. There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Note and the Warrant and the
offer, issuance and sale of the Conversion Shares and the Warrant Shares
pursuant to the Agreement, the Note and the Warrant, as applicable, are exempt
from the registration requirements of the Securities Act of 1933, as amended.
8. 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.
EXHIBIT G
FORM OF LOCK-UP AGREEMENT
EXHIBIT H
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT I
FORM OF SECURITY AGREEMENT
Schedule 2.1(p)
The Company shall pay a management fee in an amount equal to $60,000 on the
Funding Date to Chalfont Hill Capital, LLC.
Schedule 2.1(aa)
Convertible Promissory Note dated January 3, 2002 issued to SDS Merchant Fund,
L.P. pursuant to the Note and Warrant Purchase Agreement dated as of August 31,
2001.
VERTEL CORPORATION
DISCLOSURE SCHEDULE TO REPRESENTATIONS AND WARRANTIES
This Disclosure Schedule is delivered by Vertel Corporation ("Vertel" or
the "Company") simultaneously with the execution and delivery of the Note and
Warrant Purchase Agreement, dated as of July 2, 2002 (the "Agreement"), among
Vertel and the Purchaser listed on Exhibit A attached to the Agreement.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Agreement.
This Schedule relates to certain matters concerning the representations and
warranties made by Vertel in Section 2.1 of the Agreement and certain other
matters contained in the Agreement. This Schedule is qualified in its entirety
by reference to the specific provisions of the Agreement. The disclosure of any
matter in this Schedule shall not be construed as indicating that such matter is
required to be disclosed, as some matters stated herein are given for
informational purposes only, nor shall such disclosure be construed as an
admission that such information is material to Vertel. Any matter disclosed in
any section hereof shall be deemed disclosed for purposes of all other sections
hereof.
2.1(c)
As of March 26, 2002, the Company had authorized stock of 102,000,000 shares
with a par value of $0.01. Of these, 2,000,000 shares are designated as
Preferred Stock and 100,000,000 shares are designated as Common Stock. No
Preferred shares are issued or outstanding. As of March 26, 2002, 33,261,969
shares of Common stock were issued and outstanding.
The Common Stock carries a preferred share right under certain conditions as set
out in the Preferred Shares Rights Agreement dated as of April 29, 1997. (See
Form 8-A filed with the Securities and Exchange Commission on April 30, 1997).
As of June 6, 2002, the Company had outstanding options to employees and
directors for 6,962,341 shares of Common Stock. On June 6, 2002, the Board of
Directors granted options for 323,500 shares of Common Stock to employees. These
grants are currently being processed and are not yet outstanding as of the
closing.
Option grants are made pursuant to four plans, one director plan and three
employee plans.
In connection with the Company's purchase of certain assets of Trigon Technology
Group, Inc. ("Trigon") in May 2001, a portion of the purchase price, 675,000
shares of Common Stock of the Company, was placed in escrow. The Company had
until 5/30/02 to make claims against the shares in escrow.
The Company has granted limited resale S-3 registration rights to former
preferred (but not common) stockholders of Trigon. (See Form 8-K filing with the
Securities and Exchange Commission dated June 12, 2001). Due to the price of the
Common Stock of the Company, the S-3 registration statement was not filed.
The Company entered into a Note and Warrant Purchase Agreement with SDS Merchant
Fund, L.P. ("SDS"), dated August 31, 2001, pursuant to which SDS purchased a
convertible promissory note in the aggregate amount of $3,500,000, together with
6% interest per annum thereon, convertible into shares of common stock of the
Company and a warrant to purchase up to 800,000 shares of common stock of the
Company.
In connection with the Note and Warrant Purchase Agreement, the Company granted
registration rights to SDS to cover the Common Stock issuable upon conversion of
the note and exercise of the warrant.
2.1(f)
Subsequent to March 31, 2002, the Company has made four filings with the
Securities and Exchange Commission:
8-K 05/23/2002 Disclosure statement regarding the listing of the Company's
Common Stock on The Nasdaq SmallCap Market.
10-Q 05/15/2002 Quarterly Report for the quarterly period ended March 31, 2002.
8-K 05/09/2002 Disclosure statement regarding first quarter 2002 financial
results and announcement of the availability of e*Orb C Edition 2.0 software.
10-K 04/01/2002 Annual Report.
2.1(g)
Subsidiaries of Vertel Corporation
Name Ownership Function Incorporation Location
---------------------------------------------------------------------------------------------------------------
Vertel Pacific Corporation 100% Holding California California
Vertel Korea Branch Sales Office, Korea
Support, Consulting
Vertel B.V. 100% Holding Company, Netherlands Netherlands
Marketing
Vertel Ireland Xxxxx Inactive
-2-
Vertel Germany GmbH 100% Sales Office, Germany Germany
Support,
Consulting,
Vertel Poland Sp.z o.o. 100% Support, Poland Poland
Consulting,
R&D
Recodif Retix France (TM) 100% Inactive France
2.1(k)
The Company entered into a Note and Warrant Purchase Agreement with SDS Merchant
Capital, L.P. ("SDS"), dated August 31, 2001, pursuant to which SDS purchased a
convertible promissory note in the aggregate amount of $3,500,000, together with
6% interest per annum thereon, convertible into shares of common stock of the
Company and a warrant to purchase up to 800,000 shares of common stock of the
Company.
2.1(l)
The Company has renewed its lease at its home office building (00000 Xxxxxxx
Xxxx., Xxxxx 000, Xxxxxxxx Xxxxx, XX 91367) from January 2002 to January 2003.
The Company's field sales, research and development and service offices consist
of leased space totaling approximately 18,000 square feet.
Canon Financial Services, Inc. has a security interest in office equipment sold
to the Company.
2.1 (m)
Exodus Communications, Inc. claims that the Company owes it approximately
$325,000 in fees. The Company contends that such fees accrued after the
Company's agreement for services from Exodus was terminated and that Exodus is
not entitled to any payment.
2.1(n)
Vertel is not qualified to do business as a foreign corporation in New Jersey,
Pennsylvania or Texas.
2.1(o)
-3-
There are some immaterial issues related to sales tax returns for New Jersey,
Pennsylvania and Texas. Texas has audited through 1999 and New Jersey has
assessed through 1998, and any resulting liabilities have been paid.
The State of California entered a tax lien on the Company for $741 on 12/07/01.
The Company believes that it has accrued sufficient liabilities in its financial
statements for any unpaid income and sales taxes and any related costs.
2.1(p)
As set forth in Schedule 2.1 (p) of this Agreement, the Company is obligated to
pay $60,000 to Chalfont Hill Capital, LLC.
2.1(u)
On May 31, 2001, the Company entered in Employment, Retention and
Indemnification Agreement with Hai-Xxxxx Xxx (aka Xxxx Xxx).
On August 31, 2001, the Company entered into a Note and Warrant Purchase
Agreement with SDS Merchant Capital, L.P.
2.1(y)
As required by local European laws, the Company maintains standard employment
contracts with certain European employees.
The Company maintains confidentiality and technology assignment agreements with
its employees.
The Company made the following changes and additions to its management team:
1) On October 11, 2001, the Board of Directors of the Company named Xxxx
Xxxxxxx to the position of president and CEO, replacing Cyrus Irani who remains
on the board, but relinquished his day-to-day management responsibilities for
personal reasons. Xxxxxxx is also a member of the Company's Board of Directors.
2) The Company hired Xxxxx Xxxxxxx as Senior Vice President of Sales and
Strategic Alliances and Xxxxx Xxxxxxxxxx as Vice President Professional Services
and Operations.
Retention Agreements.
In October 1998, the Compensation Committee of the Company approved a Retention
Agreement for each officer of the Company. The Retention Agreements are
described in the Company's Commission Documents.
Employment Agreements.
-4-
Each of the executive officers of the Company is a party to an Employment
Agreement governing any termination of employment that occurs prior to any
change of control as contemplated by the Company's Retention Agreement with the
individual officer. The Employment Agreements are described in the Company's
Commission Documents.
Resignations
Xx. Xxx has resigned from the Company effective as of 5/31/02.
Xx. XxXxxxxx has resigned from the Company. The effective date of his
resignation has not been determined, but will likely be in June or July of 2002.
2.1(z)
(i) As set forth in 2.1(c), the Board of Directors granted 323,500 options
to employees on June 6, 2002.
(xii) The Company currently operates at a loss.
3.13
Anda Networks 21,865 Series D Preferred Stock
Airtel ATN plc 3,333,357 Common shares
Nortel Networks Corporation 10,031 Common shares
(Note: Vertel may be entitled to 200 - 300 more shares from escrow)
-5-
