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EXHIBIT 1
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is made as
of October 1, 1997, by and among THE XXXXXX GROUP, LLC, a Texas limited
liability company ("Xxxxxx" and, together with any transferee of the Note, the
"Purchaser"), and EQUALNET HOLDING CORP., a Texas corporation (the "Company"),
EQUALNET CORPORATION, a Delaware corporation ("EC"), TELESOURCE, INC., a Texas
corporation ("TI"), and EQUALNET WHOLESALE SERVICES, INC., a Delaware
corporation ("EWS", together with the Company, EC, and TI, the "Sellers").
RECITALS
Purchaser desires to purchase from the Sellers, and the Sellers desire
to issue and sell to Purchaser, subject to the terms and conditions set forth
herein, (i) a 12% convertible secured note due April 1, 1998, payable by the
Sellers, as co-obligors, in the original principal amount of $1,000,000 and
(ii) warrants to purchase up to an aggregate of 200,000 shares of Common Stock
(as hereinafter defined) of the Company, subject to adjustment as provided
herein and in the Warrant Agreement (as hereinafter defined).
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
In addition to the capitalized terms defined elsewhere in this
Agreement, the following capitalized terms shall have the following respective
meanings when used in this Agreement:
"AFFILIATE" as applied to any specified Person means any other
Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such specified Person. The
term "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly,
of 20% or more of the voting power (or in the case of a Person which
is not a corporation, 20% or more of the ownership interest,
beneficial or otherwise) of such Person or the power otherwise to
direct or cause the direction of the management and policies of that
Person, whether through voting, by contract or otherwise. For purposes
of this paragraph, "voting power" of any Person means the total number
of
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votes which may be cast by the holders of the total number of
outstanding shares of stock of any class or classes of such Person in
any election of directors (or Persons performing similar functions) of
such Person. For purposes of this Agreement, all executive officers
and directors of a Person shall be deemed to be Affiliates of such
Person.
"ANNUAL PLAN" shall have the meaning assigned to such term in
Section 4.2.9 hereof.
"BUSINESS DAY" means any day other than a Saturday, a Sunday,
or a day on which commercial banks in New York City, New York or
Houston, Texas are required or authorized to be closed.
"CAPITAL EXPENDITURES" shall mean expenditures in respect of
fixed or capital assets by a Person, including the capital portion of
lease payments made in respect of Capitalized Lease Obligations, but
excluding expenditures for the restoration, repair or replacement of
any fixed or capital asset which was destroyed or damaged, in whole or
in part, to the extent financed by the proceeds of an insurance policy
maintained by such Person. Expenditures in respect of replacements and
maintenance consistent with the business practices of such Person in
respect of plant facilities, machinery, fixtures and other like
capital assets utilized in the ordinary course of business are not
Capital Expenditures to the extent such expenditures are not
capitalized in preparing a balance sheet of such Person in accordance
with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means all payment obligations
arising under any lease of property which, in accordance with GAAP,
would be capitalized on the Company's or any Subsidiary's balance
sheet or for which the amount of the asset and liability thereunder as
if so capitalized should, in accordance with GAAP, be disclosed in a
note to such balance sheet.
"CASH FLOW" means, for any period, the total of:
(a) Net Income for each period; plus
(b) all amounts deducted in computing such Net
Income in respect of (i) depreciation and amortization; (ii)
interest on Indebtedness (including payments in the nature of
interest under Capitalized Lease Obligations and interest
costs that were capitalized); and (iii) the provision for
taxes for such period based on income or profits to the extent
such income or profits were included in calculating Net
Income.
"CHANGE OF CONTROL" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Securities Exchange Act); (ii) the Company
consolidates with or merges into another Person or any Person
consolidates with, or merges into, the Company, in any such event
pursuant to a transaction in which the
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outstanding voting stock of the Company is changed into or exchanged
for cash, securities, or other property, other than any such
transaction where the holders of the voting stock of the Company
immediately prior to such transaction own, directly or indirectly, not
less than a majority of the voting stock of the surviving or resulting
Person immediately after such transaction; (iii) the adoption of a
plan relating to the liquidation or dissolution of the Company, or
(iv) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that
any "person" (as defined above) becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act), directly or indirectly, of more than 30% of the voting
stock of the Company. For purposes of this definition, any transfer of
an equity interest of an entity that was formed for the purpose of
acquiring voting stock of the Company will be deemed to be a transfer
of such portion of such voting stock as corresponds to the portion of
the equity of such entity that has been so transferred.
"CHARTER" means, for any Person, such Person's certificate or
articles of incorporation or other organizational documents.
"CLAIMS" shall have the meaning assigned to such term in
Section 6.3 hereof.
"CLOSING" means the closing of the sale and purchase of the
Note and the Warrants pursuant to this Agreement.
"CLOSING DATE" shall have the meaning assigned to such term in
Section 2.2 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and all rules and regulations promulgated
thereunder, and any successor statute.
"COMERICA LOC" means the $100,000 Letter of Credit issued by
Comerica Bank-Texas on behalf of EC for the benefit of Xxxxxxxx
Partners, Ltd., dated August 5, 1997, and having an expiry of February
17, 1998, as the same may be amended, supplemented, extended,
reissued, or otherwise modified from time to time.
"COMMISSION" shall have the meaning assigned to such term in
Section 4.1.11(e) hereof.
"COMMON STOCK" means the Company's common stock, par value
$0.01 per share.
"CONSOLIDATED" refers to the consolidation of financial
statements in accordance with GAAP.
"CONVERSION DATE" shall have the meaning assigned to such term
in Section 5.1.3 hereof.
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"CONVERSION PRICE" shall have the meaning assigned to such
term in Section 5.1.2 hereof.
"DEFAULT RATE" shall have the meaning assigned to such term in
Section 6.1 hereof.
"DEMAND SECURITIES" shall have the meaning assigned to such
term in Section 4.1.11(a) hereof.
"DOLLARS" and "$" shall mean lawful money of the United States
of America.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants franchises, licenses,
agreements, or governmental restrictions relating to environmental
matters, including, without limitation, those relating to fines,
orders, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the release of
Hazardous Materials and to the generation, use, storage,
transportation, handling or disposal of Hazardous Materials, in any
manner applicable to the Company or any of its Subsidiaries or any of
their respective properties.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the
Company would be deemed to be a "single employer" within the meaning
of Section 4001 of ERISA.
"ERISA TERMINATION EVENT" means (i) a "Reportable Event"
described in Section 4043 of ERISA and the regulations issued
thereunder (other than a "Reportable Event" not subject to the
provision for 30-day notice to the PBGC under such regulations), or
(ii) the withdrawal of the Company or any of its ERISA Affiliates from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate a Plan by the PBGC or (v) any
other event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan.
"EVENT OF DEFAULT" shall have the meaning as set forth in
Section 6.1 hereof.
"EXCLUDED STOCK" shall have the meaning assigned to such term
in Section 5.1.5(ii) hereof.
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"FINANCIAL STATEMENTS" shall mean the Consolidated Financial
Statement or Statements of the Company and its Subsidiaries described
or referred to in Sections 4.2.1 and 4.2.2 hereof.
"XXXXX AGREEMENT" means that certain Note and Warrant Purchase
Agreement dated as of February 11, 1997, by and among the Xxxxx Group,
Inc., the Company, EC, TI, and EWS, and the notes and warrants
executed and delivered in connection therewith.
"GAAP" means generally accepted accounting principles
(including principles of consolidation) in the United States of
America, in effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means any foreign or domestic
federal, state, county, municipal, or other governmental or regulatory
authority, agency, board, body, commission, instrumentality, court, or
any political subdivision thereof.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, or other
direction or requirement (including but not limited to any of the
foregoing which relate to Environmental Laws, energy regulations and
occupational, safety and health standards or controls) of any
Governmental Authority.
"HAZARDOUS MATERIALS" means (a) any chemical, material or
substance defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "toxic pollutants,"
"contaminants," "pollutants," "toxic substances" or words of similar
import under any Environmental Laws, (b) any oil, petroleum or
petroleum derived substance, (c) any flammable substances or
explosives, (d) any radioactive materials, (e) any other materials or
pollutants which cause properties to be in violation of any
Environmental Laws, (f) asbestos in any form which is or could become
friable, radon gas, urea formaldehyde foam insulation, or transformers
or other electrical equipment which contain any oil or dielectric
fluid containing polychlorinated biphenyls, and (g) any other
chemical, material or substance, exposure to which is prohibited,
limited, or regulated by any Governmental Authority.
"HIGHEST LAWFUL RATE" shall have the meaning assigned to such
term in Section 8.14 hereof.
"INDEBTEDNESS" means, with respect to any Person, the
principal of, premium, if any, and interest on: (a) indebtedness for
money borrowed from others whether or not evidenced by notes, bonds,
debentures or otherwise; (b) indebtedness of another Person
guaranteed, directly or indirectly, in any manner by such Person,
including, without limitation, through an agreement, contingent or
otherwise, (i) to purchase or pay any such indebtedness, (ii) to
advance or supply funds for the purchase or payment of such
indebtedness, (iii) to purchase
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and pay for property if not delivered or pay for services if not
performed, primarily for the purpose of enabling such other Person to
make payment of such indebtedness or to assure the owners of the
indebtedness against loss, or (iv) to maintain working capital, equity
capital or other financial condition of such other Person so as to
enable it to pay such indebtedness; (c) all indebtedness secured by
any Lien upon property owned by such Person, even though such Person
has not in any manner become liable for the payment of such
indebtedness; (d) all indebtedness of such Person created or arising
under any conditional sale, lease (intended primarily as a financing
device) or other title retention or security agreement with respect to
property acquired by such Person even though the rights and remedies
of the seller, lessor or lender under such agreement or lease in the
event of default may be limited to repossession or sale of such
property; (e) all obligations of such Person issued or assumed for the
deferred purchase price of property or services, including all trade
credit; (f) Capitalized Lease Obligations and the present value of all
future lease payments under a lease other than Capitalized Lease
Obligations; (g) all unfunded postretirement and postemployment
benefits including, without limitation, unfunded pension liabilities;
(h) mandatory redemption or mandatory dividend rights on common or
preferred stock (or other equity) (other than rights (if any) of the
Xxxxx Group (or its assignee) to cause the Company to repurchase
Common Stock; (i) obligations of discontinued businesses that are
subsumed within the single-sum amount of the net assets of the
discontinued operations being held for sale; and (j) all obligations
of such Person under or with respect to letters of credit if in the
aggregate or individually such letters of credit equal or exceed
$100,000.
"INITIAL CONVERSION PRICE" shall have the meaning assigned to
such term in Section 5.1.2 hereof.
"INITIATING HOLDERS" shall have the meaning assigned to such
term in Section 4.1.11(a) hereof.
"INTELLECTUAL PROPERTY" shall have the meaning assigned to
such term in Section 3.1.21(a) hereof.
"INTEREST EXPENSE" shall mean, for any period, the sum of (a)
the cash interest payments by an obligor made or accrued in accordance
with GAAP during such period in connection with all of its interest-
bearing Indebtedness and (b) the interest component of any Capitalized
Lease Obligations.
"INTERMEDIARY" shall have the meaning assigned to such term in
Section 3.1.17 hereof.
"INVESTMENT" means any stock, partnership, or joint venture
interest or other security, any loan, advance, contribution to
capital, any acquisitions of real or personal property (other than
real and personal property acquired in the ordinary course of
business), and any purchase or commitment or option to purchase stock
or other securities of or any
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interest in another Person or any integral part of any business or the
assets comprising such business or part thereof if the aggregate
consideration for such purchase, commitment or option was in excess of
$10,000, and whether existing on the date of this Agreement or
hereafter made.
"LEASE AGREEMENT" means the Lease Agreement dated June 28,
1994, between Xxxxxxxx Partners, Ltd. and EC (as successor-in-interest
to EqualNet Communications, Inc.), as amended by the First Amendment
to Lease Agreement, dated effective as of August 15, 1994, as amended
by the Second Amendment to Lease Agreement, dated effective as of
September 8, 1994, as amended by the Third Amendment to Lease
Agreement, dated effective as of April 10, 1995, as amended by the
Fourth Amendment to Lease Agreement, dated effective as of August 14,
1997, as the same may be further amended, supplemented, or otherwise
modified from time to time.
"LEASEHOLD DEED OF TRUST" means the Leasehold Deed of Trust
and Security Agreement to be executed by EC, as grantor, to Xxxxxxx X.
Xxxxxx, as trustee, for the benefit of Purchaser, substantially in the
form of Exhibit E hereto, as the same may be amended, supplemented, or
otherwise modified from time to time.
"LIEN" means, with respect to any Person, any mortgage, deed
of trust, lien, security interest, pledge, lease, conditional sale
contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.
"MARGIN STOCK" shall have the meaning assigned to such term in
Section 3.1.6 hereof.
"MATERIAL ADVERSE EFFECT" means any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
or operations of the Company and its Subsidiaries on a Consolidated
basis, or (ii) the ability of the Company and its Subsidiaries on a
Consolidated basis to carry out their business as at the date of this
Agreement or meet its obligations under the Operative Documents on a
timely basis.
"MULTIEMPLOYER PLAN" means a Plan defined as such in Section
3(37) of ERISA to which contributions have been made by the Company or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"NOTE" means the 12% convertible secured note payable by the
Sellers, as co-obligors, in the original principal amount of
$1,000,000, substantially in the form of Exhibit A hereto, as the same
may be amended, supplemented, or otherwise modified from time to time,
and any notes issued in exchange for such Note.
"OPERATIVE DOCUMENTS" means this Agreement, the Leasehold Deed
of Trust, the Note, the Security Agreement, the Warrant Agreement, and
the Warrant Certificates.
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"PERMITS" means all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and
other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities
necessary for the conduct of the business of the Company and its
Subsidiaries immediately prior to the Closing and as proposed to be
conducted by the Company and its Subsidiaries after the Closing.
"PERMITTED LIENS" shall have the meaning assigned to such term
in Section 4.3.2 hereof.
"PERSON" means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization, any other form of legal entity, or a Governmental
Authority.
"PIGGY-BACK SECURITIES" shall have the meaning assigned to
such term in Section 4.1.11(b) hereof.
"PIGGY-BACK TERMINATION DATE" shall have the meaning assigned
to such term in Section 4.1.11(b) hereof.
"PLAN" means any multi-employer plan or single employer plan,
as defined in Section 4001 and subject to Title IV of ERISA, which is
maintained, or at any time during the five calendar years preceding
the date of this Agreement was maintained, for employees of the
Company or a Subsidiary of the Company or an ERISA Affiliate.
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"PROPRIETARY INFORMATION AGREEMENT" shall have the meaning
assigned to such term in Section 3.1.21(b) hereof.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.1 hereof.
"REGISTRABLE SECURITIES" shall have the meaning assigned to
such term in Section 4.1.11(b) hereof.
"RESPONSIBLE OFFICER" means with respect to any Person (other
than a Person that is an individual), the chairman of the board, the
president, any executive or senior vice president, the vice president
of finance, the chief executive officer, the chief operating officer
or the treasurer of such Person.
"RFC AGREEMENT" means the Receivables Sale Agreement dated as
of June 18, 1997, by and between EC and Receivables Funding
Corporation.
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"SECURITIES ACT" shall have the meaning set forth in Section
3.2.1 hereof.
"SECURITY AGREEMENT" means the Security Agreement to be
executed by each of the Sellers, as debtor, and Purchaser, as secured
party, substantially in the form of Exhibit D hereto, as the same may
be amended, supplemented, or otherwise modified from time to time.
"SENIOR OBLIGATIONS" means Indebtedness arising under (a) the
Xxxxx Agreement in an amount not to exceed $3,000,000 (plus interest),
(b) the RFC Agreement (and the obligations arising thereunder) in an
amount not to exceed the Purchase Commitment (as defined in the RFC
Agreement on the date hereof), and (c) the Comerica LOC in an amount
not to exceed $100,000 (plus related costs and expenses arising in
connection therewith).
"SUBSIDIARY" means, as to any Person, any corporation,
company, association, partnership, limited liability company or other
business entity of which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a
group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of
such entity, and any partnership, limited liability company or joint
venture if more than a 50% interest in the profits of capital thereof
is owned by such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries.
"TECHNICAL EMPLOYEES" shall have the meaning assigned to such
term in Section 3.1.21(b) hereof.
"TERMINATION DATE" shall have the meaning assigned to such
term in Section 4.1.11(a) hereof.
"WARRANT AGREEMENT" means the Warrant Agreement to be executed
by the Company, substantially in the form of Exhibit B hereto, as the
same may be amended, supplemented, or otherwise modified from time to
time.
"WARRANT CERTIFICATE" means the certificate evidencing
Warrants, substantially in the form of Exhibit A to the Warrant
Agreement, as the same may be amended, supplemented, or otherwise
modified from time to time.
"WARRANT HOLDER" means any holder of the Warrants.
"WARRANT SHARES" means the shares of common stock issued or
issuable upon the exercise of the Warrants.
"WARRANTS" means warrants to purchase shares of common stock
of the Company issued to Purchaser pursuant to this Agreement and the
Warrant Agreement and evidenced by the Warrant Certificate.
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"WEB AGREEMENT" means that certain Web Site Services and Long
Distance Agreement between International Center for Entrepreneurial
Development, Inc. and EC dated August 1, 1997.
ARTICLE II
PURCHASE AND SALE OF THE NOTE; CLOSING
2.1 SALE AND PURCHASE OF NOTE AND WARRANTS. Subject to the
satisfaction of the terms and conditions herein set forth and in reliance upon
the respective representations and warranties of the parties set forth herein
or in any document delivered pursuant hereto, at the Closing, the Sellers agree
to sell to Purchaser, and Purchaser agrees to purchase from the Sellers, the
Note and the Warrants free and clear of any Liens whatsoever. The aggregate
purchase price for the Note and the Warrants is $1,000,000 (the "Purchase
Price").
2.2 CLOSING. The Closing of the purchase and sale of the Note and
Warrants will be held at the offices of Xxxxxx & Xxxxxx L.L.P., 1001 Xxxxxx,
0000 Xxxxx Xxxx Xxxxx, Xxxxxxx, Xxxxx 00000, on October 1, 1997 (the
"Closing"), at 10:00 a.m., Houston time, or at such other time, date and place
as the parties may agree (the "Closing Date"). On the Closing Date, the Sellers
will deliver to Purchaser the Note and the Warrant Certificate, each duly
executed and registered in the name of Purchaser, and Purchaser will pay the
Purchase Price by wire transfer of funds to an account designated by the
Sellers, which account shall be (a) designated by the Sellers not less than
three Business Days prior to the Closing Date and (b) at a commercial bank or
other financial institution located in New York, New York.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. In order to
induce Purchaser to enter into this Agreement, each Seller (on its own behalf
and on behalf of its Subsidiaries) represents and warrants to Purchaser (which
representations and warranties will survive the delivery of the Note) that:
3.1.1 CORPORATE EXISTENCE. Each Seller and each of its
Subsidiaries is duly organized, legally existing, and in good standing
under the laws of the jurisdictions in which it is incorporated and is
duly qualified as a foreign corporation (or other legal entity) in all
jurisdictions in which the nature of its business activities or its
ownership or leasing of property makes such qualification necessary,
except where the failure to so qualify will not have a Material
Adverse Effect.
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3.1.2 CORPORATE POWER AND AUTHORIZATION. Each Seller has
the requisite corporate power and authority to create and issue the
Note and the Warrants (as applicable), to execute, deliver, and
perform its obligations under this Agreement and the other Operative
Documents, and to consummate the transactions contemplated hereby and
thereby. All action on each Seller's part requisite for the due
creation and issuance of the Note and the Warrants (as applicable) and
for the due execution, delivery, and performance of this Agreement and
the other Operative Documents to which it is a party has been duly and
effectively taken.
3.1.3 BINDING OBLIGATIONS. This Agreement is and, upon the
execution, issuance, and delivery by the Sellers, the Note, the
Warrants, and each of the other Operative Documents will be,
enforceable in accordance with its terms (except that enforcement may
be subject to (i) any applicable bankruptcy, insolvency or similar
laws generally affecting the enforcement of creditors' rights and (ii)
general principles in equity regardless of whether such enforcement is
sought in a proceeding in equity or at law).
3.1.4 NO VIOLATION. Neither the execution and delivery of
this Agreement or any of the other Operative Documents to which it is
a party, the consummation of the transactions provided for herein and
therein or contemplated hereby or thereby nor the fulfillment by the
Sellers of the terms hereof or thereof will (a) violate any provision
of the Charter or the by-laws of any Seller, (b) result in a default,
give rise to any right of termination, cancellation, acceleration or
imposition of any Lien upon the Note, or require any consent or
approval (other than any consent or approval that has previously been
obtained) under any of the terms, conditions or provisions of any of
the Permits or any note, bond, mortgage, indenture, loan, distribution
agreement, license, agreement, lease, or instrument or obligation to
which any Seller is a party or by which any Seller may be bound
(except where the failure to obtain such consent or approval will not
have a Material Adverse Effect), or (c) violate any law, judgment,
order, writ, injunction, decree, statute, rule, or regulation of any
Governmental Authority applicable to any Seller or the Note (except
where such violation will not have a Material Adverse Effect).
3.1.5 CONSENTS. All consents, approvals, qualifications,
orders, or authorizations of, or filings with, any Governmental
Authority, and all consents under any material contracts, agreements,
or instruments by which any Seller is bound or to which it is subject,
and required in connection with each Seller's valid execution,
delivery, or performance of this Agreement and the other Operative
Documents to which it is a party and the offer, sale, and delivery of
the Note and the consummation of any other transaction contemplated on
the part of the Sellers have been obtained or made.
3.1.6 USE OF PROCEEDS. The proceeds from the sale of the
Note and the Warrants will be used for working capital and other
general corporate purposes. No part of the proceeds from the sale of
the Note will be used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System (12 CFR 207),
or for the purpose of buying or
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carrying or trading in any securities under such circumstances as to
involve any Seller in a violation of Regulation X of said Board (12
CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). As used herein, the terms
"margin stock" and "purpose of buying or carrying" shall have the
meanings assigned to them in said Regulation G.
3.1.7 FINANCIAL INFORMATION.
(a) The Consolidated balance sheet of the Company and its
Subsidiaries as at June 30, 1996, and the related Consolidated
statements of operations, shareholders' equity and cash flows for the
12-month period then ended, including in each case the related
schedules and notes, reported on by Ernst & Young LLP, are complete
and correct and fairly present in all material respects the
Consolidated financial position of the Company and its Subsidiaries as
at the date thereof and the Consolidated results of operations and
changes in cash flows for such period, in accordance with GAAP.
(b) The unaudited Consolidated balance sheet of the
Company and its Subsidiaries as at March 31, 1997, and the related
unaudited Consolidated statements of operations, shareholders' equity
and cash flows for the nine-month period then ended, as included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997, true copies of which have been previously
delivered to Purchaser, are complete and correct and fairly present in
all material respects the Consolidated financial position of the
Company and its Subsidiaries as at the date thereof and the
Consolidated results of operations and changes in cash flows for such
period in conformity with GAAP, subject only to normal year-end audit
adjustments.
(c) Since March 31, 1997, there has been no Material
Adverse Effect.
3.1.8 LIABILITIES. Except for liabilities incurred in the
ordinary course of business, none of the Sellers has any material
(individually or in the aggregate) liabilities, direct or contingent
(including but not limited to liability with respect to any Plan)
except as disclosed or referred to in Schedule 3.1.8 or in the
financial statements referred to in Section 3.1.7. The Sellers have no
Indebtedness other than Indebtedness disclosed in Schedule 3.1.8.
3.1.9 LITIGATION. Except as discussed in Schedule 3.1.9 or
as described in any report filed by the Company with the Commission
and delivered to Purchaser, there is no action, suit, or proceeding,
or any governmental investigation or any arbitration, in each case
pending or, to the knowledge of the Sellers, threatened against any
Seller or any material property of any thereof before any court or
arbitrator or any governmental or administrative body, agency or
official (i) which challenges the validity of this Agreement, the
Note, or any of the Operative Documents or the attachment, perfection,
or priority of any Operative Document or the Liens to be created
thereunder; or (ii) which, if adversely determined, would have a
Material Adverse Effect.
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3.1.10 COMPLIANCE WITH ERISA. Each Plan is in substantial
compliance with ERISA, no Plan has an accumulated or waived funding
deficiency within the meaning of Section 412 or Section 418(B) of the
Code, no proceedings have been instituted to terminate any Plan, and
except as disclosed in Schedule 3.1.10, none of the Sellers nor any
ERISA Affiliate has incurred any material liability to or on account
of a Plan under ERISA, and except as disclosed in Schedule 3.1.10, no
condition exists which presents a material risk to any Seller of
incurring such a liability.
3.1.11 TAXES; GOVERNMENTAL CHARGES. Each of the Sellers has
filed all tax returns and reports required to be filed and has paid
all taxes, assessments, fees, and other governmental charges levied
upon any of them or upon any of their respective properties or income
which are due and payable, including interest and penalties, or has
provided adequate reserves for the payment thereof, except where the
failure to so file, pay, or reserve would not have a Material Adverse
Effect.
3.1.12 DEFAULTS. Except as disclosed in Schedule 3.1.12,
none of the Sellers is in default, nor has any event or circumstance
occurred which, but for the passage of time or the giving of notice,
or both, would constitute a default (in any respect which may have a
Material Adverse Effect) under any loan or credit agreement,
indenture, mortgage, deed of trust, security agreement, or other
instrument or agreement evidencing or pertaining to any Indebtedness
of any Seller or any Subsidiary, or under any material agreement or
instrument to which any Seller or any Subsidiary is a party or by
which any Seller or any Subsidiary is bound. No default hereunder has
occurred and is continuing.
3.1.13 COMPLIANCE WITH THE LAW. None of the Sellers (a) is
in violation of any Governmental Requirement or (b) has failed to
obtain any license, permit, franchise, or other governmental
authorization necessary to the ownership of any of their respective
properties or the conduct of their respective business, which
violation or failure would have (in the event that such a violation or
failure were asserted by any Person through appropriate action) a
Material Adverse Effect.
3.1.14 INTENTIONALLY OMITTED.
3.1.15 INVESTMENT COMPANY ACT. None of the Sellers is an
"investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
3.1.16 PUBLIC UTILITY HOLDING COMPANY ACT. None of the
Sellers is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
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3 .1.17 FEES AND COMMISSIONS. None of the Sellers nor, to the
knowledge of any of the Sellers, their Affiliates has retained a
finder, broker, agent, financial advisor, or other intermediary
(collectively, an "Intermediary") in connection with the transactions
contemplated by this Agreement and the other Operative Documents, and
the Sellers agree, jointly and severally, to pay and to indemnify and
hold harmless Purchaser from and against liability for any
compensation to any Intermediary and the fees and expenses of
defending against such liability or alleged liability.
3.1.18 DISCLOSURE. The Company's filings made pursuant to
the Securities Exchange Act of 1934, as amended and listed on Schedule
3.1.18 hereto as of their respective dates, do not contain any untrue
statement of a material fact and do not omit to state any material
fact necessary in order to make the statements contained therein or
herein not misleading in the light of the circumstances under which
they were made.
3.1.19 STRUCTURE; CAPITALIZATION.
(a) Schedule 3.1.19 contains (except has noted therein) a
complete and correct list of the Company's Subsidiaries, showing, as
to each Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its
capital stock or similar equity interests outstanding owned by the
Company and each other Subsidiary.
(b) All of the outstanding shares of capital stock or
similar equity interests of each Subsidiary shown in Schedule 3.1.19
as being owned by the Company and its Subsidiaries have been validly
issued, are fully paid and nonassessable, and are owned by the Company
or such other Subsidiaries free and clear of any Lien (except as
otherwise disclosed in Schedule 3.1.19.
(c) No Subsidiary of the Company is a party to, or
otherwise subject to any legal restriction of any agreement (other
than this Agreement and customary limitations imposed by corporate law
statutes) restricting the ability of such Subsidiary to pay dividends
out of profits or make any other similar distributions of profits to
the Company or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
(d) As of the Closing Date and after giving effect to the
transactions contemplated in this Agreement (i) the Company's
authorized capital stock will consist of 21,000,000 shares, of which
20,000,000 are designated Common Stock; (ii) 6,173,750 shares of
Common Stock, issued and outstanding and 2,317,900 shares are or will
be reserved for issuance in connection with the Company's outstanding
warrants and stock options (200,000 of which will be reserved for
issuance in connection with the Warrants), all of which, when issued
in accordance with the terms of such warrants and stock options, will
be validly issued, fully paid, and non-assessable; (iii) no shares of
Common Stock are owned or held by or for the
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account of the Company or any of its Subsidiaries (except as disclosed
in the financial statements described in Section 3.1.7); (iv) except
as disclosed on Schedule 3.1.19, neither the Company nor any of its
Subsidiaries has outstanding any stock or other securities convertible
into or exchangeable for any shares of capital stock, any rights to
subscribe for or to purchase or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise)
of, or any calls, commitments or claims of any other character
relating to the issuance of, any capital stock, or any stock or
securities convertible into or exchangeable for any capital stock
which have not been waived (other than as contemplated by this
Agreement); and (v) except as disclosed in Schedule 3.1.19, neither
the Company nor any of its Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire
any shares of capital stock.
3.1.20 ENVIRONMENTAL MATTERS.
(a) Neither any property of any Seller nor the operations
conducted thereon violate any order of any court or Governmental
Authority or Environmental Laws which violations could reasonably be
expected to result in liability in excess of $250,000 or which could
reasonably be expected to result in remedial obligations in excess of
$250,000, assuming disclosure to the applicable Governmental Authority
of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.
(b) Without limitation of clause (a) above, no property
of any Seller nor the operations currently conducted thereon or by any
prior owner or operator of such property or operation, are in
violation of or subject to any existing, pending or, to the knowledge
of any Seller, threatened action, suit, investigation, inquiry or
proceeding by or before any court or Governmental Authority or to any
remedial obligations under Environmental Laws which could reasonably
be expected to result in liability in excess of $250,000, or which
could reasonably be expected to result in remedial obligations in
excess of $250,000 assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.
(c) All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed in connection
with the operation or use of any and all property of each Seller and
its Subsidiaries, including but not limited to past or present
treatment, storage, disposal or release of Hazardous Materials into
the environment, have been duly obtained or filed, except where the
failure to so obtain or file would not have a Material Adverse Effect.
3.1.21 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
(a) The Sellers (i) own or have the right to use, free
and clear of all liens, claims, and restrictions, all patents,
trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and
all trade secrets, including
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know-how, inventions, designs, processes, works of authorship,
computer programs, and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of
its business as now conducted and/or as presently proposed to be
conducted (including, without limitation, the development,
manufacture, operation, and sale of all products and services sold or
proposed to be sold by the Sellers during the next 24 months following
the date of this Agreement) without infringing upon or violating any
right, lien, or claim of others, including, without limitation, former
employees and former employers of its past and present employees, and
(ii) except described in Schedule 3.1.21, is not obligated or under
any liability whatsoever to make any payments by way of royalties,
fees, or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service xxxx, trade name, copyright, or other
intangible asset, with respect to the use thereof or in connection
with the conduct of its business or otherwise.
(b) Any and all Intellectual Property of any kind,
relating to the business of the Sellers, currently being developed, or
developed in the future, by any employee of the Sellers while in the
employ of the Sellers shall be the property solely of the Sellers. The
Sellers have taken security measures to protect the secrecy,
confidentiality, and value of all Intellectual Property, which
measures are reasonable and customary in the industry in which the
Sellers operate. The Sellers' employees and other persons who, either
alone or in concert with others, developed, invented, discovered,
derived, programmed, or designed the Intellectual Property (the
"Technical Employees"), or who have knowledge of or access to
information about the Intellectual Property, have entered into a
written agreement with the Sellers, in form and substance satisfactory
to the Company's management (the "Proprietary Information Agreement")
regarding ownership and treatment of the Intellectual Property.
(c) Except as described in Schedule 3.1.21,, none of the
Sellers has received any communications alleging that such Seller has
violated, or by conducting its business as proposed would violate, any
of the patents, trademarks, service marks, trade names, copyrights, or
trade secrets or other proprietary rights of any other Person or
entity. None of the Sellers' employees is obligated under any contract
(including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order of any court
or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Sellers or
that would conflict with the Sellers' business as presently conducted
and as proposed to be conducted. Neither the execution nor delivery of
this Agreement, nor the carrying on of the Sellers' business by the
employees of the Sellers, nor the conduct of the Sellers' business as
proposed to be conducted, will conflict with or result in a breach of
the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant, or instrument under which any of such
employees is now obligated. It is not, and will not become, necessary
to utilize any inventions of any of the Sellers' employees (or people
the Sellers currently intends to hire) made prior to their employment
by the Sellers other than those that have been assigned to the Sellers
pursuant to the Proprietary Information Agreement signed by such
employee.
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3.1.22 INSURANCE COVERAGE. The properties of the Sellers are
insured for the benefit of such Seller in amounts deemed adequate by
the Company's management against risks usually insured against by
Persons operating businesses similar to those of the Sellers in the
localities where such properties are located.
3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce the
Sellers to enter into this Agreement, Purchaser represents and warrants to the
Sellers that:
3.2.1 PURCHASE FOR INVESTMENT.
(a) Purchaser is acquiring the Note and Warrants for its
own account and not with a view to the public resale or distribution
of all or any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Purchaser acknowledges that the Note, the shares of
Common Stock issuable upon conversion of the Note, the Warrants, and
the Warrant Shares have not been registered under the Securities Act.
(c) Purchaser is an "accredited investor" within the
meaning of Rule 501 under Regulation D promulgated under the
Securities Act, is experienced in evaluating investments in companies
such as the Company, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the entire
economic risk of its investment. Purchaser has made its own evaluation
of its investment in the Note and the Warrants, based upon such
information as is available to it and without reliance upon the
Company or any other person or entity, and Purchaser agrees that
neither the Company nor any other person or entity has any obligation
to furnish any additional information to Purchaser except as expressly
set forth herein.
(d) Purchaser acknowledges that the Note, the shares of
Common Stock issuable upon conversion of the Note, the Warrants, and
the Warrant Shares may not be sold, transferred, pledged,
hypothecated, or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of
an effective registration statement covering the Note, the shares of
Common Stock issuable upon conversion of the Note, the Warrants, or
the Warrant Shares or an available exemption from registration under
the Securities Act, the Note, the shares of Common Stock issuable upon
conversion of the Note, the Warrants, and the Warrant Shares must be
held indefinitely.
(e) Purchaser agrees that the Note, the shares of Common
Stock issuable upon conversion of the Note, the Warrants, and the
Warrant Shares shall bear legends in substantially the following form:
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"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (II) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT. ANY SALE PURSUANT TO CLAUSE (II) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH
SUCH SALE."
3.2.2 AUTHORIZATION; NO CONFLICT. Purchaser has all
requisite power and authority to enter into this Agreement and to
carry out and perform its obligations under the terms of this
Agreement. This Agreement is a legal, valid, and binding obligation of
Purchaser. The execution, delivery, and performance of this Agreement
by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not conflict with or result in a default
under the terms of any material contract, agreement, obligation,
commitment, or organizational document applicable to Purchaser.
ARTICLE IV
COVENANTS
The Sellers covenant and agree (each on its own behalf and on behalf
of each of its Subsidiaries, as applicable) as set forth below, and
acknowledges that Purchaser is entering into this Agreement on the expectation
that the Sellers and their Subsidiaries honor such covenants and agreements.
4.1 AFFIRMATIVE COVENANTS. So long as any principal or other
amounts due and owing remain outstanding under the Note, the Sellers will at
all times comply with the following covenants:
4.1.1 COMPLIANCE WITH LAWS. Each Seller will, and will
cause its Subsidiaries to, comply in all material respects with all
applicable Governmental Requirements.
4.1.2 INSURANCE. Each Seller will, and will cause its
Subsidiaries to, maintain with financially sound and reputable
insurers, insurance with respect to its properties and business
against such liabilities, casualties, risks and contingencies and in
such types and amounts as is customary in the case of Persons engaged
in the same or similar businesses and similarly situated. Upon request
of Purchaser, each Seller will furnish or cause to be furnished to
Purchaser from time to time a summary of the insurance coverage of
such Seller in form and
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substance satisfactory to Purchaser and if requested will furnish
Purchaser copies of the applicable policies.
4.1.3 PAYMENT OF TAXES AND CLAIMS. Each Seller agrees to
pay or cause to be paid all taxes, assessments, and other governmental
charges levied upon any of its assets or those of its Subsidiaries or
in respect of its or their respective franchises, businesses, income
or profits, all trade accounts payable in accordance with the
Company's usual and customary business terms, and all claims for work,
labor, or materials, which if unpaid might become a lien or charge
upon any asset of such Seller or any of its Subsidiaries, before the
same become delinquent, except that (unless and until foreclosure,
sale or other similar proceedings shall have been commenced) no such
charge need be paid if being contested in good faith and by
appropriate measures promptly initiated and diligently conducted if
(a) such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor, and (b) such contest
does not have a Material Adverse Effect on the ability of such Seller
or any of its Subsidiaries to pay any Indebtedness and no material
assets are in imminent danger of forfeiture.
4.1.4 PERFORMANCE OF OBLIGATIONS.
(a) Each Seller will, and will cause its Subsidiaries to,
use its commercially reasonable efforts to pay, discharge, or
otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all of its obligations of whatever
nature, except when the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves, if
any, as shall be required by GAAP with respect thereto have been
provided on the books of such Seller or its Subsidiaries, as the case
may be, and except where the failure to so pay, discharge or satisfy
such obligations would not have a Material Adverse Effect.
(b) The Sellers will pay the Note according to the
reading, tenor, and effect thereof.
4.1.5 CORPORATE EXISTENCE; PROPERTY. Each Seller (i) will
do or cause to be done all things reasonably necessary to preserve and
keep in full force and effect the corporate existence and material
rights of such Seller and all of its Subsidiaries, (ii) will cause its
properties and the properties of its Subsidiaries used and useful in
the conduct of their respective businesses to be maintained and kept
in good condition, repair and working order and will use its
commercially reasonable efforts to cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereto,
and (iii) will, and will cause each of its Subsidiaries to, qualify
and remain qualified to conduct business in each jurisdiction where
the nature of the business or the ownership of property by such Seller
or such Subsidiary may require such qualification and where the
failure to so qualify would have a Material Adverse Effect.
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4.1.6 USE OF PROCEEDS. The Seller shall use the proceeds
from the sale of the Note and the Warrants for the purposes and in the
manner described in Section 3.1.6.
4.1.7 ENVIRONMENTAL MATTERS. Each Seller and its
Subsidiaries shall comply with all applicable Environmental Laws the
failure to comply with which would have a Material Adverse Effect. If
any Seller or its Subsidiaries shall receive written notice that there
exists a violation of Environmental Law with respect to its operations
or any real property owned, formerly owned, used, or leased thereby,
which violation could have a Material Adverse Effect, such Seller
shall immediately notify Purchaser in writing. Furthermore, if any
Seller or its Subsidiaries shall receive written notice that there
exists a violation of Environmental Law with respect to its operations
or any real property owned, formerly owned, used or leased thereby,
which violation could have a Material Adverse Effect, such Seller
shall within the time period permitted by the applicable Governmental
Authority (unless otherwise contested by such Seller in good faith)
remove or remedy such violation in accordance with all applicable
Environmental Laws unless the Board of Directors of such Seller
determines that it would be in the best interest of such Seller to
delay the remedy of such violation, so long as no Material Adverse
Effect is suffered by such Seller during such delay.
4.1.8 FEES AND EXPENSES.
(a) The Sellers will bear all of their expenses in
connection with this Agreement and the other Operative Documents and
the transactions contemplated hereby and thereby, and will also
reimburse Purchaser for or pay any expenses Purchaser incurs
(including, without limitation, the fees incurred by Purchaser in
connection with due diligence and the reasonable legal fees) in
connection with the negotiation of and closing under this Agreement
and any other Operative Documents and the transactions contemplated
hereby and thereby (up to a maximum of $25,000), including, without
limitation, all expenses incurred in connection with (i) the
preparation of, negotiation of, closing under, amendment of, waiver
under, or enforcement of, or the preservation of any rights under,
this Agreement or any other Operative Documents, (ii) any stamp and
other taxes (other than income taxes) payable with respect to this
Agreement or the other Operative Documents, and (iii) any filing with
any Governmental Authority with respect to Purchaser's purchase of the
Note and the Warrants.
(b) The Sellers will also bear the legal fees and
disbursements of counsel (up to a maximum of $25,000) to Purchaser in
connection with any mutually agreed upon amendments to this Agreement
or any of the other Operative Documents, or any amendments proposed by
the Sellers whether or not effected, or in connection with the
consummation of any future transaction related thereto.
4.1.9 BOOKS AND RECORDS; INSPECTION OF PROPERTY. Each
Seller will keep, and will cause each of its Subsidiaries to keep,
proper books of record and accounts in which full, true and correct
entries in conformity with GAAP shall be made of all dealings and
transactions in relation to its business and activities. Each Seller
covenants that it will permit any Person
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representing Purchaser and designated in writing by such Investors, at
the Investors' expense, to visit and inspect any of the properties of
such Seller and its Subsidiaries, to examine the corporate, financial,
and operating records of such Seller and its Subsidiaries and make
copies thereof or extracts therefrom and to discuss the affairs,
finances, and accounts of any of such corporations with the directors,
officers and independent accountants of such Seller and its
Subsidiaries, all at such reasonable times and as often as Purchaser
may reasonably request.
4.1.10 STOCK TO BE RESERVED. The Company covenants that all
shares of Common Stock that may be issued upon the exercise of the
Warrants will, upon issuance and upon full payment therefor in
accordance with the terms thereof, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, and charges with
respect to the issuance thereof. The Company further covenants that
during the period within which the Warrants may be exercised, the
Company will at all times have authorized and reserved a sufficient
number of shares of Common Stock to permit the exercise of the
Warrants.
4.1.11 REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and
agrees with the Purchaser and any subsequent holders of the Note, the
Warrants and/or Warrant Shares that, at any time after the earliest of
(i) the Conversion Date, (ii) the date on which the Warrants (or any
portion thereof) are exercised, or (iii) the maturity date of the
Note, within 60 days after receipt of a written request from the
Purchaser (the "Initiating Holders"), the Company shall file a
registration statement (and use its commercially reasonable efforts to
cause such registration statement to become effective under the
Securities Act) with respect to the offering and sale or other
disposition of any number of shares of Common Stock issued upon
conversion of the Note or Warrant Shares or both (all such securities,
the "Demand Securities"); provided that the Company may defer its
obligations under this Section 4.1.11(a) for a period of no more than
90 days if the Company's Board of Directors adopts a resolution that
filing such a registration statement would require a public disclosure
by the Company which disclosure would have material adverse
consequences for the Company, such as a disclosure regarding a pending
material acquisition by the Company; provided further that once such
information has been publicly disclosed, then the Company shall
promptly proceed to fulfill its obligations under this Section
4.1.11(a). The Company shall continuously maintain the effectiveness
of such registration statement for the lesser of (i) 180 days after
the effective date of the registration statement or (ii) the
consummation of the distribution by the holders of the Demand
Securities covered by such registration statement (the "Termination
Date"); provided, however, that if at the Termination Date, the Demand
Securities are covered by a registration statement which also covers
other securities and which is required to remain in effect beyond the
Termination Date, the Company shall maintain in effect such
registration statement as it relates to the Demand Securities for so
long as such registration statement (or any subsequent registration
statement) remains or is required to remain in effect for any of such
other securities. The Company shall not be required to comply with
more than two requests for registration pursuant to this Section
4.1.11(a). In addition, the
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Company shall be required to effect up to three Short-form
Registrations at the request of Purchaser. All expenses of such
registration shall be borne by the Company, except that underwriting
commissions and expenses attributable to the Demand Securities and
fees and disbursements of counsel and other advisors (if any) to the
Initiating Holders will be borne by such holders requesting that such
securities be offered.
If the Initiating Holders intend to distribute the Demand
Securities covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant
to this Section 4.1.11(a). The right of any other holder to
registration pursuant to this Section 4.1.11(a) shall be conditioned
upon such holder's participation in such underwriting and the
inclusion of such holder's Demand Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such holder with respect to such participation
and inclusion) to the extent provided herein. A holder may elect to
include in such underwriting all or a part of the Demand Securities he
holds. If other holders of registration rights request inclusion in
any registration statement pursuant to this Section 4.1.11(a), such
holders may be included in the underwriting conditioned on their
acceptance of the further applicable provisions of this Section
4.1.11(a). The Company shall (together with other holders proposed to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with a representative of the
underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders. If the representative
advises the Initiating Holders in writing that marketing factors
require a limitation on the number of shares to be underwritten, then
securities held by holders other than the Initiating Holders shall be
excluded from such registration to the extent so required by such
limitation.
(b) PIGGY-BACK REGISTRATION RIGHTS. The Company covenants
and agrees with the Purchaser and any subsequent holders of the Note,
the Warrants and/or Warrant Shares that, in the event the Company
proposes to file a registration statement under the Securities Act
with respect to a firm commitment offering of Common Stock (other than
in connection with an exchange offer or a registration statement on
Form S-4 or S-8 or other similar registration statements not available
to register securities so requested to be included), the Company shall
in each case give written notice of such proposed filing to the
Purchaser at least 30 days before the earlier of the anticipated or
the actual effective date of the registration statement and at least
ten days before the initial filing of such registration statement and
such notice shall offer to such holders the opportunity to include in
such registration statement such number of shares of Common Stock
issued upon conversion of the Note or Warrant Shares or both (the
"Piggy-back Securities", and together with the securities referred to
in Section 4.1.11(a) above, the "Registrable Securities") as they may
request. Holders desiring inclusion of Piggy-back Securities in such
registration statement shall so inform the Company by written notice,
given within ten days of the giving of such notice by the Company in
accordance with the provisions of Section 8.11 hereof. The Company
shall permit, or shall cause the managing underwriter of a proposed
offering to permit, the holders of Piggy-back Securities requested to
be included in the registration to include such securities in the
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proposed offering on the same terms and conditions as applicable to
securities of the Company, if any, included therein for the account of
any person other than the Company and the holders. Notwithstanding the
foregoing, if any such managing underwriter shall advise the Company
in writing that, in its opinion, the distribution of securities by
holders thereof, including all or a portion of the Piggy-back
Securities, requested to be included in the registration concurrently
with the securities being registered by the Company, would materially
adversely affect the distribution of such securities by the Company
for its own account, then the holders of the Registrable Securities
shall delay their offering and sale of the Registrable Securities (or
the portions thereof so designated by such managing underwriter) for
such period, not to exceed 120 days, as the managing underwriter shall
request, provided that if any other securities are included in such
registration statement for the account of any person other than the
Company and the holders of Piggy-back Securities, then such
securities, including the Piggy-back Securities, so included shall be
apportioned among holders who wish to be included therein pro rata
according to amounts so requested to be included by each such person.
No such delay shall in any event impair any right granted hereunder to
make subsequent requests for inclusion pursuant to the terms of this
Section 4.1.11(b). The Company shall continuously maintain in effect
any registration statement with respect to which the Piggy-back
Securities have been requested to be included (and so included) for a
period of not less than 180 days after the effectiveness of such
registration statement ("Piggy-back Termination Date"); provided,
however, that if at the Piggy-back Termination Date the Piggy-back
Securities are covered by a registration statement which is, or is
required to remain, in effect beyond the Piggy-back Termination Date,
the Company shall maintain in effect the registration statement as it
relates to the Piggy-back Securities for so long as such registration
statement remains or is required to remain in effect for any of such
other securities. All expenses of such registration shall be borne by
the Company, except that underwriting commissions and expenses
attributable to the Piggy- back Securities and fees and distributions
of counsel and other advisors (if any) to the holders requesting that
the Piggy-back Securities be offered will be borne by such holders.
(c) OTHER MATTERS. In connection with the registration of
Registrable Securities in accordance with Sections 4.1.11(a) or (b)
above, the Company agrees to:
(i) Use its commercially reasonable efforts to
register or qualify the Registrable Securities for offer or
sale under state securities or Blue Sky laws of such
jurisdictions in which the holders of such Registrable
Securities shall designate; provided that in no event shall
the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in
any jurisdiction where it is not now so subject, and use its
commercially reasonable efforts to do any and all other acts
and things which may be necessary or advisable to enable the
holders of Registrable Securities to consummate the sale,
transfer, or other disposition of such securities in any
jurisdiction;
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(ii) Enter into indemnity and contribution
agreements, each in customary form, with each underwriter, if
any, and each holder of Registrable Securities included in
such registration statement; and, if requested, enter into an
underwriting agreement containing customary representations,
warranties, covenants, allocation of expenses, and customary
closing conditions including, but not limited to, opinions of
counsel and accountants' cold comfort letters with any
underwriter who participates in the offering of Registrable
Securities;
(iii) Pay all expenses in connection with the
registration of the Registrable Securities under the
Securities Act and compliance with the provisions of clause
(i) above, except to the extent otherwise provided in Sections
4.1.11(a) and (b); and
(iv) List the Registrable Securities on each
securities exchange, if any, on which the Common Stock is
listed.
In connection with the registration of Registrable Securities
in accordance with Paragraph (b) above, the holders agree to enter
into an underwriting agreement containing customary representations,
warranties, covenants, allocation of expenses (not otherwise
inconsistent with this Agreement), and customary closing conditions,
with any underwriter who participates in the offering of Registrable
Securities.
(d) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The
Company agrees not to effect any public sale or distribution of any
shares of Common Stock or any securities convertible into or
exchangeable or exercisable for such shares of Common Stock (or any
option or other right for such securities), except for any securities
that may be issued to the holders pursuant to the Note or the Warrants
during the 15-day period prior to, and during the 60-day period
beginning on the effective date of any registration statement under
which the Registrable Securities are registered in accordance with
Section 4.1.11(a) (other than as part of such registration).
(e) RULE 144. With a view to making available to
Purchaser the benefits of certain rules of the Securities and Exchange
Commission (the "Commission") that may permit the sale of Registrable
Securities to the public without registration, the Company hereby
covenants and agrees to use its commercially reasonable best efforts
to: (i) file in a timely manner all reports and other documents
required to be filed by it under the Securities Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations
adopted by the Commission thereunder necessary to permit sales under
Rule 144 under the Securities Act, and the Company will take such
further action to the extent reasonably required from time to time to
permit the Purchaser to sell Registrable Securities (whether or not
any such securities have been the subject of a demand or piggy-back
request under Section 4.1.11(a) and (b) hereof) without registration
under the Securities Act within the limitation of the exemptions
provided by (A) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (B) any similar rule or regulation
hereafter adopted by the Commission
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and (ii) promptly furnish Purchaser a copy of all such reports and
documents upon request. Upon the request of Purchaser, the Company
will deliver to Purchaser a written statement as to whether it has
complied with such requirements.
(f) OTHER REGISTRATION RIGHTS. The Company hereby agrees
that it shall not grant any additional registration rights with
respect to shares of its Common Stock, warrants to purchase its Common
Stock or securities convertible into its Common Stock, which are
inconsistent with the provisions of this Agreement.
4.1.12 FURTHER ASSURANCES. Each Seller covenants that it
shall cooperate with Purchaser and execute such further instruments
and documents as Purchaser shall reasonably request to carry out to
the satisfaction of Purchaser the transactions contemplated by this
Agreement.
4.2 REPORTING COVENANTS. So long as any principal or other amounts
due and owing under the Note remain outstanding, the Sellers will furnish to
Purchaser:
4.2.1 ANNUAL FINANCIAL STATEMENTS. As soon as available and
in any event within 120 days after the end of each fiscal year of the
Company occurring after the date hereof, a Consolidated and
consolidating balance sheet of the Company and its Subsidiaries as at
the end of such year and the related Consolidated and consolidating
statements of operations, shareholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and accompanied by a report thereon of
Ernst & Young LLP or other independent public accountants of
comparable recognized national standing, which such report shall state
that such Consolidated Financial Statements present fairly the
Consolidated financial position as at the end of such fiscal year, and
the Consolidated results of operations and cash flows for such fiscal
year, in accordance with GAAP, of the Company and its Subsidiaries.
4.2.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available
and in any event within 50 days after the end of each fiscal quarter
of the Company occurring after the date hereof (other than the fourth
quarter of each fiscal year of the Company), an unaudited Consolidated
and consolidating balance sheet of the Company and its Subsidiaries as
at the end of such quarter and the related Consolidated and
consolidating statements of operations, shareholders' equity and cash
flows of the Company and its Subsidiaries for such fiscal quarter and
for the portion of the Company's fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the figures
for the corresponding quarter and the corresponding portion of the
Company's previous fiscal year, all in reasonable detail and certified
by a Responsible Officer of the Company that they are complete and
correct and that they fairly present in all material respects the
Consolidated financial position as at the end of such fiscal quarter,
and the Consolidated results of operations and cash flows for such
fiscal
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quarter and such portion of the Company's fiscal year, in accordance
with GAAP, of the Company and its Subsidiaries (subject to normal,
year-end audit adjustments).
4.2.3 COMPLIANCE CERTIFICATE. Together with the Financial
Statements required pursuant to Sections 4.2.1 and 4.2.2 above, a
certificate of a Responsible Officer of the Company, substantially in
the form of Exhibit F, together with or accompanied by such financial
or other details, information, and material as Purchaser may
reasonably request to evidence such compliance.
4.2.4 AUDITORS' NO DEFAULT CERTIFICATE; MANAGEMENT LETTERS.
Together with the Financial Statements required pursuant to Section
4.2.1 above, a certificate of the accountants who prepared the annual
report referred to therein, to the effect that, in making the review
necessary for their certification of such Financial Statements, they
have obtained no knowledge of any Default or Event of Default, or if
they have obtained knowledge of any Default or Event of Default,
specifying the nature and period of existence thereof. Promptly
following the preparation thereof, copies of each management letter
formally issued to the Company by such accountants (together with any
response thereto prepared by the Company).
4.2.5 NOTICE OF CERTAIN EVENTS. Promptly after a
Responsible Officer obtains knowledge of the receipt or occurrence of
any of the following, a certificate of a Responsible Officer of any
Seller specifying (i) any official notice of any violation,
non-compliance, or claim made by any Governmental Authority pertaining
to all or any part of the properties of such Seller or any of its
Subsidiaries (which violation, non-compliance, or claim could have a
Material Adverse Effect); (ii) any event which constitutes a default
or an Event of Default, together with a detailed statement specifying
the nature thereof and the steps being taken to cure such default or
Event of Default; (iii) the receipt of any notice from, or the taking
of any other action by, the holder of any promissory note, debenture
or other evidence of indebtedness of such Seller or any of its
Subsidiaries or of any security (as defined in the Securities Act) of
such Seller or any of its Subsidiaries with respect to a claimed
default, together with a detailed statement specifying the notice
given or other action taken by such holder and the nature of the
claimed default and what action such Seller or its Subsidiary is
taking or proposes to take with respect thereto; (iv) any dispute
between such Seller or any of its Subsidiaries and any Governmental
Authority, which, if adversely determined, would have a Material
Adverse Effect; (v) any default or noncompliance of any party to any
of the Operative Documents with any of the terms and conditions
thereof or any notice of termination or other proceedings or actions
which might adversely affect any of the Operative Documents; (vi) any
event or condition which violates any Environmental Law which could
potentially result in liability in excess of $250,000, or which could
potentially result in remedial obligations in excess of $250,000,
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to
such event or condition; or (vii) any event or condition which may
reasonably be expected to have a Material Adverse Effect.
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4.2.6 SHAREHOLDER COMMUNICATIONS, FILINGS, ETC. Promptly
upon the mailing or filing thereof, copies of all Financial
Statements, reports and proxy statements mailed to the Company's
shareholders, and copies of all effective registration statements or
periodic reports filed with the Commission.
4.2.7 INTENTIONALLY OMITTED.
4.2.8 ERISA. Promptly (and in any event within 30 days)
after the Company or any of its Subsidiaries knows or has reason to
know that a Reportable Event with respect to any Plan has occurred,
that any Plan is or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA or that any Seller or any
of its Subsidiaries will or may incur any liability to or on account
of a Plan under Sections 4062, 4063, 4064, 4201, or 4204 of ERISA,
such Seller will deliver to Purchaser a certificate of the Chief
Financial Officer of such Seller setting forth information as to such
occurrence and what action, if any, such Seller is required or
proposes to take with respect thereto, together with any notices
concerning such occurrences which are (a) required to be filed by such
Seller or the plan administrator of any such Plan controlled by such
Seller or its Subsidiaries, with the PBGC or (b) received by such
Seller or its Subsidiaries from any plan administrator of a
multiemployer or other Plan not under their control. Each Seller shall
furnish to Purchaser and each other holder of securities a copy of
each annual report (Form 5500 Series) of any Plan received or prepared
by such Seller or any of its Subsidiaries. Each annual report and any
notice required to be delivered hereunder shall be delivered no later
than 10 days after the later of the date such report or notice is
filed with the Internal Revenue Service or the PBGC or the date such
report or notice is received by any Seller or any of its Subsidiaries,
as the case may be.
4.3 NEGATIVE COVENANTS. So long as any principal or other amounts
due and owing under the Note remain outstanding, without the prior written
consent of the holders of a majority of the principal outstanding under the
Note, the Sellers:
4.3.1 INDEBTEDNESS INCURRED. Shall not, and shall not
permit any of their Subsidiaries to, issue, incur, assume or permit to
exist any Indebtedness, except (a) the Note, (b) Indebtedness not in
excess of $50,000 at any one time and secured by Permitted Liens
described in Section 4.3.2 of this Agreement, (c) Indebtedness for
unsecured trade payables and lease payables incurred in the ordinary
course, (d) the Senior Obligations, (e) Indebtedness existing on the
date of this Agreement and described on Schedule 4.3.1 hereto, and (f)
preferred stock issued pursuant to that certain letter of intent
attached hereto as Exhibit H hereto.
4.3.2 LIENS. Shall not, and shall not permit any of its
Subsidiaries to, create or permit to exist any Lien with respect to
any assets now or hereafter existing or acquired, except the following
(herein collectively called the "Permitted Liens"): (a) Liens for
current taxes or special assessments not delinquent or for taxes or
special assessments being contested in good faith and by appropriate
proceedings that do not subject any Seller or any of its
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Subsidiaries to penalties under the Code or other applicable tax laws
and for which adequate reserves shall have been established and are
then being maintained in accordance with GAAP; (b) Liens in connection
with the acquisition of tangible property after the date hereof and
attaching only to the property acquired; (c) Liens incurred in the
ordinary course of business in connection with worker's compensation,
unemployment insurance or other forms of governmental insurance or
benefits; (d) mechanics', workers', materialmen's, and other like
Liens arising in the ordinary course of business in respect of
obligations which are not delinquent or which are being contested in
good faith and by appropriate proceedings and for which adequate
reserves shall have been established and are then maintained in
accordance with GAAP; (e) easements, municipal and zoning ordinances,
and rights of way restrictions not interfering with the ordinary
conduct of the business of any Seller as conducted on the date of
execution hereof; (f) Liens or deposits required by law as a condition
to the transaction of business in the ordinary course; (g)
intentionally omitted; (h) Liens incurred to secure the obligations
incurred or undertaken in connection with this Agreement and the other
Operative Documents; (i) Liens subject to a subordination agreement
pursuant to which the Indebtedness evidenced thereby is subordinated
to the Indebtedness evidenced by this Agreement and the other
Operative Documents; and (j) Liens existing on the date of this
Agreement and described on Schedule 4.3.2 hereto.
4.3.3 MERGERS. Shall not, and shall not permit any of their
Subsidiaries to, enter into any transaction of merger or consolidation
or liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, lease, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or
substantially all of its business, property, or assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all
or substantially all the business, property or assets of, or stock or
other evidence of beneficial ownership of, any Person (other than any
sales or transfers by a Subsidiary to any Seller or to another
Subsidiary), except that the Company may enter into or permit a
transaction of purchase, merger or consolidation if (i) (A) the
Company is the surviving entity, (B) immediately after such purchase,
merger or consolidation (and giving effect thereto) no default under
any Indebtedness shall have occurred and be continuing, and (C) the
consolidated net worth of the surviving entity shall be equal to or
greater than the consolidated net worth of the Company and its
Subsidiaries immediately preceding such purchase, merger or
consolidation, in each case as determined in accordance with GAAP, or
(ii) the merger or consolidation is (X) between two or more wholly
owned Subsidiaries of the Company or (Y) of one or more of the
Subsidiaries with and into the Company.
4.3.4 DISPOSITION OF SUBSTANTIAL ASSETS. Shall not, and
shall not permit any of their Subsidiaries to, sell, dispose of, or
otherwise convey (by merger, consolidation, sale of stock or
otherwise), in any single or related series of sales, dispositions, or
conveyances, any assets of the Sellers or any Subsidiary if the
aggregate fair market value (determined in good faith by the Board of
Directors or management of the Sellers, as appropriate) of all assets
(taking into account all liabilities related to such assets) so sold,
disposed of or conveyed by the Company and its Subsidiaries after the
date hereof would exceed the lesser of (a) $1,000,000
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or (b) 25% of the aggregate fair market value of total assets of the
Company and its Subsidiaries taken as a whole (taking into account all
liabilities related to such assets) as of the end of the most recently
ended fiscal year of the Company (other than any sales or transfers by
a Subsidiary to any Seller or to another Subsidiary); provided that
the Sellers may dispose of assets that are no longer used in or useful
to the operations or business of the Sellers. Notwithstanding this
Section 4.3.4, no assets of any Seller or its Subsidiaries shall be
sold, disposed or otherwise conveyed at less than fair market value as
determined in good faith by the Board of Directors or management of
the Company, as appropriate, except (i) in accordance with the terms
of the RFC Agreement and (ii) for compromises of accounts in the
ordinary course of business.
4.3.5 CHARTER. Other than the Company, shall not, and shall
not permit any of its Subsidiaries to, amend its Charter or its
by-laws or create additional series or classes of shares.
4.3.6 SUBSIDIARY PAYMENTS AND ISSUANCES.
(a) Shall not, and shall not permit any of its
Subsidiaries to, enter into or permit to exist any agreement or
undertaking which prohibits, restricts, or limits the ability of any
of the Company's Subsidiaries to pay dividends or distributions to the
Company; or
(b) Other than the Company, shall not, and shall not
permit any of its Subsidiaries to, issue any securities.
4.3.7 TRANSACTIONS WITH AFFILIATES. Shall not enter into or
maintain, and shall not permit any Subsidiary to enter into or
maintain, any transaction or agreement with any of its or any
Subsidiary's Affiliates other than any other Seller, except in the
ordinary course of business and upon fair and reasonable terms no less
favorable to the Seller or any of its Subsidiaries than would be
obtained by such Seller or any such Subsidiary in a comparable arm's
length transaction with a Person who is not an Affiliate of such
Seller or any of its Subsidiaries.
4.3.8 LOAN, ADVANCES, AND INVESTMENTS. Shall not, and shall
not permit any Subsidiary to, make or permit to remain outstanding any
loan or advance to, or guarantee, endorse, or otherwise be or become
contingently liable, directly or indirectly, in connection with the
obligations, stock, or dividends of, or own, purchase, or acquire any
stock, obligations, or securities of, or, except in the ordinary
course of business as reasonably deemed appropriate by the management
of the Company, make any Investment in any Person other than (a) the
Sellers or any of their Subsidiaries or (b) United Network Services,
L.L.C., a Delaware limited liability company (to the extent such loan,
advance, guarantee, or Investment exists on the date of this
Agreement), except that the Sellers or any of their Subsidiaries may:
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(i) own, purchase or acquire (a) commercial paper
rated A-1 by Standard & Poor's Corporation or P-1 by Xxxxx'x
Investors Service, Inc. on the date of acquisition; (b)
certificates of deposit of United States commercial banks
(having a combined capital and surplus in excess of
$100,000,000), (c) obligations of or guaranteed by the United
States government or any agency thereof; and (d) money market
funds organized under the laws of the United States or any
state thereof that invest substantially all of their assets in
any of the types of investments described in clauses (a), (b)
or (c) of this clause (i);
(ii) endorse negotiable instruments for collection
in the ordinary course of business, make or permit to remain
outstanding travel, moving and other like advances to
officers, employees and consultants in the ordinary course of
business or make or permit to remain outstanding lease,
utility and other similar deposits in the ordinary course of
business;
(iii) make loans or advances to or Investments in a
Person, in an aggregate amount of up to $100,000 at any one
time outstanding; and
(iv) normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods
that those extended by similar businesses operated in a normal
and prudent manner.
4.3.9 ENVIRONMENTAL MATTERS. Shall not cause or permit, and
shall not allow any of its Subsidiaries to cause or permit, any of
their respective properties to be in violation of, or do anything to
permit anything to be done which will subject such property to any
remedial obligations under any Environmental Laws, that could
reasonably be expected to result in liability in excess of $250,000 or
which could reasonably be expected to result in remedial obligations
in excess of $250,000 assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
4.3.10 ERISA COMPLIANCE. Shall not permit any Plan
maintained by it or any Subsidiary to:
(a) engage in any "prohibited transaction" as
such term is defined in Section 4975 of the Code:
(b) incur any "accumulated funding deficiency" as
such term is defined in Section 302 of ERISA; or
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(c) terminate any such Plan in a manner which
could result in the imposition of a Lien on the property of
the Sellers or their Subsidiaries pursuant to Section 4068 of
ERISA.
4.3.11 SALE AND LEASEBACK. Shall not, and shall not permit
any of its Subsidiaries to, enter into any arrangements with any
lender or investor or to which such lender or investor is a party
providing for the leasing by the Sellers or any Subsidiary of real or
personal property which has been or is to be sold or transferred by
the Sellers or any Subsidiary to such lender or investor or any Person
to whom funds have been or are to be advanced by such lender or
investor on the security of such property or rental obligations of the
Sellers or any Subsidiary.
4.3.12 SALE OF STOCK AND DEBT OF SUBSIDIARIES. Shall not,
and shall not permit any of its Subsidiaries to, sell or otherwise
dispose of, or part with control of, any shares of stock or
Indebtedness of any Subsidiary, except to the Company or another
Subsidiary and except that all shares of stock and Indebtedness of any
Subsidiary at the time owned by or owed to the Company and all
Subsidiaries may be sold as an entirety for a cash consideration which
represents the fair value (as determined in good faith by the Board of
Directors of the Company) at the time of sale of the shares of stock
and Indebtedness so sold; provided that such sale or disposition does
not violate Section 4.3.4 hereof; provided further that, at the time
of such sale, such Subsidiary shall not own, directly or indirectly,
any shares of stock or Indebtedness of any other Subsidiary (unless
all of the shares of stock and Indebtedness of such other Subsidiary
owned, directly or indirectly, by the Company, and all its
Subsidiaries are simultaneously being sold as permitted by this
Section 4.3.12).
4.3.13 CERTAIN CONTRACTS. Except as otherwise specifically
permitted by any other provision of Section 4.3, shall not, and shall
not permit any of its Subsidiaries to, enter into or be a party to (i)
any contract to rent or lease (as lessee) any real or personal
property if such contract (or any related document) provides an
obligation to make payments under conditions not customarily found in
commercial leases then in general use or requires that the lessee
purchase or otherwise acquire securities or obligations of the lessor
(unrelated to the lease in question), (ii) any contract for the sale
or use of materials, supplies, or other property, or the rendering of
services, if such contract (or any related document) provides that
payment for such materials, supplies or other property, or the use
thereof or payment for such services, shall be subordinated to any
indebtedness (of the purchaser or user of such materials, supplies or
other property or the Person entitled to the benefit of such services)
owed or to be owed to any Person, or (iii) any other contract which
is, or, in the economic effect, is substantially equivalent to, a
guarantee, except, with respect to (iii) hereof, as permitted under
Section 4.3.1 hereof.
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ARTICLE V
CONVERSION RIGHTS
5.1 CONVERSION RIGHTS. The Note shall be convertible into Common
Stock as follows:
5.1.1 CONVERSION AT HOLDER'S OPTION. Subject to the
provisions of Section 5.2 hereof, the holder of the Note shall have
the right at such holder's option, at any time and from time to time
after the date of issuance of the Note and without the payment of any
additional consideration, to convert the Note, in whole or in part,
into fully paid and nonassessable shares of Common Stock at the
Conversion Price (as defined in Section 5.1.2 below) in effect on the
Conversion Date (as defined in Section 5.1.3 below) upon the terms
hereinafter set forth.
5.1.2 NUMBER OF SHARES. In the event of a conversion
pursuant to Sections 5.1.1 and 5.2, the Note shall be converted into
such number of shares of Common Stock as is determined by dividing (x)
$1,000,000 (plus accrued and unpaid interest on the portion of the
Note so converted through the Conversion Date) by (y) the Conversion
Price in effect on the Conversion Date. If less than the full
principal amount of the Note is converted, the accrued and unpaid
interest shall be calculated on a pro rata basis. The "Conversion
Price" shall be the lesser of (i) $1.00 per share of Common Stock (the
"Initial Conversion Price") and (ii) 85% of the Current Market Price,
as defined in Section 5.1.6 below, on the Conversion Date. Such
Initial Conversion Price shall be subject to adjustment in order to
adjust the number of shares of Common Stock into which the Note is
convertible, as hereinafter provided.
5.1.3 MECHANICS OF CONVERSION. The holder of the Note may
exercise the conversion right specified in Section 5.1.1 by
surrendering to the Company or any transfer agent of the Company the
Note to be converted. If the certificate representing shares of Common
Stock issuable upon conversion of the Note is to be issued in a name
other than the name on the face of the Note, such Note shall be
accompanied by such evidence of the assignment and such evidence of
the signatory's authority with respect thereto as deemed appropriate
by the Company or its transfer agent. Conversion shall be deemed to
have been effected with respect to conversions pursuant to Section
5.1.1, on the date when delivery of notice of an election to convert
pursuant to Section 5.1.1 is made, and such applicable date is
referred to herein as the "Conversion Date." Subject to the provisions
of Section 5.1.5(f), as promptly as practicable after the Conversion
Date (and after surrender of the Note to the Company), the Company
shall issue and deliver to or upon the written order of such holder a
certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled upon such conversion, and a
check or cash with respect to any fractional interest in a share of
Common Stock, as provided in Section 5.1.4. Subject to the provisions
of Section 5.1.5(f), the person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the applicable
Conversion Date. Upon conversion of only a portion of the Note the
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Company shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the
expense of the Company, a new Note representing the remaining
unconverted principal amount of the Note so surrendered.
5.1.4 FRACTIONAL SHARES. No fractional shares of Common
Stock or scrip shall be issued upon conversion of the Note. The number
of full shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate principal amount of the Note
to be converted. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of the Note, the
Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to that fractional interest of the then
Current Market Price, as defined in Section 5.1.6 below.
5.1.5 CONVERSION PRICE AND NUMBER OF SHARES ADJUSTMENTS.
The Initial Conversion Price shall be subject to adjustment from time
to time as follows:
(a) Common Stock Issued at Less Than the
Conversion Price. If the Company shall issue any Common Stock,
other than Excluded Stock, without consideration or for
consideration per share less than the lower of (1) the Initial
Conversion Price in effect immediately prior to such issuance
and (2) the Current Market Price, the Initial Conversion Price
in effect immediately prior to each such issuance shall
immediately (except as otherwise expressly provided below) be
reduced to the price that is equivalent to such consideration
received by the Company upon such issuance; provided that this
Section 5.1.5(a) shall expire and be of no force and effect
after April 1, 1998.
(i) Issuance for Cash. In the case of
the issuance of Common Stock for cash, the amount of
the consideration received by the Company shall be
deemed to be the amount of the cash proceeds received
by the Company for such Common Stock before deducting
therefrom any discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Company for
any underwriting or otherwise in connection with the
issuance and sale thereof.
(ii) Consideration Other Than Cash. In
the case of the issuance of Common Stock (otherwise
than upon the conversion of shares of capital stock
or other securities of the Company) for a
consideration in whole or in part other than cash,
including securities acquired in exchange therefor
(other than securities that by their terms are
exchangeable for such Common Stock), the
consideration other than cash shall be deemed to be
the fair value thereof as determined in good faith by
the Board of Directors, irrespective of any
accounting treatment; provided that such fair value
as determined by the Board of Directors shall not
exceed the aggregate Current Market Price of the
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shares of Common Stock being issued as of the date
the Board of Directors authorizes the issuance of
such shares.
(iii) Options and Convertible Securities.
In the case of the issuance of (x) options, warrants
or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (y)
securities by their terms convertible into or
exchangeable for Common Stock (whether or not at the
time so convertible or exchangeable, or (z) options,
warrants or rights to purchase such convertible or
exchangeable securities (whether or not at the time
exercisable), other than in each case Excluded Stock
as defined in Section 5.1.5(b) below:
(A) the aggregate maximum number of
shares of Common Stock deliverable upon
exercise of such options, warrants or other
rights to purchase or acquire Common Stock
shall be deemed to have been issued at the
time such options, warrants or rights were
issued and for a consideration equal to the
consideration (determined in the manner
provided in Sections 5.1.5(a)(i) and (ii)
above), if any, received by the Company upon
the issuance of such options, warrants or
rights plus the minimum purchase price
provided in such options, warrants or rights
for the Common Stock covered thereby;
(B) the aggregate maximum number of
shares of Common Stock deliverable upon
conversion of or in exchange for any such
convertible or exchangeable securities, or
upon the exercise of options, warrants or
other rights to purchase or acquire such
convertible or exchangeable securities and
the subsequent conversion or exchange
thereof, shall be deemed to have been issued
at the time such securities were issued or
such options, warrants or rights were issued
and for a consideration equal to the
consideration if any, received by the Company
for any such securities and related options,
warrants or rights (excluding any cash
received on account of accrued interest or
accrued dividends), plus the additional
consideration (determined in the manner
provided in Sections 5.1.5(a)(i) and (ii)
above), if any, to be received by the Company
upon the conversion or exchange of such
securities, or upon the exercise of any
related options, warrants or rights to
purchase or acquire such convertible or
exchangeable securities and the subsequent
conversion or exchange thereof;
(C) on any change in the number of
shares of Common Stock deliverable upon
exercise of any such options, warrants or
rights or conversion or exchange of such
convertible or exchangeable
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securities or any change in the consideration
to be received by the Company upon such
exercise, conversion or exchange, including,
but not limited to, a change resulting from
the anti-dilution provisions thereof, the
Conversion Price as then in effect shall
forthwith be readjusted to such Conversion
Price as would have been obtained had an
adjustment been made upon the issuance of
such options, warrants or rights not
exercised prior to such change, or of such
convertible or exchangeable securities not
converted or exchanged prior to such change,
upon the basis of such change;
(D) on the expiration or
cancellation of any such options, warrants or
rights, or the termination of the right to
convert or exchange such convertible or
exchangeable securities, if the Initial
Conversion Price shall have been adjusted
upon the issuance thereof, the Initial
Conversion Price shall forthwith be
readjusted to such Initial Conversion Price
as would have been obtained had an adjustment
been made upon the issuance of such options,
warrants, rights or such convertible or
exchangeable securities on the basis of the
issuance of only the number of shares of
Common Stock actually issued upon the
exercise of such options, warrants or rights,
or upon the conversion or exchange of such
convertible or exchangeable securities; and
(E) if the Initial Conversion Price
shall have been adjusted upon the issuance of
any such options, warrants, rights or
convertible or exchangeable securities, no
further adjustment of the Conversion Price
shall be made for the actual issuance of
Common Stock upon the exercise, conversion or
exchange thereof.
In addition to the adjustments set forth above, the Initial
Conversion Price shall be immediately reduced on a pari passu
basis with the conversion, exercise, or strike price of any
other derivative securities of the Company whether now
outstanding or hereafter issued.
(b) Excluded Stock. "Excluded Stock" shall mean
(i) shares of Common Stock issued or reserved for issuance by
the Company upon exercise of warrants outstanding on the date
hereof, other than warrants described in Schedule 5.1.5
hereto, (ii) shares of Common Stock issued or reserved for
issuance by the Company as a stock dividend payable in shares
of Common Stock, or upon any subdivision or split-up of the
outstanding shares of Common Stock, each of which is subject
to the provisions of Section 5.1.5(c) below, (iii) shares of
Common Stock issued to Purchaser or any holder of the Note or
the Warrants, or (iv) grants of options and shares of Common
Stock issuable or issued thereunder pursuant to the Company's
stock option plans existing on the date hereof. All shares of
Excluded Stock which
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the Company has reserved for issuance shall be deemed to be
outstanding for all purposes of computations under Section
5.1.5(a).
(c) Stock Dividends, Subdivisions,
Reclassifications or Combinations. If the Company shall (i)
declare a dividend or make a distribution on its Common Stock
in shares of its Common Stock, (ii) subdivide or reclassify
the outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the Initial
Conversion Price in effect at the time of the record date for
such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of the Note
surrendered for conversion after such date shall be entitled
to receive the number of shares of Common Stock which he would
have owned or been entitled to receive had the Note been
converted immediately prior to such date. Successive
adjustments in the Initial Conversion Price shall be made
whenever any event specified above shall occur.
(d) Other Distributions. In case the Company
shall fix a record date for the making of a distribution to
all holders of shares of its Common Stock (i) of shares of any
class other than its Common Stock or (ii) of evidences of
Indebtedness of the Company or any Subsidiary or (iii) of
assets (excluding cash dividends or distributions, and
dividends or distributions referred to in 5.1.5(c) above), or
(iv) of rights or warrants (excluding those referred to in
Section 5.1.5(a) above), in each case the Initial Conversion
Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (A)
an amount equal to the difference resulting from (1) the
number of shares of Common Stock outstanding on such record
date multiplied by the Initial Conversion Price per share on
such record date, less (2) the fair market value (as
determined by the Board of Directors, whose determination
shall be conclusive) of said shares or evidences of
indebtedness or assets or rights or warrants to be so
distributed, by (B) the number of shares of Common Stock
outstanding on such record date. Such adjustment shall be made
successively whenever such a record date is fixed. In the
event that such distribution is not so made, the Initial
Conversion Price then in effect shall be readjusted, effective
as of the date when the Board of Directors determines not to
distribute such shares, evidences of indebtedness, assets,
rights or warrants, as the case may be, to the Initial
Conversion Price which would then be in effect if such record
date had not been fixed.
(e) Rounding of Calculations; Minimum Adjustment.
All calculations under this Section 5.1.5 shall be made to the
nearest cent or to the nearest one thousandth (1/1000th) of a
share, as the case may be. Any provision of this Section 5.1.5
to the contrary notwithstanding, no adjustment in the Initial
Conversion Price shall be made if the amount of such
adjustment would be less than $0.05, but any such amount shall
be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent
adjustment which, together with such
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amount and any other amount or amounts so carried forward,
shall aggregate $0.05 of more; provided that if the events
giving rise to such adjustments occur within three months of
each other, then such adjustments shall be calculated as if
the events giving rise to them had occurred simultaneously on
the date of the first such event.
(f) Timing of Issuance of Additional Common Stock
Upon Certain Adjustments. In any case in which the provisions
of this Section 5.1.5 shall require that an adjustment shall
become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i)
issuing to the holder of the Note converted after such record
date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason
of the adjustment required by such event over and above the
shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such
holder any amount of cash in lieu of a fractional share of
Common Stock pursuant to Section 5.1.4; provided that the
Company upon request shall deliver to such holder a due xxxx
or other appropriate instrument evidencing such holder's right
to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.
5.1.6 CURRENT MARKET PRICE. The Current Market Price at any
date shall mean, in the event the Common Stock is publicly traded, the
average of the daily closing prices per share of Common Stock for five
consecutive trading days ending one trading day before such date (as
adjusted for any stock dividend, split, combination or
reclassification that took effect during such five trading day
period). The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place
on such day, the average of the last closing bid and asked prices
regular way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading,
or if not listed or admitted to trading on any national securities
exchange, the closing sale price for such day reported by The Nasdaq
Stock Market, if the Common Stock is traded over-the-counter and
quoted in the National Market System, or if the Common Stock is so
traded, but not so quoted, the average of the closing reported bid and
asked prices of the Common Stock as reported by The Nasdaq Stock
Market or any comparable system, or, if the common stock is not listed
on The Nasdaq Stock Market or any comparable system, the average of
the closing bid and asked prices as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time
to time by the Company for that purpose. If the Common Stock is not
traded in such manner that the quotations referred to above are
available for the period required hereunder, Current Market Price per
share of Common Stock shall be deemed to be the fair value per share
of Common Stock as determined in good faith by the Board of Directors,
irrespective of any accounting treatment.
5.1.7 STATEMENT REGARDING ADJUSTMENTS. Whenever the Initial
Conversion Price shall be adjusted as provided in Section 5.1.5, the
Company shall forthwith file, at the office of any transfer agent for
the Note and Common Stock and at the principal office of the
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Company, a statement showing in detail the facts requiring such
adjustment and the Initial Conversion Price that shall be in effect
after such adjustment, and the Company shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to the
holder the Note at its address appearing on the Company's records.
Each such statement shall be signed by the Company's chief financial
officer. Where appropriate, such copy may be given in advance and may
be included as part of a notice required to be mailed under the
provisions of Section 5.1.8.
5.1.8 NOTICE TO HOLDERS. In the event the Company shall
propose to take any action of the type described in clause (i) (but
only if the action of the type described in clause (i) would result in
an adjustment in the Initial Conversion Price), (iii) or (iv) of
Section 5.1.5, or described in Section 5.1.11, the Company shall give
notice to each holder of the Notes, in the manner set forth in Section
5.1.7, which notice shall specify the record date, if any, with
respect to any such action and the approximate date on which such
action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the
effect on the Initial Conversion Price and the number, kind or class
of shares or other securities or property which shall be deliverable
upon conversion of the Note. In the case of any action which would
require the fixing of a record date, such notice shall be given at
least ten days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 15 days prior to the
taking of such proposed action. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any such
action.
5.1.9 TREASURY STOCK. For the purposes of this Section 5.1,
the sale or other disposition of any Common Stock theretofore held in
the Company's treasury shall be deemed to be an issuance thereof.
5.1.10 COSTS. The Company shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of the Note;
provided that the Company shall not be required to pay any federal or
state income taxes or other taxes which may be payable in respect of
any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the Notes
in respect of which such shares are being issued.
5.1.11 CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In
case of any consolidation with or merger of the Company with or into
another corporation or other entity, or in case of any sale, lease or
conveyance to another corporation or other entity of the assets of the
Company as an entirety or substantially as an entirety, the Note shall
after the date of such consolidation, merger, sale, lease or
conveyance be convertible into the number of shares of stock or other
securities or property (including cash) to which the Common Stock
issuable (at the time of such consolidation, merger, sale, lease or
conveyance, as if the Note was then optionally convertible or
mandatorily convertible, as the case may be) upon conversion of the
Note would have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the
provisions set forth herein with respect to the rights and
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interests thereafter of the holders of the Note (including without
limitation the definition of Current Market Price) shall be
appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property
thereafter deliverable on the conversion of the Note.
5.2 LIMITATION ON CONVERSION. So long as the Company satisfies the
continued listing requirements of the Nasdaq National Market, the conversion
rights set forth above in Section 5.1 and the right to exercise the Warrants as
set forth in the Warrant Agreement shall be limited so that, upon conversion of
the Note or exercise of the Warrants or both, the Purchaser's aggregate
ownership of the Company will be less than 20% of the shares of Common Stock
outstanding on the date of issuance of the Note and the Warrants; provided that
such limitation shall cease and this Section 5.2 shall become null and void
upon the approval of the issuance of the Note and the Warrants by the
shareholders of the Company or the National Association of Securities Dealers,
Inc. or upon such other event as shall allow the conversion or exercise or
both, as appropriate, without violating the applicable requirements of the
Nasdaq National Market.
ARTICLE VI
EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY. If any
one or more of the following events (herein called "Events of Default") shall
have occurred:
(a) all or any part of the principal of the Note is not
paid when and as the same shall become due and payable, whether at the
maturity thereof, by acceleration, or otherwise;
(b) all or any part of the interest on the Note is not
paid within three days of the date when the same shall become due and
payable;
(c) all or any part of any other amount owing to
Purchaser pursuant to the terms of this Agreement or the Note is not
paid within three days of the date when such other amount is due and
payable;
(d) default shall occur in the observance or performance
of any covenant contained in Article IV of this Agreement;
(e) default shall occur in the observance or performance
of any of the other covenants or agreements of the Sellers contained
in this Agreement, any other Operative Document or any other agreement
evidencing Indebtedness by the Sellers or any of their Subsidiaries,
which is not remedied within ten days after notice thereof to the
Company;
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(f) a receiver, conservator, custodian, liquidator or
trustee of any Seller or any of its Subsidiaries or of all or any of
the assets of any of them, is appointed by court order and such order
remains in effect for more than 30 days; or an order for relief is
entered under the federal or any foreign bankruptcy laws with respect
to any Seller or any of its Subsidiaries; or any of the material
assets of any of them is sequestered by court order and such order
remains in effect for more than 30 days; or a petition is filed
against any Seller or any of its Subsidiaries under the bankruptcy,
reorganization, moratorium, arrangement, insolvency, readjustment of
debt, dissolution, liquidation, or other similar law of any applicable
Governmental Authority, whether now or hereafter in effect, and is not
dismissed within 60 days after such filing;
(g) any Seller or any of its Subsidiaries files a
petition in voluntary bankruptcy or seeking relief under any provision
of any bankruptcy, reorganization, moratorium, arrangement,
insolvency, readjustment of debt, dissolution, liquidation, or other
similar law of any applicable Governmental Authority, whether now or
hereafter in effect, or consents to the filing of any petition against
it under any such law;
(h) any Seller or any of its Subsidiaries makes a general
assignment for the benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become due, or consents
to the appointment of a receiver, conservator, custodian, liquidator
or trustee of any Seller or any of its Subsidiaries, or of all or any
part of the assets of any of them;
(i) final judgment for the payment of money in excess of
$100,000 shall be rendered by a court of record against any Seller or
any of its Subsidiaries or such Seller or such Subsidiary shall not
(i) discharge the same or provide for its discharge in accordance with
its terms or (ii) procure a stay of execution thereof within 15 days
from the date of entry thereof and within said period of 15 days, or
such longer period during which execution of such judgment shall have
been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal including, without limitation, by providing
adequate bond for such judgment;
(j) any representation, warranty, or certification made
by any Seller or any of its Subsidiaries, or any of their officers in
this Agreement or any other Operative Document or in any certificate,
report, Financial Statement, or other instrument delivered under or
pursuant to any provision hereof or thereof shall prove to have been
false or incorrect in any material respect on the date or dates as of
which they were made;
(k) if (i) any Plan shall fail to satisfy the minimum
funding standards of ERISA or the Code for any Plan year or part
thereof or a waiver of such standards or extension of any amortization
period is sought or granted under Section 4.12 of the Code, (ii) a
notice of intent to terminate any Plan shall have been or is
reasonably expected to be filed with the PBGC or the PBGC shall have
instituted proceedings under ERISA Section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have
notified the Company or any
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ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of Section 4001(a)(18) of ERISA)
under all Plans determined in accordance with Title IV of ERISA, shall
exceed $500,000, (iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (v) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (vi) the Company
or any Subsidiary establishes or amends any employee welfare benefit
plan that provides post-employment welfare benefits in a manner that
would increase the liability of the Company or any subsidiary
thereunder; and any such event or events described in clauses (i)
through (vi) above either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect; or
(l) the occurrence of an "Event of Default" as defined in
the Xxxxx Agreement;
then, when any Event of Default described in clause (a), (b), (c), (d), (e),
(i), (j), (k), or (l) above has occurred and shall be continuing, the principal
of the Note and the interest accrued thereon and all other amounts due
hereunder (the "other payments") shall, upon written notice from Purchaser,
forthwith become and be due and payable, if not already due and payable,
without presentment, further demand or other notice of any kind. When any Event
of Default described in clause (f), (g) or (h) above has occurred, then the
principal of the Note, the interest accrued thereon, and the other payments
shall immediately become due and payable, upon the occurrence thereof, without
presentment, demand, or notice of any kind. If any principal, installment of
interest, or other payment is not paid in full on the due date thereof whether
by maturity, or acceleration or any Event of Default has occurred and is
continuing, then the outstanding principal balance of the Note, any overdue
installment of interest (to the extent permitted by applicable law), including
interest accruing after the commencement of any proceeding under any bankruptcy
or insolvency law, and all other payments will bear additional interest from
the due date of such payment, or from and after an Event of Default, at a rate
equal to the lesser of (i) the Highest Lawful Rate or (ii) an amount equal to
the then applicable interest rate on the Note plus 2% per annum (such
applicable rate being referred to as the "Default Rate"), compounded monthly,
until the payment is received or the Event of Default is cured, if permitted,
or waived. If payment of the Note is accelerated, then the outstanding
principal balance thereof shall bear interest at the Default Rate from and
after the Event of Default. The Sellers shall pay to the holder of the Note all
reasonable out-of-pocket costs and expenses, incurred by such holder in any
effort to collect the Note and other payments, including the reasonable
attorneys fees and expenses for services rendered in connection therewith, and
pay interest on such costs and expenses to the extent not paid when demanded at
the Default Rate.
6.2 SUITS FOR ENFORCEMENT. If any Event of Default specified in
Section 6.1 above has occurred and is continuing, the holder of the Note may
pursue any available remedy to protect and enforce such holder's rights,
including without limitation, instituting a suit in equity or by action at law,
or both, whether for the specific performance of any covenant or agreement
contained in this Agreement or any other Operative Document, or in aid of the
exercise of any power granted in this
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Agreement or any other Operative Document, or to enforce any other legal or
equitable right or remedy of such holder.
6.3 INDEMNIFICATION. The Sellers agree, jointly and severally, to
indemnify, defend, and hold Purchaser harmless from, against, and in respect of
any and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties and
reasonable attorneys' fees (collectively, "Claims"), that Purchaser shall incur
or suffer, which arise, result from, or relate to (a) any breach of, or failure
by any Seller or any of its Subsidiaries to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or any
other Operative Document or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by any Seller or any of its
Subsidiaries hereunder or thereunder, or in the Charter of any Seller or any of
its Subsidiaries or (b) any claims of any applicable Governmental Authority or
other Person arising under any Environmental Law.
6.4 DELAYS OR OMISSIONS. No failure to exercise or delay in the
exercise of any right, power or remedy accruing to any holder of the Note upon
any breach or default of any Seller or any of its Subsidiaries under this
Agreement or any other Operative Document shall impair any such right, power,
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default hereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.
6.5 REMEDIES CUMULATIVE. All remedies, under either this Agreement
or any other Operative Document, by law or otherwise afforded to any holder of
the Note, shall be cumulative and not alternative.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO CLOSING BY PURCHASER. The obligation of
Purchaser to purchase the Note and the Warrants, as the case may be, on the
Closing Date is subject to the fulfillment to its satisfaction at or prior to
the Closing Date of each of the following conditions:
7.1.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Section 3.1 shall be true and correct when
made and shall be true and correct as of the Closing Date as if made
on the Closing Date.
7.1.2 PERFORMANCE; DEFAULTS. The Sellers shall have
performed and complied with all agreements and conditions contained in
this Agreement required to be performed or complied with by it prior
to or on the Closing Date and, after giving effect to the issue and
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sale of the Note and the Warrants, no default or Event of Default
shall have occurred and be continuing.
7.1.3 LEGAL INVESTMENT. As of the Closing Date, the
purchase of the Note and the Warrants by Purchaser shall (a) be
legally permitted by all laws and regulations to which regulations of
each jurisdiction to which each Seller and Purchaser are subject, (b)
not violate any applicable Governmental Requirement, and (c) not
subject to any tax, penalty, or liability under or pursuant to any
applicable Governmental Requirement.
7.1.4 PROCEEDINGS AND DOCUMENTS. As of the Closing Date,
all corporate, if applicable, and other proceedings in connection with
the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to Purchaser, and Purchaser shall have received
on or prior to the Closing Date copies of all such legal documents or
proceedings taken in connection with the consummation of the
transactions as it shall have reasonably requested.
7.1.5 QUALIFICATIONS. As of the Closing Date, all
authorizations, approvals, or permits of or filings with any
Governmental Authority that are required by law in connection with the
lawful issuance, sale, and delivery of the Note and the Warrants (as
applicable) shall have been duly obtained by each Seller and shall be
effective on and as of the Closing Date.
7.1.6 CONSENTS. On or prior to the Closing Date, each
Seller shall have received in writing consents required of third
parties for the consummation of the transactions contemplated hereby,
pursuant to any law, contract, agreement, or instrument by which such
Seller is bound or to which it is subject.
7.1.7 CERTIFICATES.
(a) Each Seller shall have delivered to Purchaser
certificates executed by their respective Chief Executive Officer,
dated as of the Closing Date, certifying that all representations and
warranties of such Seller in this Agreement are true and correct, and
such other matters as Purchaser shall have reasonably requested.
(b) Each Seller shall have delivered to Purchaser copies
of each of the following, in each case certified to be in full force
and effect on the Closing Date by the Secretary of such Seller:
(i) the certificate and articles of association
of such Seller (certified by the appropriate Governmental
Authority) and all amendments thereof, certified as true and
correct as of the Closing Date;
(ii) the by-laws of such Seller as of the Closing
Date; and
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(iii) resolutions of the Board of Directors of such
Seller, the form and substance of which are satisfactory to
Purchaser, authorizing (A) the execution, delivery, and
performance of this Agreement and the other Operative
Documents and the transactions contemplated hereby and
thereby, (B) the execution, issuance, sale, delivery, and
performance of the Note, and (C) the reservation of the
Warrant Shares (as applicable).
7.1.8 GOOD STANDING CERTIFICATES. The Company shall have
delivered a certificate of status relating to each Seller from the
Secretary of State of the respective jurisdiction of incorporation
dated not more than ten days prior to the Closing Date.
7.1.9 LEGAL OPINION. The Sellers shall have delivered to
Purchaser the legal opinion of Fulbright & Xxxxxxxx L.L.P., counsel to
the Sellers, dated as of the Closing Date and substantially in the
form of Exhibit G attached hereto.
7.1.10 FEES AND EXPENSES. The Sellers shall have paid to
Purchaser the fees, costs, and expenses that the Sellers are obligated
to pay pursuant to Section 4.1.8 hereof.
7.1.11 OPERATIVE DOCUMENTS. Each Seller shall have executed
and delivered to Purchaser each of the Operative Documents to which
such Person is a party.
7.2 CONDITIONS TO CLOSING BY THE COMPANY. The obligations of the
Sellers to sell the Note and the Warrants to Purchaser are subject to the
fulfillment to its satisfaction on or prior to the Closing Date of each of the
following conditions:
7.2.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser contained in Section 3.2 shall be true and
correct when made, and shall be true and correct as of the Closing
Date as if made on the Closing Date.
7.2.2 PERFORMANCE; PAYMENT. All covenants, agreements, and
conditions contained in this Agreement to be performed or complied
with by Purchaser on or prior to the Closing Date, including the
payment of the Purchase Price as consideration for the Note and
Warrants shall have been performed or complied with.
ARTICLE VIII
MISCELLANEOUS
8.1 CONSENT TO AMENDMENTS; WAIVERS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived only
by the written agreement of the Sellers and Purchaser. Any waiver, permit,
consent, or approval of any kind or character on the part
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of such holder of any provisions or conditions of this Agreement must be made
in writing and shall be effective only to the extent specifically set forth in
such writing.
8.2 SURVIVAL OF TERMS; FAILURE TO CLOSE. All representations,
warranties, and covenants contained herein or made in writing by any party in
connection herewith will survive the execution and delivery of this Agreement
and any investigation made at any time by or on behalf of Purchaser.
Notwithstanding anything herein to the contrary, in the event the Closing Date
has not occurred on or before October 15, 1997 because one or more conditions
set forth in Article VII has not been satisfied, Purchaser may terminate its
obligations under this Agreement by written notice to the Sellers.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors of the parties hereto, whether so expressed or not and
the permitted assigns of the parties hereto including, without limitation and
without need of any express assignment. This Agreement and the rights and
obligations of the Sellers shall not be assigned without the prior written
consent of Purchaser.
8.4 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement unless the consummation of the transaction
contemplated hereby is materially and adversely affected thereby.
8.5 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
8.6 GOVERNING LAW. Each Seller hereby consents and agrees that
this Agreement shall be deemed a contract and instrument made under the laws of
the State of New York and shall be construed and enforced in accordance with
and governed by the laws of the State of New York without regard to principles
of conflicts of law.
8.7 DISPUTES; EXCLUSIVE METHOD; JURISDICTION.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE NOTE OR
THE OTHER OPERATIVE DOCUMENTS, INCLUDING ANY CLAIM OR CONTROVERSY OF ANY KIND
BASED ON OR ARISING IN TORT, SHALL BE DETERMINED EXCLUSIVELY BY BINDING
ARBITRATION IN ACCORDANCE WITH THE U.S. FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
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PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES AND THE RULES SET FORTH
BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE RULES SET FORTH IN SECTION 8.7(B)
BELOW SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THE NOTE OR THE OTHER OPERATIVE
DOCUMENTS MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH EITHER THE NOTE OR ANY
OPERATIVE DOCUMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) THE ARBITRATION SHALL BE CONDUCTED IN HOUSTON, TEXAS AND
ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION. ALL ARBITRATION HEARINGS
WILL BE COMMENCE WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION. THE ARBITRATOR
SHALL, ONLY UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF
SUCH HEARING FOR AN ADDITIONAL 60 DAYS. THE ARBITRATOR SHALL NOT HAVE AUTHORITY
TO AWARD PUNITIVE, CONSEQUENTIAL, OR INCIDENTAL DAMAGES.
(c) THE PROVISIONS OF THIS SECTION 8.7 SHALL SURVIVE ANY
TERMINATION, AMENDMENT, OR EXPIRATION OF THE DOCUMENTS EVIDENCING THE
TRANSACTIONS. EACH PARTY AGREES TO KEEP ALL DISPUTES AND ARBITRATION
PROCEEDINGS STRICTLY CONFIDENTIAL, EXCEPT FOR DISCLOSURES OF INFORMATION
REQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PARTIES OR BY APPLICABLE LAW
OR REGULATION.
(d) Each of the parties hereto submits itself and its property to
the personal jurisdiction of the United States District Court for the Southern
District of Texas and the courts of the State of Texas sitting in and for
Xxxxxx County in any such action or proceeding.
8.8 FINAL AGREEMENT. THIS AGREEMENT, THE NOTE, AND THE OTHER
OPERATIVE DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE SELLERS AND
PURCHASER CONCERNING THE MATTERS REFERRED TO HEREIN AND THEREIN, AND SUPERSEDE
ALL PRIOR AGREEMENTS AND UNDERSTANDINGS AMONG THE SELLERS AND PURCHASER
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN OR AMONG THE PARTIES. Any conflict or ambiguity between the
terms and provisions of this Agreement and the terms and provisions of any
other Operative Document shall be controlled by the terms and provisions
hereof.
8.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
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8.10 FURTHER COOPERATION. At any time and from time to time, and at
its own expense, the Sellers shall promptly execute and deliver all such
documents and instruments, and do all such acts and things, as Purchaser may
reasonably request in order to further effect the purposes of this Agreement
and the other Operative Documents.
8.11 NOTICES. All notices, requests, and other communications to
any party hereunder shall be in writing (including bank wire, telecopy, or
similar teletransmission or writing) and shall be given to such party at its
address or telecopy number set forth on the signature pages hereof or such
other address or telecopy number as such party may hereafter specify by notice
to the other parties.
8.12 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of Purchaser in exercising any right or remedy under this Agreement, the
Note, or any other Operative Document and no course of dealing between the
Sellers and Purchaser shall operate as a waiver thereof, nor shall any single
or partial exercise of any right or remedy under this Agreement, the Note, or
any other Operative Document preclude any other or further exercise thereof or
the exercise of any other right or remedy under this Agreement, the Note, or
any other Operative Document. The rights and remedies expressly provided are
cumulative and not exclusive and any rights or remedies that Purchaser would
otherwise have. No notice to or demand on the Sellers not otherwise required by
this Agreement, the Note, or any other Operative Document in any case shall
entitle the Sellers to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of Purchaser to any
other or further action in any circumstances without notice or demand.
8.13 EXHIBITS; SCHEDULES. The exhibits and schedules attached to
this Agreement are incorporated herein and shall be considered to be a part of
this Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such exhibits or schedules and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
8.14 MAXIMUM INTEREST. It is the intention of the parties hereto to
conform strictly to applicable usury laws and, anything herein to the contrary
notwithstanding, the obligations of the Sellers to Purchaser under this
Agreement and the other Operative Documents shall be subject to the limitation
that payments of interest shall not be required to the extent that receipt
thereof would be contrary to provisions of law applicable to Purchaser limiting
rates of interest which may be contracted for, charged, reserved, received, or
taken by Purchaser. Accordingly, if the transactions contemplated hereby would
be usurious under applicable law (including the Federal and state Laws of the
United States of America, or of any other jurisdiction whose laws may be
mandatorily applicable) with respect to Purchaser then, in that event,
notwithstanding anything to the contrary in this Agreement or any other
Operative Document, it is agreed as follows: (a) the provisions of this Section
8.14 shall govern and control; (b) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for, charged,
received, reserved, or taken under this Agreement or any other Operative
Document, or otherwise in connection with this Agreement or the transactions
contemplated by the Operative Documents by Purchaser shall under no
circumstances exceed the maximum amount of interest allowed by applicable law
(such maximum lawful interest rate, if any, with respect to Purchaser herein
called the "Highest Lawful Rate"), and any excess shall
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be credited to the Sellers by Purchaser (or, if such consideration shall have
been paid in full, such excess refunded to the Sellers); (c) all sums paid, or
agreed to be paid, to Purchaser for the use, forbearance, and detention of any
indebtedness of the Sellers to Purchaser hereunder or under any other Operative
Document shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term of any such
indebtedness until payment in full so that the actual rate of interest does not
exceed the Highest Lawful Rate; and (d) if at any time the sum of the interest
and all other amounts payable pursuant to this Agreement and the other
Operative Documents that are deemed to be interest under applicable law exceeds
that amount which would have accrued at the Highest Lawful Rate, the interest
and other amounts to accrue to Purchaser pursuant to this Agreement and the
other Operative Documents shall be limited, notwithstanding anything to the
contrary in this Agreement or any other Operative Document, to that amount
which would have accrued at the Highest Lawful Rate, but any subsequent
reductions, as applicable, shall not reduce the interest or other amounts
payable to Purchaser pursuant to this Agreement and the other Operative
Documents below the Highest Lawful Rate until the total amount of interest
accrued pursuant to this Agreement and the other Operative Documents and such
other amounts deemed to be interest equals the amount that would have accrued
to Purchaser if the rate per annum set forth in the Note had at all times been
in effect, plus all other amounts that which would have been received but for
the effect of this Section 8.14. For purposes of Article 5069-1.04, Vernon's
Texas Civil Statutes, as amended, to the extent, if any, applicable to
Purchaser, the Sellers agree that the Highest Lawful Rate shall be the
"indicated (weekly) rate ceiling" as defined in said Article; provided that
Purchaser may also rely, to the extent permitted by applicable laws, on
alternative maximum rates of interest under other laws applicable to Purchaser
if greater. Tex. Rev. Civ. Stat. Xxx. Art. 0000, Xx. 15 (which regulates
certain revolving credit loan accounts and revolving tri-party accounts) shall
not apply to this Agreement or any other Operative Document.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
THE XXXXXX GROUP LLC
By: /s/ XXXX XXXXXX
-------------------------------
Name: Xxxx Xxxxxx
-----------------------------
Title: President
----------------------------
Address for Notice:
00000 X. Xxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxx
-------------------
Telecopy: 000-000-0000
-------------------
[NOTE AND WARRANT PURCHASE AGREEMENT -- Signature Page 1]
50
EQUALNET HOLDING CORP.
By: /s/ XXXX XXXXXXX
-------------------------------
Name: Xxxx Xxxxxxx
-----------------------------
Title: President
----------------------------
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
[NOTE AND WARRANT PURCHASE AGREEMENT -- Signature Page 2]
51
EQUALNET CORPORATION
By: /s/ XXXX XXXXXXX
-------------------------------
Name: Xxxx Xxxxxxx
-----------------------------
Title: President
----------------------------
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
[NOTE AND WARRANT PURCHASE AGREEMENT -- Signature Page 3]
52
TELESOURCE, INC.
By: /s/ XXXX XXXXXXX
-------------------------------
Name: Xxxx XxxXxxx
-----------------------------
Title: President
----------------------------
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
[NOTE AND WARRANT PURCHASE AGREEMENT -- Signature Page 4]
53
EQUALNET WHOLESALE SERVICES, INC.
By: /s/ XXXX XXXXXXX
-------------------------------
Name: Xxxx Xxxxxxx
-----------------------------
Title: President
----------------------------
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
[NOTE AND WARRANT PURCHASE AGREEMENT -- Signature Page 5]
54
EXHIBIT B
TO
NOTE AND WARRANT PURCHASE AGREEMENT
FORM OF
WARRANT AGREEMENT
This WARRANT AGREEMENT dated as of October ___, 1997, between EQUALNET
HOLDING CORP., a Texas corporation (the "Company"), and THE XXXXXX GROUP, LLC,
a Texas limited liability company ("Xxxxxx" and, together with any transferee
of Warrants or Warrant Shares, the "Warrant Holders(s)").
WHEREAS, Xxxxxx, the Company, EqualNet Corporation, Telesource, Inc.,
and EqualNet Wholesale Services, Inc., have entered into a certain Note and
Warrant Purchase Agreement (the "Note Purchase Agreement") dated October ___,
1997; and
WHEREAS, the Company proposes to issue to Xxxxxx as partial
consideration for Xxxxxx'x entering into the Note Purchase Agreement, common
stock purchase warrants (the "Warrants") to purchase up to 200,000 shares (the
"Warrant Shares") of the Company's common stock, par value $0.01 per share (the
"Common Stock"), each Warrant entitling the holder thereof to purchase one
share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and in the Agreement set forth and for other good and
valuable consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue
and deliver the Warrants to Xxxxxx on the Closing Date referred to in the Note
Purchase Agreement. The aggregate number of Warrants to be issued and delivered
shall be 200,000 (subject to further limitation as provided herein). The
Warrants shall be exercisable on or after October ___, 1997. The text of each
Warrant shall be substantially as set forth in the Warrant Certificate attached
as Exhibit A hereto. The Warrants shall be executed on behalf of the Company by
the manual or facsimile signature of the present or any future Chairman of the
Board, President, or Vice President of the Company, attested by the manual or
facsimile signature of the present or future Secretary or an Assistant
Secretary of the Company. A Warrant bearing the manual or facsimile signature
of individuals who were at any time the proper officers of the Company shall
bind the Company notwithstanding that such individuals or any of them shall
have ceased to hold such offices prior to the delivery of such Warrant or did
not hold such offices on the date of this Warrant Agreement.
Warrants shall be dated as of the date of execution thereof by the
Company either upon initial issuance or upon division, exchange, substitution
or transfer.
55
Subject to Article V of the Note Purchase Agreement, the demand and
the piggy-back registration rights set forth in Section 16 hereof may be
exercised at any time during the term of the Warrants.
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company hereby represents and warrants as follows:
(i) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant Agreement, to
grant, issue, and deliver the Warrants and to authorize and reserve
for issuance and, upon payment from time to time of the Exercise
Price, to issue and deliver the shares of Common Stock or other
securities issuable upon exercise of the Warrants. This Warrant
Agreement has been duly executed and delivered by the Company.
(ii) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK.
There have been reserved for issuance, and the Company shall at all
times keep reserved, out of the authorized and unissued shares of
Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrants, and
such shares, when issued upon receipt of payment therefor or upon a
net exercise in accordance with the terms of the Warrants and of this
Warrant Agreement, will be legally and validly issued, fully paid and
non- assessable and will be free of any preemptive rights of
shareholders or any restrictions.
(b) The Warrant Holder hereby represents and warrants as follows:
(i) ACCREDITED INVESTOR. The Warrant Holder is an
"accredited investor" within the meaning of Rule 501 under Regulation
D promulgated under the Securities Act, is experienced in evaluating
investments in companies such as the Company, has such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment and has the ability
to bear the entire economic risk of its investment. The Warrant Holder
has made its own evaluation of its investment in the Warrants, based
upon such information as is available to it and without reliance upon
the Company or any other person or entity, and the Warrant Holder
agrees that neither the Company nor any other person or entity has any
obligation to furnish any additional information to the Warrant Holder
except as expressly set forth herein.
3. CONDITIONS TO PURCHASE. Xxxxxx'x obligations hereunder shall
be subject to satisfaction of the following conditions on the Closing Date
referred to in the Note Purchase Agreement:
(a) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Warrant
Agreement and the Warrants and all other legal matters relating to
this Warrant Agreement, the Warrants and the transactions
Exhibit B-2
56
contemplated hereby shall be satisfactory in all respects to Xxxxxx &
Xxxxxx L.L.P., counsel for Xxxxxx, in their reasonable judgment, and
the Company shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass
judgment upon such matters.
(b) There shall have been duly tendered to Xxxxxx or upon
the order of Xxxxxx a certificate or certificates representing the
Warrants.
(c) Each of the "Conditions Precedent" set forth in
Article VII of the Note Purchase Agreement shall have been satisfied.
4. REGISTRATION. The Warrants shall be numbered and shall be
registered on the books of the Company (the "Warrant Register") as they are
issued. The Warrants shall be registered initially in such names and such
denominations as Xxxxxx has specified to the Company.
5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction
upon transfer set forth in this Warrant Agreement, each Warrant certificate may
be exchanged at the option of the Warrant Holder thereof for another
certificate or certificates of different denominations entitling the Warrant
Holder thereof to purchase upon surrender to the Company or its duly authorized
agent a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle such Warrant Holder to purchase. Any
Warrant Holder desiring to exchange a Warrant certificate or certificates shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate or certificates to be so exchanged.
Thereupon, the Company shall execute and deliver to the person entitled thereto
a new Warrant certificate or certificates, as the case may be, as so requested.
Any Warrant issued upon exchange, transfer or partial exercise of the Warrants
shall be the valid obligation of the Company, evidencing the same generic
rights and entitled to the same generic benefits under this Warrant Agreement
as the Warrants surrendered for such exchange, transfer or exercise.
6. TRANSFER OF WARRANTS. Subject to the provisions of Section 14
hereof, the Warrants shall be transferrable only on the Warrant Register upon
delivery to the Company of the Warrant certificate or certificates duly
endorsed by the Warrant Holder or by his duly authorized attorney-in-fact or
legal representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney-
in-fact, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto.
Exhibit B-3
57
7. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Each Warrant entitles the Warrant Holder thereof to purchase
one share of Common Stock during the time period and subject to the conditions
set forth in the respective Warrant Certificates at an exercise price of
[$________] per share, subject to adjustment in accordance with Section 12
hereof (the "Exercise Price"). Each Warrant terminates on the fifth anniversary
of the date on which such Warrant becomes exercisable in accordance with its
terms (the "Expiration Date").
(b) The Exercise Price and the number of shares issuable upon
exercise of Warrants are subject to adjustment upon the occurrence of certain
events, pursuant to the provisions of Section 12 of this Warrant Agreement.
Subject to the provisions of this Warrant Agreement, each Warrant Holder shall
have the right, which may be exercised as expressed in such Warrants, to
purchase from the Company (and the Company shall issue and sell to such Warrant
Holder) the number of fully paid and nonassessable shares of Common Stock
specified in such Warrants, upon surrender to the Company, or its duly
authorized agent, of such Warrants, with the purchase form on the reverse
thereof duly filled in and signed, and upon payment to the Company of the
Exercise Price, as adjusted in accordance with the provisions of Section 12 of
this Warrant Agreement or upon a net exercise pursuant to this subsection of
this Warrant Agreement, for the number of shares in respect of which such
Warrants are then exercised. The Warrant Holder may (i) pay the Exercise Price
in cash, by certified or official bank check payable to the order of the
Company, or by the surrender to the Company of securities of the Company having
a Market Price equal to the Exercise Price or by the surrender to the Company
of indebtedness owed by the Company pursuant to the Note Purchase Agreement (in
which case the Company will accept such specified unpaid principal amount in
full payment, as if such payment had been made in cash) or (ii) make an
exercise of Warrants for "Net Warrant Shares." The number of Net Warrant Shares
will be determined as described by the following formula: Net Warrant Shares =
[WS x (MP-EP)]/MP. "WS" is the number of Warrant Shares issuable upon exercise
of the Warrants or portion of Warrants in question. "MP" is the Market Price of
the Common Stock on the last trading day preceding the date of the request to
exercise the Warrants. "Market Price" shall mean the then current market price
per share of Common Stock, as determined in paragraph 12.1(e). "EP" shall mean
the Exercise Price.
Subject to paragraph 7(c) hereof, upon such surrender of Warrants, and
payment of the Exercise Price, with cash or securities, or upon a net exercise
as aforesaid, the Company at its expense shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Warrant Holder
and in such name or names as the Warrant Holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon
the exercise of such Warrants, together with cash, as provided in Section 12 of
this Warrant Agreement, in respect of any fraction of a share of such stock
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued, and any person so designated to be named therein
shall be deemed to have become a holder of record of such shares, as of the
date of the surrender of such Warrants and payment of the Exercise Price or
receipt of shares by net exercise as aforesaid. The rights of purchase
represented by the Warrants shall be exercisable, at the election
Exhibit B-4
58
of the Warrant Holders thereof, either in full or from time to time in part
and, in the event that any Warrant is exercised in respect of less than all of
the shares purchasable on such exercise at any time prior to the Expiration
Date, a new certificate evidencing the remaining Warrant or Warrants will be
issued.
(c) So long as the Company satisfies the continued listing
requirements of the Nasdaq National Market, the exercise rights set forth above
and the right to convert the Note as set forth in the Note Purchase Agreement
shall be limited so that, upon conversion of the Note or exercise of the
Warrants or both, the Purchaser's aggregate ownership of the Company will be
less than 20% of the shares of Common Stock outstanding on the date of issuance
of the Note and the Warrants; provided that such limitation shall cease and
this Section 7(c) shall become null and void upon the approval of the issuance
of the Note and the Warrants by the shareholders of the Company or the National
Association of Securities Dealers, Inc. or upon such other event as shall allow
the conversion or exercise or both, as appropriate, without violating the
applicable requirements of the Nasdaq National Market.
8. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants
that if any share of Common Stock required to be reserved for purposes of
exercise or conversion of Warrants require, under any federal or state law or
applicable governing rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
such national securities exchange, before such shares may be issued upon
exercise, the Company will use its commercially reasonable efforts to cause
such shares to be duly registered, approved or listed on the relevant national
securities exchange, as the case may be.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants and any securities issued pursuant to Section 12 hereof;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any Warrants or certificates for Warrant Shares and any securities
issued pursuant to Section 12 hereof in a name other than that of the Warrant
Holder of such Warrants.
10. MUTILATED OR MISSING WARRANTS. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and in substitution for the Warrant lost, stolen, or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest.
11. RESERVATION OF WARRANT SHARES; PURCHASE AND CANCELLATION OF
WARRANTS. The Company shall at all times reserve, out of the authorized and
unissued shares of Common Stock, a number of shares sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the Common Stock ("Transfer Agent") and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares as shall be requisite for
Exhibit B-5
59
such purpose. The Company will keep a copy of this Warrant Agreement on file
with the Transfer Agent and with every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Company will supply the Transfer
Agent and any such subsequent transfer agent with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash which may be issuable as provided by Section 13 of this
Warrant Agreement. The Company will furnish to the Transfer Agent and any such
subsequent transfer agent a copy of all notices of adjustments, and
certificates related thereto, transmitted to each Warrant Holder pursuant to
Section 12.3 hereof. All warrants surrendered in the exercise of the rights
thereby evidenced shall be canceled, and such canceled Warrants shall
constitute sufficient evidence of the number of shares of stock which have been
issued upon the exercise of such Warrants (subject to adjustment as herein
provided). No shares of stock shall be subject to reservation in respect of the
Warrants subsequent to the Expiration Date except to the extent necessary to
comply with the terms of this Warrant Agreement.
12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined.
12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend
to holders of Common Stock in shares of Common Stock or make a
distribution to holders of Common Stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, (iii) combine
its outstanding shares of Common Stock into a smaller number
of shares of Common Stock or (iv) issue by reclassification of
its shares of Common Stock other securities of the Company
(including any such reclassification in connection with a
consolidation or merger in which the Company is the surviving
corporation), the number of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be
adjusted so that the Warrant Holder shall be entitled to
receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have
been entitled to receive after the happening of any of the
events described above, had such Warrant been exercised
immediately prior to the happening of such event or any record
date with respect thereto regardless of whether the Warrants
are exercisable at the time of the happening of such event or
at the time of any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights,
options, or warrants to holders of its outstanding Common
Stock, without any charge to such holders, entitling them to
subscribe for or purchase shares of Common Stock at a price
per share which is
Exhibit B-6
60
lower at the record date mentioned below than the Exercise
Price, then (i) the Exercise in effect immediately prior to
such issuance shall immediately be reduced to the price that
is equivalent to such consideration received by the Company
upon such issuance and (ii) the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall
be increased in direct proportion to the increase in the
number of shares of Common Stock outstanding on a fully
diluted basis immediately prior to such issuance; provided
that if such shares of Common Stock, options or other
convertible securities (other than Excluded Stock (as defined
in the Note Purchase Agreement)) are issued for consideration
per share less than the Exercise Price at the date of such
issue or sale, the number of shares of Common Stock that
immediately prior to such issuance the Warrant Holder shall
have been entitled to purchase pursuant to this Warrant shall
be increased to the greater of (i) that number of shares of
Common Stock that immediately prior to such issuance the
Warrant Holder shall have been entitled to purchase pursuant
to this Warrant multiplied by a fraction, the numerator of
which is the Exercise Price and the denominator of which is
such consideration per share, and (ii) the number of shares of
Common Stock otherwise calculated under this Section 12.1.
Such adjustment shall be made whenever such rights, options,
or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such rights, options, or warrants;
provided that this Section 12.1(b) shall expire and be of no
force and effect on or after April ___, 1998.
(c) In case the Company shall distribute to
holders of its shares of Common Stock evidences of its
indebtedness or assets (including cash dividends or other cash
distributions) or rights, options, or warrants, or convertible
or exchangeable securities containing the right to subscribe
for or purchase shares of Common Stock (excluding those
referred to in paragraph (b) above), then in each case the
number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, of which the numerator
shall be the then current market price per share of Common
Stock (as determined in accordance with paragraph (e) below)
on the date of such distribution, and of which the denominator
shall be the then current market price per share of Common
Stock, less the then fair value (as determined in good faith
by the Board of Directors of the Company) of the portion of
the assets or evidences of indebtedness so distributed or of
such subscription rights, options, or warrants, or of such
convertible or exchangeable securities applicable to one share
of Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the
date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such
distribution.
In the event of distribution by the Company to
holders of its shares of Common Stock of stock of a subsidiary
or securities convertible into or exercisable
Exhibit B-7
61
for such stock, then in lieu of an adjustment in the number of
Warrant Shares purchasable upon the exercise of each Warrant,
the Warrant Holder, upon the exercise thereof at any time
after such distribution, shall be entitled to receive from the
Company, such subsidiary, or both, as the Company shall
determine, the stock or other securities to which such Warrant
Holder would have been entitled if such Warrant Holder had
exercised such Warrant immediately prior thereto regardless of
whether the Warrants are exercisable at such time, all subject
to further adjustment as provided in this subsection 12.1;
provided, however, that no adjustment in respect of dividends
or interest on such stock or other securities shall be made
during the term of a Warrant or upon the exercise of a
Warrant; provided further that this Section 12.1(c) shall
expire and be of no force and effect on or after April ___,
1998.
(d) In case the Company shall sell and issue
shares of Common Stock (other than pursuant to rights,
options, warrants, or convertible securities initially issued
before the date of this Agreement) or rights, options,
warrants, or convertible securities containing the right to
subscribe for or purchase shares of Common Stock (excluding
shares, rights, options, warrants, or convertible securities
issued in any of the transactions described in paragraphs (a),
(b) or (c) above) at a price per share of Common Stock
(determined, in the case of such rights, options, warrants or
convertible securities, by dividing (w) the total of the
amount received or receivable by the Company (determined as
provided below) in consideration of the sale and issuance of
such rights, options, warrants, or convertible securities, by
(x) the total number of shares of Common Stock covered by such
rights, options, warrants, or convertible securities) lower
than the Exercise Price in effect immediately prior to such
sale and issuance, then (i) the Exercise in effect immediately
prior to such issuance shall immediately be reduced to the
price that is equivalent to such consideration received by the
Company upon such issuance and (ii) the number of Warrant
Shares thereafter purchasable upon the exercise of the
Warrants shall be increased in direct proportion to the
increase in the number of shares of Common Stock outstanding
on a fully diluted basis immediately prior to such issuance;
provided that if such shares of Common Stock, options or other
convertible securities (other than Excluded Stock) are issued
for consideration per share less than the Exercise Price at
the date of such issue or sale, the number of shares of Common
Stock that immediately prior to such issuance the Warrant
Holder shall have been entitled to purchase pursuant to this
Warrant shall be increased to the greater of (i) that number
of shares of Common Stock that immediately prior to such
issuance the Warrant Holder shall have been entitled to
purchase pursuant to this Warrant multiplied by a fraction,
the numerator of which is the Exercise Price and the
denominator of which is such consideration per share, and (ii)
the number of shares of Common Stock otherwise calculated
under this Section 12.1. Such adjustment shall be made
successively whenever such as issuance is made; provided that
this Section 12.1(d) shall expire and be of no force and
effect on or after April ___, 1998. For the purposes of such
adjustments, the consideration received or receivable by the
Exhibit B-8
62
Company for rights, options, warrants, or convertible
securities shall be deemed to be the consideration received by
the Company for such rights, options, warrants, or convertible
securities, plus the consideration or premiums stated in such
rights, options, warrants, or convertible securities to be
paid for the shares of Common Stock covered thereby. In case
the Company shall sell and issue shares of Common Stock, or
rights, options, warrants, or convertible securities
containing the right to subscribe for or purchase shares of
Common Stock, for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in
determining the "price per share of Common Stock" and the
"consideration received or receivable by the Company" for
purposes of the first sentence of this paragraph (d), the
Board of Directors shall determine, in its discretion, the
fair value of said property.
(e) For the purpose of any computation under
paragraphs (b), (c), and (d) of this Section, the current
market price per share of Common Stock at any date shall be
the average of the daily closing prices of the Company's
Common Stock, for five consecutive trading days ending one
trading day before the date of such computation. The closing
price for each day shall be the last such reported sales price
regular way or, in case no such reported sale takes place on
such day, the average of the closing bid and asked prices
regular way for such day, in each case on the principal
national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if not listed or
admitted to trading, the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market as
reported by NASDAQ or any comparable system. In the absence of
one or more such quotations, the Board of Directors of the
Company shall determine the current market price, in good
faith, on the basis of such quotations as it considers
appropriate. Notwithstanding the foregoing, for the purpose of
any calculation under paragraph (d) above (A) with respect to
any issuance of options under the Company's employee or
director compensation stock option plans as in effect or as
adopted by the Board of Directors of the Company on the date
hereof, the term "current market price", in such instances,
shall mean the fair market price on the date of the issuance
of any such option determined in accordance with the Company's
employee compensation stock option plans as in effect or
adopted by the Board of Directors of the Company on the date
hereof; and (B) with respect to any issuances of Common Stock
(or rights, options, warrants, or convertible securities
containing the right to subscribe for or purchase shares of
Common Stock) in connection with bona fide corporate
transactions (other than issuances in such transactions for
cash or similar consideration), the term "fair market price"
shall mean the fair market price per share as determined in
arm's-length negotiations by the Company and such other
parties (other than affiliates or subsidiaries of the Company)
to such transactions as reflected in the definitive
documentation with respect thereto, unless such determination
is not reasonably related to the closing market price on the
date of such determination.
Exhibit B-9
63
(f) In any case in which this Section 12.1 shall
require that any adjustment in the number of Warrant Shares be
made effective as of immediately after a record date for a
specified event, the Company may elect to defer until the
occurrence of the event the issuing to the holder of any
Warrant exercised after that record date the shares of Common
Stock and other securities of the Company, if any, issuable
upon the exercise of any Warrant over and above the shares of
Common Stock and other securities of the Company, if any,
issuable upon the exercise of any Warrant prior to such
adjustment; provided, however, that the Company shall deliver
to such Warrant Holder a due xxxx or other appropriate
instrument evidencing the holder's right to receive such
additional shares or securities upon the occurrence of the
event requiring such adjustment.
(g) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one percent
(1%) in the number of Warrant Shares purchasable upon the
exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (g) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations shall
be made to the nearest one-thousandth of a share.
(h) Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant is adjusted, as
herein provided, the Warrant Price payable upon the exercise
of each Warrant shall be adjusted by multiplying such Warrant
Price immediately prior to such adjustment by a fraction, of
which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of such Warrant immediately
prior to such adjustment, and of which the denominator shall
be the number of Warrant Shares purchasable immediately.
(i) No adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant need be made
under paragraphs (b), (c) and (d) if the Company issues or
distributes to each Warrant Holder the rights, options,
warrants, or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those
paragraphs which each Warrant Holder would have been entitled
to receive had the Warrants been exercised prior to the
happening of such event or the record date with respect
thereto regardless of whether the Warrants are exercisable at
the time of the happening of such event or at the time of any
record date with respect thereto. No adjustment need be made
for a change in the par value of the Warrant Shares.
(j) For the purpose of this Section 12.1, the
terms "shares of Common Stock" shall mean (i) the class of
stock designated as the Common Stock of the Company at the
date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such
shares consisting solely of changes
Exhibit B-10
64
in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to paragraph (a) above,
the Warrant Holders shall become entitled to purchase any
securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so purchasable
upon exercise of each Warrant and the Exercise Price of such
securities shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Warrant Shares contained in
paragraphs (a) through (i), inclusive, above, and the
provisions of Section 7 and Section 12.2 through 12.5,
inclusive, with respect to the Warrant Shares, shall apply on
like terms to any such other securities.
(k) Upon the expiration of any rights, options,
warrants, or conversion or exchange privileges, if any thereof
shall not have been exercised, the Warrant Price and the
number of shares of Common Stock purchasable upon the exercise
of each warrant shall, upon such expiration, be readjusted and
shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been
required, as the case may be) as if (A) the only shares of
Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants, or conversion or exchange rights and (B)
such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all
such rights, options, warrants, or conversion or exchange
rights whether or not exercised; provided, however, that no
such readjustment shall have the effect of increasing the
Warrant Price or decreasing the number of Warrant Shares by an
amount in excess of the amount of the adjustment initially
made with respect to the issuance, sale or grant of such
rights, options, warrants, or conversion or exchange rights.
(l) In addition to the adjustments set forth
above, the Exercise Price shall be immediately reduced and the
number of Warrant Shares shall be immediately increased, in
each case, on a pari passu basis with the conversion,
exercise, or strike price of any other derivative securities
of the Company whether now outstanding or hereafter issued.
12.2. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may,
at its option, at any time during the term of the Warrants, reduce the
then current Exercise Price to any amount determined appropriate by
the Board of Directors of the Company.
12.3. NOTICE OF ADJUSTMENT. When the number of Warrant
Shares purchasable upon the exercise of each Warrant or the Exercise
Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to each
Warrant Holder notice of such adjustment or adjustments and a
certificate of a firm of
Exhibit B-11
65
independent public accountants selected by the Board of Directors of
the Company (who may be the regular accountants employed by the
Company) setting forth the number of Warrant Shares purchasable upon
the exercise of each Warrant and the Exercise Price of such Warrant
Shares after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and setting forth the computation
by which such adjustment was made. Such certificate, absent manifest
error, shall be conclusive evidence of the correctness of such
adjustment.
12.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER,
CONSOLIDATION, ETC. In case of any consolidation of the Company with
or merger of the Company into another person or in case of any sale,
transfer, or lease to another person of all of or substantially all
the assets of the Company, the Company or such successor or purchaser,
as the case may be, shall execute with each Warrant Holder an
agreement that each Warrant Holder shall have the right thereafter
upon payment of the Exercise Price in effect immediately prior to such
action to purchase upon exercise of each Warrant the kind and amount
of shares and other securities and property which the Warrant Holder
would have owned or have been entitled to receive after the happening
of such consolidation, merger, sale, transfer, or lease had such
Warrant been exercised immediately prior to such action regardless of
whether the Warrants are exercisable at the time of such action. Such
agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in
this Section 12. The provisions of this Section 12.4 shall similarly
apply to successive consolidations, mergers, sales, transfers, or
leases.
12.5. STATEMENT ON WARRANTS. Even though Warrants
heretofore or hereafter issued may continue to express the same price
and number and kind of shares as are stated in the Warrants initially
issuable pursuant to this Warrant Agreement, the parties understand
and agree that such Warrants will represent rights consistent with any
adjustments in the Exercise Price or the number or kind of shares
purchasable upon the exercise of the Warrants.
13. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
Warrant Holder, the number of full Warrant Shares which shall be issuable upon
the exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
13, be issuable on the exercise of any Warrant (or specified portion, thereof),
the Company shall pay an amount in cash equal to the closing price for one
share of the Common Stock on the trading day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction.
14. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Xxxxxx
represents and warrants to the Company that it will not dispose of the Warrant
or Warrant Shares except pursuant to (i) an effective registration statement,
or (ii) an applicable exemption from registration under the Securities
Exhibit B-12
66
Act of 1933 (the "Act"). In connection with any sale by Xxxxxx pursuant to
clause (ii) of the preceding sentence, it shall furnish to the Company an
opinion of counsel reasonably satisfactory to the Company to the effect that
such exemption from registration is available in connection with such sale.
15. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to
a stop-transfer order and the certificate or certificates therefor shall bear
the following legend by which each Warrant Holder shall be bound:
"THE WARRANTS REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
OTHER STATE. THE WARRANTS REPRESENTED HEREBY AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED, EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT. ANY SALE PURSUANT TO CLAUSE (II) OF THE
PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH
SALE."
The Warrant Shares or other securities issued upon exercise of the
Warrants shall, unless issued pursuant to an effective registration statement,
be subject to a stop-transfer order and the certificate or certificates
evidencing any such Warrant Shares or securities shall bear the following
legend by which the Warrant Holder thereof shall be bound:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED,
EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT. ANY SALE PURSUANT TO CLAUSE (II) OF THE
PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH
SALE."
Exhibit X-00
00
00. REGISTRATION RIGHTS. The Warrant Shares shall be subject to
the registration rights set forth in Section 4.1.11 of the Note and Warrant
Purchase Agreement.
17. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing
contained in this Warrant Agreement or in any of the Warrants shall be
construed as conferring upon the Warrant Holders or their transferees the right
to vote or to receive dividends or to consent or to receive notice as
stockholders in respect of any meeting of stockholders for the election of
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company. If, however, at any time prior to the expiration
of the Warrants and prior to their exercise, any of the following events shall
occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend) to the holders of its shares of Common
Stock; or
(b) the Company shall offer to the holders of its shares
of Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe to or purchase any thereof; or
(c) a dissolution, liquidation, or winding up of the
Company (other than in connection with a consolidation, merger, sale,
transfer, or lease or all or substantially all of its property,
assets, and business as an entirety) shall be proposed,
then in any one or more of said events the Company shall give notice in writing
of such event to the Warrant Holders as provided in Section 20 hereof, with
such notice to be completed at least 15 days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution, or subscription
rights, or for the determination of stockholders entitled to vote on such
proposed dissolution, liquidation or winding up. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to provide or receive such notice or any defect therein or in the
mailing thereof shall not affect the validity of any action taken in connection
with such dividend, distribution, or subscription rights, or such proposed
dissolution, liquidation ,or winding up.
18. EXPENSES. The Company shall pay all legal and other reasonable
out-of-pocket expenses of the Warrant Holders and of their counsel (up to a
maximum of $25,000). The Company agrees to reimburse Xxxxxx upon demand for its
reasonable out-of-pocket costs and expenses incurred in connection with the
preparation, review, negotiation, execution, and delivery of this Warrant
Agreement and all other related documents.
19. RIGHT TO INFORMATION. The Company, in accordance with Section
16(c) above, will provide to all Warrant Holders and to all holders of Warrant
Shares, on a timely basis, copies of all documents and reports delivered to its
shareholders.
Exhibit X-00
00
00. NOTICES. Any notice pursuant to this Warrant Agreement to be
given or made by the holder of any Warrant or Warrant Shares to or on the
Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed as follows:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: General Counsel
Notices or demands authorized by this Warrant Agreement to be given or made to
or on the Warrant Holder of any Warrant or Warrant Shares shall be sufficiently
given or made (except as otherwise provided in this Warrant Agreement) if sent
by registered mail, return receipt requested, postage prepaid, addressed to
such Warrant Holder at the address of such Warrant Holder as shown on the
Warrant Register or the Common Stock Register, as the case may be.
21. GOVERNING LAW. THIS WARRANT AGREEMENT, THE WARRANTS AND ALL
RELATED DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. ANY DISPUTE HEREUNDER
OR UNDER THE WARRANTS OR RELATED DOCUMENTS SHALL BE DETERMINED EXCLUSIVELY IN
ACCORDANCE WITH SECTION 8.7 OF THE NOTE PURCHASE AGREEMENT.
22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Holders may from time to time supplement or amend this Warrant Agreement in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Holder may deem necessary or
desirable and which shall not be inconsistent with the provisions of the
Warrants and which shall not adversely affect the interests of the Warrant
Holders. Any amendment to this Warrant Agreement may be effected with the
consent of Warrant Holders of at least a majority of the total then outstanding
Warrants (for this purpose Warrant Shares shall be deemed to be Warrants in the
proportion that Warrant Shares are then issuable upon the exercise of
Warrants); provided that any amendment which shall have the effect of
materially adversely affecting the interests of any Warrant Holder shall not be
effective with respect to such Warrant Holder if such Warrant Holder shall not
have consented thereto.
23. SURVIVAL OF COVENANTS. All covenants and agreements made
herein shall survive the execution and delivery of this Warrant Agreement and
the Warrants and shall remain in force and effect until the Expiration Date of
all Warrants.
24. SUCCESSORS. All representations and warranties of the Company
and all covenants and agreements of this Warrant Agreement by or for the
benefit of the Company or the Warrant Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Exhibit X-00
00
00. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant
Agreement shall be construed to give to any person or corporation other than
the Company and the Warrant Holders, any legal or equitable right, remedy, or
claim under this Warrant Agreement, but this Warrant Agreement shall be for the
sole and exclusive benefit of the Company and the holders of the Warrants and
Warrant Shares.
26. CAPTIONS. The captions of the sections and subsections of this
Warrant Agreement have been inserted for convenience and shall have no
substantive effect.
27. COUNTERPARTS. This Warrant Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but such counterparts together shall constitute but one and the same
instrument.
Exhibit B-16
70
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed on the day, month and year first above written.
EQUALNET HOLDING CORP.
By: /s/ ILLEGIBLE
------------------------
Name:
----------------------
Title:
---------------------
Exhibit B-17
71
THE XXXXXX GROUP LLC
By:
------------------------
Name:
----------------------
Title:
---------------------
Exhibit B-18
