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Exhibit 10.9
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAVE BEEN (OR WILL BE, WITH
RESPECT TO THE SECURITIES ISSUABLE UPON CONVERSION HEREOF) ISSUED IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED
UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
CONVERTIBLE LINE OF CREDIT NOTE
$1,000,000 February 5, 1998
FOR VALUE RECEIVED, the undersigned, LVL Communications Corporation, a
California corporation (hereinafter referred to as the "Borrower"), hereby
promises to pay to Trident III, L.L.C., a Cayman Islands exempted company with
limited life, its successors and assigns (the "Lender") at 700 Gemini, Houston,
Texas 77058 or at such other place as the holder hereof may from time to time
designate in writing, the principal sum of up to One Million Dollars
($1,000,000) on the Termination Date, as defined in a certain loan agreement of
even date herewith between the Borrower and the Lender, as the same may be from
time to time amended or supplemented (the "Loan Agreement"), together with
interest from and after the date hereof at the rate of ten percent (10%) per
annum computed on the unpaid principal balance. By acceptance of this
Convertible Line of Credit Note (the "Note"), the Lender represents, warrants,
covenants and agrees that he, she or it will abide by and be bound by its terms
and the terms of the Loan Agreement which are incorporated herein by reference.
Capitalized terms not defined herein shall have the meaning set forth in the
Loan Agreement.
1. Committed Amount. This Note has been issued pursuant to the Loan
Agreement and the Borrower may borrow such principal amount hereunder up to the
Committed Amount (as defined in the Loan Agreement), subject to the provisions
of the Loan Agreement, and the Borrower shall be liable for payment to the
Lender only for such principal amount of the Committed Amount as may be
outstanding, together with interest as aforesaid on such outstanding principal
amount from the date of advance thereof.
2. Security. Repayment of amounts outstanding and/or owing hereunder is
collateralized by the grant of a leasehold deed of trust, security agreement and
assignment of subleases and rents and fixture filing in and to that certain
leasehold interest arising out of that certain Commercial Office Lease dated
February 15, 1996, as amended February 15, 1997, between the Borrower as tenant
and RRC Partners, a California Limited Liability Company as landlord relating to
those certain premises at 000 Xxxxxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx (the
"Leasehold Deed of Trust").
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3. Conversion Right. Amounts outstanding from time to time hereunder
will be converted into shares of common stock of the Borrower (the "Common
Stock") as follows:
(a) On the effective date (the "Effective Date") of the Debtors'
Joint Plan of Reorganization (the "Plan") of the Borrower the first one hundred
fifty thousand dollars ($150,000) of the principal owing hereunder shall be
converted into (i) 150,000 shares of a new class of redeemable common stock
("New Common"); and (ii) 110,000 shares of Common Stock, subject to adjustment
pursuant to Section 5 hereof. Furthermore, on the Effective Date, each dollar of
principal owing hereunder in excess of one hundred fifty thousand dollars
($150,000) shall be automatically converted into 1.0 share of New Common and
0.733 shares of Common Stock of the Borrower, subject to adjustment as provided
in Section 5 hereof. (The conversion ratios established in the prior two
sentences of this section shall be referred to as the "Conversion Price.") Any
amount converted shall be deemed to reduce the principal amount outstanding
herewith by the amount so converted and shall proportionately reduce the amount
available to be borrowed by the Borrower pursuant to this Note and the Loan
Agreement. The New Common will have the following rights, entitlements and
privileges: it will have dividend rights on par with those of Common Stock
holders; except as otherwise required by law, each share will vote share for
share as a single class with the Common Stock; the shares will be automatically
redeemed at $1.00 per share upon the earlier of the closing of a subsequent debt
or equity offering in excess of three million dollars ($3,000,000) by the
Borrower (or its successor) or the receipt of proceeds from the Leasehold Deed
of Trust in the event of foreclosure; except as set forth hereinabove the class
shall have liquidation rights that are subordinate to those of the Class 5
Preferred Stock referenced in the Plan. The numbers of shares of Common Stock
and New Common, respectively, issuable upon conversion shall be referred to as
the "Conversion Price."
(b) Notwithstanding any other provision hereof, the Conversion
Right may not be exercised at any time during which a registration statement
under the Securities Act of 1933 is filed but not effective, if such a
conversion would constitute a violation of the registration provisions of such
Act.
4. Conversion Procedure. Conversion will be deemed to have taken place
on the Effective Date of the Plan (the "Conversion Date"). As promptly as
practicable thereafter, the Borrower shall issue and deliver to the Lender
certificates representing the securities to which the Lender, or its successors
or assignees are entitled The person or entity in whose name the certificates
representing the shares of Common Stock issuable upon conversion hereof shall be
deemed to have become a holder of record on the next succeeding day on which the
transfer books are open, but the Conversion Price shall be that in effect on the
Conversion Date. The Borrower covenants that all securities which may be issued
upon exercise of the Conversion Right referenced in Section 3 above will, upon
issuance, be fully paid and nonassessable and free of all taxes, liens and
charges caused or created by the Borrower with respect to the issuance thereof.
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5. Adjustments. The Conversion Price and the number and kind of
securities which may be received upon the exercise of the Conversion Right
referenced in Section 3 above shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
(a) Stock Splits and Combinations. If the Borrower shall at any
time or from time to time after the date hereof effect a subdivision of its
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before such subdivision shall be proportionately decreased, and
conversely, if the Borrower shall at any time or from time to time after the
date hereof combine its outstanding shares of Common Stock, the Conversion Price
then in effect immediately before such combination shall be proportionately
increased. Any adjustment under this section shall become effective upon the
close of business on the date the subdivision or combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the
Borrower shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of holders of shares of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event, the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event that such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion Price then in effect
by a fraction:
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and
(ii) the denominator of which shall be the sum of the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date and the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter such Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions.
(c) Other Dividends and Distributions. In the event that the
Borrower at any time or from time to time after the date hereof shall make or
issue, or fix a record date for the determination of holders of shares of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Borrower other than shares of Common Stock, then and in each
such event provisions shall be made so that the holder of this Note shall
receive, upon conversion of this Note, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Borrower
which such holder would have received had its Note been converted into shares of
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the Conversion Date,
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retained such securities (together with any distributions payable thereon during
such period) receivable by the holder as aforesaid during such period, giving
application to all adjustments called for during such period under this section
with respect to the rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of
Common Stock issuable upon exercise of the Conversion Right shall be changed
into the same or different number of shares of any class or classes of capital
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation or sale of assets provided for
in subsection (e) below), then and in each such event, the holder of this Note
shall have the right thereafter upon exercise of the Conversion Right to receive
the kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, reclassification or other change, as the
holder of the number of shares of Common Stock issuable upon exercise of the
Conversion Right immediately prior to such reorganization, reclassification or
change, all subject to further adjustment as provided herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If,
at any time or from time to time, there shall be a capital reorganization of the
shares of Common Stock (other than a subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this section) or a merger or
consolidation of the Borrower with or into another corporation, or the sale of
all or substantially all of the Borrower's properties and assets to any other
person or entity, then as a part of such reorganization, merger, consolidation
or sale, provision shall be made so that the holder of this Note shall
thereafter be entitled to receive upon exercise of the Conversion Right, the
number of shares of capital stock or other securities or property of the
Borrower, or of the successor corporation resulting from such merger or
consolidation or sale, to which the holder of shares of Common Stock deliverable
upon conversion would have been entitled on such reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this section with respect to the rights
of the holder of this Note after the reorganization, merger, consolidation or
sale to the end that the provisions of this section (including adjustment of the
Conversion Price then in effect and the number of shares of Common Stock
issuable upon exercise of the Conversion Right) shall be applicable after that
event as nearly equivalent hereto as may be practicable.
(f) Minimum Adjustment. Notwithstanding anything to the contrary
set forth herein, no adjustment of the Conversion Price shall be made in an
amount equal to less than one cent ($.01), but any such lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
(g) Certificate of Adjustment. Upon the occurrence of each
adjustment or readjustment of the applicable Conversion Price pursuant to this
section, the Borrower shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to the holder of this
Note a certificate, signed by the Chairman of the Board,
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the President or the Chief Financial Officer, setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
(h) Notices of Record Date. If and in the event that:
(i) the Borrower shall set a record date for the purpose of
entitling the holders of shares of Common Stock to receive a dividend, or any
other distribution, payable otherwise than in cash;
(ii) the Borrower shall set a record date for the purpose of
entitling the holders of shares of Common Stock to subscribe for or purchase any
shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the
Borrower, reclassification of the shares of capital stock of the Borrower (other
than a subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Borrower with or into another corporation, or
sale of all or substantially all of the assets of the Borrower; or
(iv) there shall occur a voluntary or involuntary
dissolution, liquidation, or winding up of the Borrower;
then, and in any such case, the Borrower shall cause to be mailed to the holder
of record of this Note, at least thirty (30) days prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exercise the Conversion Right for
securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, sale, dissolution, liquidation or winding
up.
6. Reservation. The Borrower covenants that prior to the Conversion
Date, the Borrower will at all times have authorized and reserved for the
purpose of issuance upon exercise of the Conversion Right, a sufficient number
of shares of Common Stock and New Common (or other securities subject to the
Conversion Right) to provide for the exercise of the Conversion Right in full.
7. Fractional Shares. No fractional shares of Common Stock shall be
issued upon exercise of the Conversion Right. In lieu of any fractional shares
of Common Stock to which the Lender would otherwise be entitled, the Borrower
shall pay an amount equal to the product of such fraction multiplied by the fair
value of one share of Common Stock on the Conversion Date, as determined in good
faith by the Board of Directors of the Borrower.
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8. Registration Rights. The Borrower hereby covenants and agrees as
follows:
(a) Definitions. For purposes of this section:
(i) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and the
declaration of effectiveness of such registration statement or other document by
the Securities and Exchange Commission (the "SEC").
(ii) The term "Registrable Securities" means: (A) the shares
of Common Stock issued or issuable upon conversion of this Note; or (B) any
other securities of the Borrower issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, in exchange for or in replacement of the
shares of Common Stock referenced in subsection (ii)(A) immediately above,
excluding in all cases, however, any Registrable Securities sold to the public
pursuant to a registration or an exemption from registration.
(iii) The number of shares of "Registrable Securities then
outstanding" shall be the number of securities outstanding which are Registrable
Securities.
(iv) The term "Holder" as used hereinafter in this Section 8
means any person or entity owning of record Registrable Securities.
(b) Demand Registration Rights.
(i) If the Borrower shall receive, at any time after the
Borrower registers and becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), a written
request (the "Demand Request") from the Holder, if only one Holder, or in the
event of more than one Holder, the Holders of at least fifty percent (50%) of
the Registrable Securities, requesting that the Borrower file a registration
statement under the Securities Act relating to the Registrable Securities then
outstanding, then the Borrower shall promptly provide notice of such request to
any other Holders (together with a list of the jurisdictions in which the
Borrower intends to attempt to qualify the offer and sale of the Registrable
Securities under applicable state securities laws) and, as soon as is
practicable thereafter, file a registration statement under the Securities Act
relating to or otherwise including all of the Registrable Securities which the
Holder or Holders have requested to be registered, subject to Subsection
8(b)(iii)below.
(ii) If the Holder or Holders intend to distribute the
Registrable Securities covered by the Demand Request by means of an
underwriting, they shall so advise the Borrower as a part of the Demand Request
made pursuant hereto.
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(iii) All Holders proposing to distribute their securities
through an underwriting (together with the Borrower as set forth in Subsection
8(d) below) shall enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Holder (or, if
more than one Holder, the Holders of more than fifty percent (50%) of the
Registrable Securities) and reasonably acceptable to the Borrower.
Notwithstanding any other provision hereof, if the managing underwriter advises
such Holder or Holders in writing that marketing factors require a limitation of
the number of securities to be underwritten, the number of shares of Registrable
Securities that may be included in the registration shall be so limited. Any
Registrable Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation may, at the discretion of the managing
underwriter, be included in such registration statement but the sale thereof may
be deferred up to ninety (90) days after the effective date thereof at the
request of the managing underwriter. If the managing underwriter has not limited
or otherwise objected to the number of Registrable Securities to be
underwritten, the Borrower may include securities for its own account in such
registration and the number of Registrable Securities which would otherwise have
been included in such registration and underwriting will not thereby be limited.
The Borrower shall be obligated to effect only one (1) demand registration
pursuant hereto. To the extent that the Holder or Holders demand registration
pursuant hereto and any of their Registrable Securities are included for
registration hereunder, the demand registration right provided hereby shall be
deemed to have been exercised.
(c) Piggy-Back Registration Rights. If, at any time after the
Borrower registers and becomes subject to the reporting requirements of the
Exchange Act, the Borrower proposes to file a registration statement relating to
any of its securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration on Form
S-4, Form S-8 or any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Borrower shall promptly
give each Holder written notice of such registration (the "Piggy-Back Notice");
provided, however, that the Borrower shall have no obligation to so notify
Holders with respect to any registration subsequent to the first of such
registrations to occur after the issuance of this Note and shall have no
obligation if such registration statement relates to an underwritten offering by
the Borrower and the managing underwriter of the subject proposed offering
expresses its objection thereto to the Borrower. Upon the written request of a
Holder given within twenty (20) days after receipt of such Piggy-Back Notice
from the Borrower, the Borrower shall, subject to the provisions of Subsections
8(h) and 8(m) below, cause to be included in the registration statement filed by
the Borrower under the Securities Act all of the Registrable Securities that
such Holder has requested to be registered; provided, however, that the Borrower
shall have no such obligation if such registration statement relates to an
underwritten offering by the Borrower and the managing underwriter of the
subject offering has expressed its objection to the same to the Borrower. To the
extent that a Holder is offered the opportunity hereunder to include its
Registrable Securities in a registration statement and includes any of its
Registrable Securities therein, the piggy-back registration right provided
hereby shall be deemed to have been exercised.
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(d) Obligations of the Borrower. Whenever required under this
section to file a registration statement to effect the registration of any
Registrable Securities, the Borrower shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder or, in the case of more than one Holder, the Holders of at least fifty
percent (50%) of the Registrable Securities, keep such registration statement
effective for at least six (6) months.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus included therein
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by such Holders.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Borrower shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering.
(vi) Notify the Holders promptly after the Borrower shall
have received notice thereof, of the time when the registration statement
becomes effective or any supplement to any prospectus forming a part of the
registration statement has been filed.
(vii) Notify the Holders of any stop order suspending the
effectiveness of the registration statement and use its reasonable best efforts
to remove such stop order.
(e) Furnish Information. It shall be a condition precedent to the
obligations of the Borrower to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Borrower pursuant hereto shall furnish to the Borrower such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of its Registrable Securities. In that connection, each such
Holder shall be required
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to represent to the Borrower that all such information which is given is both
complete and accurate in all material respects.
(f) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Borrower in complying with Sections 8(b) and 8(c) hereof, including
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Borrower, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Borrower which shall be paid in any event by the Borrower).
(ii) "Selling Expenses" shall mean all underwriting
discounts, selling commissions and underwriters' expense allowance applicable to
the sale and all fees and disbursements of any special counsel (other than the
Borrower's regular counsel) for any Holder.
(g) Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance herewith, shall
be borne by the Borrower, and all Selling Expenses shall be borne by the Holders
of the securities so registered pro rata on the basis of the number of
Registrable Securities so registered; provided, however, that the Borrower shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by a Holder, the registration statement
does not become effective. In the case of such withdrawal and the failure of
such Holder to agree so to forfeit, such Holder shall bear such Registration
Expenses on a pro rata basis based on the number of Registrable Securities so
included in the registration request.
(h) Underwriting Requirements. All Holders proposing to distribute
Registrable Securities through an underwriting pursuant hereto shall (together
with the Borrower and any other securityholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Borrower. Notwithstanding any other provision of this section, at the request of
the managing underwriter, each Holder shall delay the sale of Registrable
Securities which such Holder has requested be registered under this section for
a period of up to ninety (90) days commencing with the effective date of the
registration statement. Notwithstanding anything to the contrary herein, no such
delay shall be required with respect to securities offered by holders of
securities who have requested the Borrower to register such securities pursuant
to a mandatory registration obligation of the Borrower if other securityholders
of the Borrower who have not made requests pursuant to such an obligation are
not subject to a similar delay. If a Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Borrower and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall not be withdrawn from such registration except at
the election of such Holder.
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(i) Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this section.
(j) Indemnification. In the event that any Registrable Securities
are included in a registration statement pursuant hereto:
(i) To the extent permitted by law, the Borrower will
indemnify and hold harmless each Holder, the officers, directors and partners of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person or entity, if any, that controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (A) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; (B) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or (C) any violation or
alleged violation by the Borrower of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Borrower will
reimburse each such Holder, officer, director or partner, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Borrower (which consent shall not be unreasonably withheld),
nor shall the Borrower be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
a Holder, underwriter or controlling person; and further provided, however, that
the foregoing indemnity agreement is subject to the condition that, insofar as
it relates to any untrue statement, alleged untrue statement, omission or
alleged omission made in any preliminary prospectus but eliminated or remedied
in the definitive prospectus, such indemnity agreement shall not inure to the
benefit of the underwriter (or the benefit of any person or entity that controls
such underwriter), if a copy of the definitive prospectus was not sent or given
to such person or entity with or prior to the confirmation of the sale of such
securities to such person or entity.
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Borrower, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Borrower within the meaning of the Securities Act or the Exchange
Act, any underwriter (within the meaning of the Securities Act)
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for the Borrower, any person who (or entity that) controls such underwriter, and
any other securityholder selling securities in such registration statement or
any of its directors or officers or any person who controls such securityholder,
against any losses, claims, damages or liabilities (joint or several) to which
the Borrower or any such director, officer, controlling person (or entity), or
underwriter or controlling person, or other such securityholder or director,
officer or controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by the securityholder expressly for use in connection with
such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Borrower or any such director, officer,
controlling person (or entity), underwriter or controlling person (or entity),
other Holder, officer, director or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of such
Holder, which consent shall not be unreasonably withheld.
(iii) Promptly after receipt by an indemnified party under
this Section 8(j) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 8(j), notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 8(j), but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 8(j).
(k) Reports Under Securities Exchange Act of 1934. With a view
toward making available to the Holder the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Borrower to the public without
registration, the Borrower agrees to:
(i) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times;
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(ii) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Borrower under the
Securities Act and the Exchange Act; and
(iii) furnish to each Holder, so long as such Holder owns any
Registrable Securities, promptly upon request such information as may be
reasonably requested in order to allow such Holder to avail itself of any rule
or regulation of the SEC which permits the selling of any such securities
without registration.
(l) Termination of the Borrower's Obligations.
(i) The Borrower shall have no obligation pursuant to
Section 8 with respect to any request made by a Holder after the second
anniversary of the Termination Date.
(ii) Notwithstanding any provision hereof to the contrary,
the Borrower shall not be required to effect any registration under the
Securities Act or under any state securities laws on behalf of any Holder if, in
the opinion of counsel for the Borrower, the offering or transfer by such Holder
in the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred and the method of offering or transfer) is
exempt from the registration requirements of the Securities Act and the
securities laws of applicable states.
(m) Lock Ups; Limitation on Rights. The Lender (and any subsequent
Holder) by acceptance hereof hereby agrees that, in the event that subsequent to
the date hereof, the Borrower conducts an underwritten public offering of its
securities: (i) the right to demand or otherwise request registration pursuant
to the provisions hereof shall be subject to the approval of the underwriter of
such public offering; and (ii) the Lender (and any subsequent Holder) shall
agree to refrain from exercising such rights or selling, transferring or
otherwise disposing of any of the Registrable Securities for a period of up to
nine (9) months should the underwriter so request in writing.
(n) Restricted Securities. By acceptance hereof, the Lender (and
any subsequent Holder) understands and agrees that this Note and the shares of
Common Stock and New Common issuable upon conversion hereof are "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Borrower in a transaction not involving a public offering and
have not been the subject of registration under the Securities Act and that
under such laws and applicable regulations such securities may be resold in the
absence of registration under the Securities Act only in certain limited
circumstances. The Lender (and any subsequent Holder by acceptance hereof)
represents that it is familiar with Rule 144 promulgated under the Securities
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
9. Legends. It is understood that this Note and each certificate
evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with
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respect thereto pursuant to any stock split, stock dividend, merger or other
form of reorganization or recapitalization) shall bear the legends (in addition
to any legends which may be required in the opinion of the Borrower's counsel by
the securities laws of the state where the Lender is located) substantially as
set forth on the first page of this Note.
10. Presentment. Except as set forth herein, Borrower waives
presentment, demand and presentation for payment, notice of nonpayment and
dishonor, protest and notice of protest and expressly agrees that this Note or
any payment hereunder may be extended from time to time by the Lender without in
any way affecting the liability of Borrower.
11. Notices.
(a) Notices to the Lender. Any notice required by the provisions
of this Note to be given to the Lender (or a subsequent Holder) shall be in
writing and may be delivered by personal service, facsimile transmission or by
registered or certified mail, return receipt requested, with postage thereon
fully prepaid or overnight delivery courier. All such communications shall be
addressed to the Lender or Holder of record at its address appearing on the
books of the Borrower. Service of any such communication made only by mail shall
be deemed complete on the date of actual delivery as shown by the addressee's
registry or certification receipt or at the expiration of the third (3rd)
business day after the date of mailing, whichever is earlier in time.
b. Notices to the Borrower. Whenever any provision of this Note
requires a notice to be given or a request to be made to the Borrower by the
Lender (or a subsequent Holder), then and in each such case, any such notice or
request shall be in writing and shall be sent by registered or certified mail,
return receipt requested with postage thereon fully prepaid to the Borrower at
its principal place of business. No notice given or request made hereunder shall
be valid unless signed by the Lender (or subsequent Holder) giving such notice
or request.
12. Events of Default.
(a) Upon the occurrence of an Event of Default (as defined in the
Loan Agreement), this Note shall be considered to be in default and the entire
unpaid principal sum hereof, together with accrued interest, shall at the option
of the holder hereof become immediately due and payable in full. Upon the
occurrence of an Event of Default and the placement of this Note in the hands of
an attorney for collection, the Borrower agrees to pay reasonable collection
costs and expenses, including reasonable attorneys' fees and interest from the
date of the default at the maximum rate permitted by law computed on the unpaid
principal balance.
(b) The Lender may waive any Event of Default hereunder. Such
waiver shall be evidenced by written notice or other document specifying the
Event or Events of Default being waived and shall be binding on all existing or
subsequent Lenders under this Note.
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13. Survival. In the event that all or a portion of the principal
hereunder is converted pursuant to Section 3 above, Section 8 hereof relating to
registration rights shall survive the termination of this Note upon cancellation
hereof resulting from repayment of the balance of amounts outstanding hereunder
or the issuance of a new note pursuant to Section 4 above.
14. Construction; Governing Law. The validity and construction of this
Note and all matters pertaining hereto are to be determined in accordance with
the laws of the State of Texas without regard to the conflicts of law principles
thereof.
IN WITNESS WHEREOF, Borrower, by its appropriate officers thereunto duly
authorized, has executed this Note and affixed its corporate seal as of this 4th
day of February 1998.
ATTEST: LVL COMMUNICATIONS CORPORATION
By: By:
-------------------------- -----------------------------
Secretary Name
-----------------------
Its:
-----------------------
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Exhibit 10.9
AMENDMENT TO THE
CONVERTIBLE LINE OF CREDIT NOTE
THIS AMENDMENT (the "Amendment") to the Convertible Line of Credit Note,
dated February 5th, 1998, by and between LVL Communications Corporation, a
California corporation (the "Borrower") and Trident III, L.L.C., a Cayman
Islands exempted company with a limited life (the "Lender).
WHEREAS, the Borrower entered into a Loan Agreement dated February 5,
1998 with the Lender, and pursuant to such Loan Agreement, the Borrower
executed, in favor of the Lender, a Convertible Line of Credit Note ("Note")
dated February 5th, 1998, providing the Lender, at Section 3, with the option of
converting all or a portion of the Note into certain redeemable and
non-redeemable Common Stock of the Borrower, or into a successor entity of the
Borrower;
WHEREAS, the Borrower subsequently submitted an Amended Plan of
Reorganization (the "Amended Plan") to the United States Bankruptcy Court for
the Northern District of California on March 24, 1998, and such Amended Plan was
approved by the Bankruptcy Court on April 16, 1998, without creditor objection;
and
WHEREAS, prior to the submission of the Amended Plan, the Borrower and
the Lender had agreed that the conversion ratios set forth below as amended
Section 3(a) were the true and correct conversion ratios for the Note, and the
terms of the certain redeemable Common Stock and non-redeemable Common Stock and
these conversion ratios and terms had been contemplated and approved by the
confirmed Amended Plan;
NOW, THEREFORE, with the consent of the Lender, the Borrower hereby
amends Section 3(a) of the Note to reflect the "Amended Conversion Price" and
terms of the redeemable and non-redeemable Common Stock as follows:
(a) Immediately following the effective date (the "Effective Date") of
the Debtors' Joint Plan of Reorganization (the "Plan") of the Borrower, (i) the
first one hundred fifty thousand dollars ($150,000) of the principal owing
hereunder shall, at the option of the Lender, be converted into 150,000 shares
of a new class of redeemable Common Stock ("New Common"); and 120,000 shares of
Common Stock shall be issued to the Lender, subject to adjustment pursuant to
Section 5 hereof; (ii) furthermore, immediately following the Effective Date,
each dollar of principal owing hereunder up to the next three hundred fifty
thousand dollars ($350,000) shall be converted at the option of the Lender into
1.0 shares of New Common; and 0.80 shares of Common Stock shall be issued to the
Lender for each dollar of principal owing up to such additional $350,000; (iii)
furthermore, immediately following the Effective Date each dollar of principal
owing hereunder in excess of five hundred thousand dollars ($500,000) (A) shall
be converted at the option of the Lender into 1.0 share of New
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Common; and (B) 0.40 shares of Common Stock of the Borrower shall be issued to
the Lender for each dollar of principal owing up to such additional $500,000,
subject to adjustment as provided in Section 5 hereof. (The conversion ratios
established in the prior two sentences of this section shall be referred to as
the "Conversion Price.") Any amount converted shall be deemed to reduce the
principal amount outstanding herewith by the amount so converted and shall
proportionately reduce the amount available to be borrowed by the Borrower
pursuant to this Note and the Loan Agreement. The New Common will have the
following rights, entitlements and privileges: it will have dividend rights on
par with those of Common Stock holders; except as otherwise required by law,
each share will vote share for share as a single class with the Common Stock;
the shares will be redeemed at the option of the Lender at $1.00 per share upon
the earlier of the closing of a subsequent debt or equity offering in excess of
three million dollars ($3,000,000) by the Borrower (or its successor) or the
receipt of proceeds from the Leasehold Deed of Trust in the event of
foreclosure.
IN WITNESS WHEREOF, Borrower, by its appropriate officers thereto, duly
authorized, has executed this Amendment to the Convertible Line of Credit Note
as of this 28th day of July, 1998.
ATTEST: LVL COMMUNICATIONS CORPORATION
By: By:
------------------------------ -------------------------------
Secretary Xxxxxxx Xxx, President
CONSENT:
TRIDENT III, L.L.C.
By:
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