Exhibit 4.1
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("AGREEMENT") dated as of
February 23, 2000 between ADVANCED COMMUNICATIONS GROUP, INC. (whose name may
be changed to XxxxxXxxxx.xxx, Inc.) a Delaware corporation (the "COMPANY"),
and each person or entity listed as an investor on SCHEDULE I attached to
this Agreement (each individually and "INVESTOR" and collectively the
"INVESTORS").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and
the Investors wish to purchase from the Company, 5% Convertible Debentures
due February 23, 2006 (the "DEBENTURES"), in the aggregate principal amount
of $20,000,000 at an aggregate price of $20,000,000, having the rights and
privileges set forth in the Debentures in the form of EXHIBIT 1.1A attached
hereto (the "INITIAL ISSUANCE"), on the terms and conditions set forth
herein; and
WHEREAS, the Debentures will be convertible into shares ("COMMON
SHARES") of common stock, par value $.0001 of the Company ("COMMON STOCK"),
pursuant to the terms of the Debentures, and the Investors will have
registration rights with respect to such Common Shares and the Warrant Shares
(as defined herein), pursuant to the terms of that certain Registration
Rights Agreement to be entered into between the Company and the Investors
substantially in the form of EXHIBIT 4.2(f) hereto ("REGISTRATION RIGHTS
AGREEMENT");
WHEREAS, to induce the Investors to purchase the Debentures, the
Company has agreed to issue to the Investors warrants exercisable for 572,350
of Common Stock in the form attached as EXHIBIT 1.1B (the "WARRANTS"; and,
together with the Debentures, the "SECURITIES");
WHEREAS, the Company may elect, and thereafter be required by the
Investors, to sell to the Investors additional Debentures (the "OPTION
DEBENTURES") in the aggregate principal amount of up to $5,000,000 and
$2,500,000, respectively, at an aggregate price of up to $5,000,000 and
$2,500,000, respectively, as further described herein;
WHEREAS, upon the issuance of the Option Debentures, the Company has
agreed to issue additional Warrants exercisable for shares of Common Stock
(the "OPTION WARRANTS," and together with the Option Debentures, the "OPTION
SECURITIES") as further described herein;
WHEREAS, in addition to the foregoing, the Investors may elect, in
each of their sole discretion, to purchase additional Debentures (the
"ADDITIONAL DEBENTURES" and, collectively with the Option Debentures, the
"SUBSEQUENT DEBENTURES" and, collectively with the Option Securities, the
"SUBSEQUENT SECURITIES") in the aggregate principal amount of $2,500,000 at
an aggregate price of $2,500,000, as further described herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
PURCHASE AND SALE OF DEBENTURES AND WARRANTS, ETC.
Section 1.1 INITIAL ISSUANCE OF DEBENTURES AND WARRANTS.
(a) INITIAL ISSUANCE. Upon the following terms and conditions,
the Company shall issue and sell to each Investor severally, and each
Investor severally shall purchase from the Company, the outstanding principal
amount of Debentures and the number of Warrants indicated next to such
Investor's name on SCHEDULE I attached hereto.
(b) PURCHASE PRICE. The purchase price for the Debentures to be
acquired by each Investor (the "PURCHASE PRICE") shall be the Purchase Price
set forth next to such Investor's name on SCHEDULE I.
(c) THE CLOSING.
(i) The closing of the purchase and sale of the
Debentures and the Warrants (the "CLOSING") in the Initial
Issuance, shall take place at the offices of Kleinberg, Kaplan,
Xxxxx & Xxxxx, P.C. ("INVESTORS' COUNSEL") or at such other
place as is mutually agreeable, at 10:00 am., local time on the
later of the following: (x) the date on which the last to be
fulfilled or waived of the conditions set forth in Article 4
hereof and applicable to the Closing shall be fulfilled or
waived in accordance herewith, or (y) such other time and place
and/or on such other date as the Investors and the Company may
agree. The date on which the Closing occurs is referred to
herein as the "CLOSING DATE".
(ii) On the Closing Date, the Company shall deliver
to each Investor (x) certificates (with the number of and
outstanding principal amount of such certificates requested by
such Investor) representing the Debentures purchased hereunder
by such Investor at the Closing registered in the name of such
Investor or its nominee and (y) the Warrants registered in the
name of Investor or its nominee in such denominations as
reasonably requested by such Investor, and such Investor shall
deliver to the Company the Purchase Price for the Debentures
purchased by such Investor hereunder by wire transfer in
immediately available funds to an account designated in writing
by the Company. The delivery of payment by each Investor of the
Purchase Price applicable to it as set forth in this paragraph
shall constitute a payment delivered to the Company in
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satisfaction of such Investor's obligation to pay the Purchase
Price hereunder. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by
such party pursuant to this Agreement at or prior to the
applicable Closing.
Section 1.2 OPTION SECURITIES.
(a) TERMS. Option Debentures and Option Warrants may be issued
pursuant to Sections 1.2(b) and 1.2(c) below. Once issued, the Option
Debentures and Option Warrants shall be subject to the same terms as the
Debentures and Warrants issued on the Closing Date and shall have the same
rights and privileges appurtenant thereto, except with respect to the
following: (i) the Closing Price applicable to the Option Debentures shall be
the average of the Market Price for Shares of Common Stock for the ten (10)
Trading Days prior to the Subsequent Closing Date (as defined herein) (the
"OPTION CLOSING PRICE"); (ii) the Conversion Price shall be equal to 110% of
the Option Closing Price; (iii) the Conversion Price shall Reset on the
6-month, 12-month, 18-month and 24-month anniversary of the Subsequent
Closing Date; (iv) the Purchase Price (as defined in the Warrants) of the
Option Warrants shall be equal to 130% of the Option Closing Price; (v) the
maturity date of the Option Debentures shall be the sixth anniversary of the
issuance of such Debentures; and (vi) the maturity date of the Option
Warrants shall be the fifth anniversary of the issuance of such Warrants. The
Option Securities issued pursuant to this Section 1.2 shall be issued
pursuant to documentation that is the same in all material respects to the
Debentures and Warrants other than changes necessary to conform the documents
to the distinctive terms of such Option Securities as set forth herein.
Except as otherwise indicated in this Section 1.2(a), undefined terms in this
Section 1.2 shall have the meaning set forth in the Debentures.
(b) THE COMPANY PUT OPTION.
(i) The Company may compel the Investors to
purchase (the "Company Put Option") Option Debentures up to a
total aggregate principal amount of $5,000,000 at a total
aggregate price of $5,000,000, upon written notice, for
immediately available funds, in accordance with the procedures
described below; provided that each Investor may only be
compelled to purchase a percentage of the total Option
Debentures subject to the Company Put Option equal to the
percentage such Investor purchased of the total principal
amount of the Debentures purchased pursuant to the Initial
Issuance. Upon the issuance of Option Debentures pursuant to
the exercise of the Company Put Option, the Company shall issue
to the Investors (pro rata in accordance with the percentages
of total Option Debentures each Investor shall have purchased)
Option Warrants for the purchase of ($1,500,000 DIVIDED BY the
Option Closing Price) plus 37,500 shares of Common Stock (such
number of shares to be subject to adjustment in a manner
consistent with the provisions adjusting the number of shares
issuable under the Warrant upon the occurrence of certain
events) per $5,000,000 principal amount of Option Debentures
issued to the Investors.
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(ii) The Company may exercise the Company Put
Option on only one occasion and only during the period
beginning on the 30th day after the Closing Date and
expiring on 120th day after the Closing Date (the "OPTION
PERIOD") by providing each Investor with at least 15
business days written notice (the "PUT OPTION NOTICE")
indicating that the Company is exercising its Company Put
Option, setting forth the pro rata amount that such
Investor is required to purchase (as determined in
accordance with Section 1.2(b)(i) above) and specifying the
date ("THE SUBSEQUENT CLOSING DATE") that the purchase is to
occur (the "SUBSEQUENT CLOSING"). The obligations of the
Investors to purchase Debentures hereunder shall be in all
respects several and not joint.
(iii) Notwithstanding anything herein to the
contrary, the right of the Company to exercise the Company Put
Option under this Section 1.2 shall be conditional upon the
following (unless waived by the respective Investor):
A. All the Company's representations and
warranties contained in this Agreement, the
Registration Rights Agreement, the Debentures
and the Warrants shall be true and correct in
all material respects as of the Closing Date,
the date of the Put Option Notice and the
Subsequent Closing Date (except for
representations and warranties as of an
earlier date, which shall be true and correct
in all material respects as of such date); and
all the Company's covenants contained in this
Agreement, the Registration Rights Agreement,
the Debentures and the Warrants shall have
been performed when and as required, all as
certified in writing by the chief financial
officer of the Company;
B. A Material Adverse Effect (as defined in
Section 2.1(a)) shall not have occurred as of
the date of the Put Option Notice and as of
the relevant Subsequent Closing Date with
respect to the business, operations,
properties or financial condition of the
Company or its subsidiaries;
C. No Event of Default (as defined in the
Debentures) shall have occurred, be likely to
occur or be threatened, as of the date of the
Put Option Notice and as of the relevant
Subsequent Closing Date;
D. The Company is listed on the Principal
Market and the closing bid price of a share of
Common Stock on the Principal Market (as
defined herein) on the date of the Put Option
Notice and the Subsequent Closing Date shall
be above $12.
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E. There have been no breaches by the
Company as of the date of the Put Option
Notice and the Subsequent Closing Date that
have not been fully cured under this
Agreement, the Registration Rights Agreement,
the Debentures or the Warrants.
F. The obligation hereunder of each Investor
to acquire and pay for the Option Debentures
at the Subsequent Closing (unless otherwise
specified) shall be subject to the
satisfaction at or before the relevant
Subsequent Closing Date, of each of the
applicable conditions set forth in Section
4.2, except that all references to the Closing
or the Closing Date shall be deemed to refer
to such Subsequent Closing Date.
G. The Company has received the shareholder
approval required under Section 3.14.
(c) THE INVESTOR CALL OPTION.
(i) Only upon the receipt of a Company Put Notice
in accordance with Section 1.2(a) above, the Investors may
compel the Company to sell (the "INVESTOR CALL OPTION")
up to a total aggregate principal amount of $2,500,000 at
a total aggregate price of $2,500,000, upon written
notice, for immediately available funds, in accordance with
the procedures described below; PROVIDED that each Investor
shall only be entitled to purchase a percentage of the total
Option Debentures subject to the Investor Call Option equal
to the percentage such Investor purchased of the total
principal amount of the Debentures purchased pursuant
to the Initial Issuance. Notwithstanding the foregoing,
each Investor may assign its right to purchase Option
Debentures to any other Investor without the consent of
the Company or any other Investor. Upon the issuance of
Option Debentures pursuant to the exercise of the Investor
Call Option, the Company shall issue to the Investors (pro
rata in accordance with the percentages of total Option
Debentures each Investor shall have purchased) Option
Warrants for the purchase of (750,000 DIVIDED BY the Option
Closing Price) plus 18,750 shares of Common Stock (such number
of shares to be subject to adjustment in a manner consistent
with the provisions adjusting the number of shares issuable
under the Warrant upon the occurrence of certain events) per
$2,500,000 principal amount of Option Debentures issued to such
Investor.
(ii) Each Investor may exercise the Investor Call
Option on only one occasion and only during the period
commencing upon the receipt of a Company Put Notice and
expiring 30 days following the Option Period by providing the
Company with at least 15 business days written notice (the
"CALL OPTION NOTICE") indicating that such Investor is
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exercising its Investor Call Option, setting forth the amount
that the Investor seeks to purchase (in accordance with Section
2(b)(i) above) and specifying the Subsequent Closing Date.
(iii) Notwithstanding anything herein to the
contrary, the right of the Investors to exercise the Investors
Call Option under this Section 1.2 shall be conditional upon
the following (unless waived by the Company):
A. All the Investors' representations and
warranties contained in this Agreement, the
Registration Rights Agreement, the Debentures
and the Warrants shall be true and correct in
all material respect as of the Closing Date,
the Call Option Notice date and the relevant
Subsequent Closing Date (except for
representations and warranties as of an
earlier date, which shall be true and correct
in all material respects as of such date); and
all the Investors' covenants contained in this
Agreement, the Registration Rights Agreement,
the Debentures and the Warrants shall have
been performed when and as required.
B. The obligation hereunder of the Company
to issue and sell the Option Debentures on the
Subsequent Closing Date (unless otherwise
specified) is subject to the satisfaction at
or before the relevant Subsequent Closing Date
of each of the applicable conditions set forth
in Section 4.1, except that all references to
the Closing or the Closing Date shall be
deemed to refer to the relevant Subsequent
Closing Date.
Section 1.3 ADDITIONAL DEBENTURES.
(a) TERMS. Additional Debentures may be issued pursuant to
Section 1.3(b) below. Once issued, the Additional Debentures shall be subject
to the same terms as the Debentures issued on the Closing Date and shall have
the same rights and privileges appurtenant thereto, except with respect to
the following: (i) the Conversion Price shall be equal to 110% of the initial
Closing Price as adjusted subsequent to the Closing Date other than pursuant
to a Reset pursuant to Section 5(c) of the Debentures; and (ii) the maturity
date of the Additional Debentures shall be the sixth anniversary of the
issuance of such Debentures. The Additional Debentures issued pursuant to
this Section 1.3 shall be issued pursuant to documentation that is the same
in all material respects to the Debentures other than changes necessary to
conform the documents to the distinctive terms of the Additional Debentures
as set forth herein.
(b) THE ADDITIONAL INVESTOR CALL OPTION. At any time prior to
the 270th day after the Closing Date, in addition to the Option Debentures
set forth in Section 1.2(b) above, the Investors, in each of their sole
discretion, may elect to purchase (the
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"Additional Investor Call Option") additional Debentures ("Additional
Debentures") up to a total aggregate principal amount of $2,500,000 at a
total aggregate price of $2,500,000, otherwise in accordance with the
procedures set forth in Section 1.2(b)(i) - (iii) above.
Section 1.4 REFERENCES. All references to Debentures, Warrants
and Securities in this Agreement and the Registration Rights Agreement shall
include the Initial Debentures, Option Debentures, the Additional Debentures,
the Subsequent Debentures, the Initial Warrants, Option Warrants, the Option
Securities and the Subsequent Securities to the extent that such securities
have been issued.
Section 1.5 BOARD APPROVAL. As of the Closing Date, Sections 1.2,
1.3 and 1.4 above are subject to obtaining the requisite approval by the
Company's Board of Directors.
Section 1.6 SUBORDINATION AGREEMENT. The rights of the Investors
under this Agreement are subject to the terms of the Subordination Agreement
dated February 23, 2000, among the Senior Lenders (as defined therein) and,
among others, the Investors (the "SUBORDINATION AGREEMENT").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby makes the following representations and warranties to each of
the Investors as of the date hereof and on the Closing Date:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT.
The Company is a corporation duly incorporated and existing in good standing
under the laws of the State of Delaware and has the requisite corporate power
to own its properties and to carry on its business as now being conducted.
The Company does not have any direct or indirect subsidiaries (defined as any
entity of which the Company owns, directly or indirectly, 50% or more of the
equity or voting power) other than the subsidiaries listed on SCHEDULE 2.1(a)
attached hereto. Except where specifically indicated to the contrary, all
references in this Agreement to subsidiaries shall be deemed to refer to all
direct and indirect subsidiaries of the Company. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary other
than those in which the failure so to qualify would not have a Material
Adverse Effect. "MATERIAL ADVERSE EFFECT" means any adverse effect on the
business, operations, properties or financial condition of the entity with
respect to which such term is used and which is (either alone or together
with all other adverse effects) material to such entity and other entities
controlling or controlled by such entity taken as a whole, and any material
adverse effect on the transactions contemplated under
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this Agreement, the Registration Rights Agreement or any other agreement or
document contemplated hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Warrants and the Registration Rights Agreement and to issue
the Debentures and Warrants in accordance with the terms hereof and thereof,
(ii) the execution and delivery of this Agreement, the Warrants and the
Registration Rights Agreement by the Company and the consummation by it of
the transactions contemplated hereby and thereby, including the issuance of
the Debentures, the Common Shares and the Warrant Shares, have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors (or any committee or
subcommittee thereof) or stockholders is required, (iii) this Agreement, the
Warrants, the Debentures and the Registration Rights Agreement have been duly
executed and delivered by the Company, and (iv) this Agreement, the Warrants,
the Debentures and the Registration Rights Agreement constitute valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of
creditors' rights and remedies or by other equitable principles of general
application.
(c) CAPITALIZATION. The authorized capital stock of the
Company consists of 180,000,000 shares of Common Stock and 20,000,000 shares
of preferred stock; as of December 31, 1999 there were 20,426,753 shares of
Common Stock and 0 shares of preferred stock issued and outstanding; and,
except as set forth on Schedule 2.1(c) and except for shares contemplated by
the YPtel Acquisition (as defined below), no shares of Common Stock and no
shares of preferred stock were reserved for issuance to persons other than
the Investors. All of the outstanding shares of the Company's Common Stock
and preferred stock have been validly issued and are fully paid and
nonassessable. No shares of capital stock are entitled to preemptive rights;
and there are as of December 31, 1999 outstanding options and outstanding
warrants for 3,806,523 shares of Common Stock (excluding the Warrants).
Except as set forth on Schedule 2.1(c), there are no other scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights exchangeable for or convertible into, any shares of
capital stock of the Company, or contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company or options, warrants, scrip, rights to
subscribe to, or commitments to purchase or acquire, any shares, or
securities or rights convertible or exchangeable into shares, of capital
stock of the Company, except as may otherwise be set forth in the relevant
SEC Documents (as defined below) with respect to the Company's acquisition of
YPtel Corporation, Web YP, Inc. and Big Stuff, Inc. (the "YP COMPANIES") and
related transactions (collectively, the "YPtel Acquisition"). Attached hereto
as EXHIBIT 2.1(c)(i) is a true and correct copy of the Company's Certificate
of Incorporation (the "CHARTER"), as in effect on the date hereof, and
attached hereto as EXHIBIT 2.1(c)(ii) is a true and correct copy of the
Company's By-Laws, as in effect on the date hereof (the "BY-LAWS").
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(d) ISSUANCE OF COMMON SHARES. The Common Shares and the
shares of Common Stock issuable upon the exercise of the Warrants (the
"WARRANT SHARES") are duly authorized and reserved for issuance and, upon
such conversion in accordance with the Debentures and/or exercise in
accordance with the Warrants such Common Shares and Warrant Shares will be
validly issued, fully paid and non-assessable, free and clear of any and all
liens, claims and encumbrances, and entitled to be traded on the ("NYSE") (or
the American Stock Exchange or the Nasdaq National Market System,
collectively with the NYSE, the "APPROVED MARKETS"), and the holders of such
Common Shares and Warrant Shares shall be entitled to all rights and
preferences accorded to a holder of Common Stock. The outstanding shares of
Common Stock are currently listed on the NYSE.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby and the issuance of the Debentures and the Warrants do not
and will not (i) result in a violation of the Company's Charter or By-Laws or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the
Company or any of its subsidiaries is a party (collectively, "COMPANY
AGREEMENTS"), or (iii) result in a violation of any federal, state, local or
foreign law, rule, regulation, order, judgment or decree (including Federal
and state securities laws and regulations) applicable to the Company or any
of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected, except (other than in the case of
clause (i) above) where such violation would not reasonably be expected to
have a Material Adverse Effect. The business of the Company and its direct
and indirect subsidiaries is being conducted in material compliance with (i)
its Charter and By-Laws, (ii) all Company Agreements and (iii) all applicable
laws, ordinances or regulations of any governmental entity, except (other
than in the case of clause (i) above) where such violation would not
reasonably be expected to have a Material Adverse Effect. Except for filings,
consents and approvals required under applicable state and federal securities
laws or the rules and regulations of the Approved Markets and covered by the
Registration Rights Agreement, the Company is not required under Federal,
state, local or foreign law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants or issue and sell the Debentures in accordance
with the terms hereof and issue the Common Shares upon conversion thereof and
issue the Warrant Shares on exercise of the Warrants and for the registration
provisions provided in the Registration Rights Agreement.
(f) SEC DOCUMENTS; NO NON-PUBLIC INFORMATION; FINANCIAL
STATEMENTS. The Common Stock of the Company is registered pursuant to Section
12(b) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")
and the Company and its subsidiaries have filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission
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("SEC") pursuant to the reporting requirements of the Exchange Act, including
all such proxy information, solicitation statement and registration
statements, and any amendments thereto required to have been filed in
connection with the YPtel Acquisition (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "SEC
DOCUMENTS"). The Company has delivered or made available to the Investors
true and complete copies of all SEC Documents filed with the SEC since
December 31, 1998. The Company has not directly or indirectly provided to the
Investors any material non-public information or any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The SEC Documents contain all material information concerning
the Company and its subsidiaries, and no event or circumstance has occurred
which would require the Company to disclose such event or circumstance in
order to make the statements in the SEC Documents not misleading on the date
hereof or on the Closing Date but which has not been so disclosed.
(g) FINANCIAL STATEMENTS. The financial statements of the
Company and its subsidiaries and the YP Companies included in the SEC
Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects
the financial position of the Company and its subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). The audited financial statements of each of the Company and its
subsidiaries for the fiscal year ending December 31, 1999, the audited
financial statements of YPtel Corporation for the fiscal year ending October
31, 1999 and the unaudited financial statements of Big Stuff, Inc. for the
fiscal year ending December 31, 1999 have been prepared in accordance with
United States generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the
case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in
all material respects the financial position of the Company and its
subsidiaries, and each of the YP Companies, as the case may be, as of the
dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
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(h) PRINCIPAL EXCHANGE/MARKET. The principal market on which
the Common Stock is currently traded is the NYSE.
(i) NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, no
Material Adverse Effect has occurred or exists, and no event or circumstance
has occurred that with notice or the passage of time or both is reasonably
likely to result in a Material Adverse Effect with respect to the Company or
its subsidiaries.
(j) NO UNDISCLOSED LIABILITIES. The Company and its
subsidiaries have no liabilities or obligations not disclosed in the
Pre-Agreement SEC Documents (as defined below), other than those liabilities
incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since December 31, 1999, which liabilities,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its direct or indirect subsidiaries.
(k) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. To the best
knowledge of the Company, no material event or circumstance has occurred or
exists with respect to the Company or its direct or indirect subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
(l) NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, or, to its knowledge, any person acting on its or their
behalf has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act of 1933, as
amended (the "ACT")) in connection with the offer or sale of the Debentures
or Common Shares.
(m) NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor to its knowledge any person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of the Debentures, the Warrants or the Common Shares or
Warrant Shares under the Act.
The Issuance of the Debentures, Warrants, Common Shares, or Warrant
Shares to the Investors will not be integrated with any other issuance of the
Company's securities (past, current or future) which requires stockholder
approval under the rules of the NYSE.
(n) FORM S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Act and rules promulgated thereunder, and Form S-3 is permitted to be
used for the transactions contemplated hereby under the Act and rules
promulgated thereunder.
(o) INTELLECTUAL PROPERTY. The Company and/or its wholly-owned
subsidiaries owns or has licenses to use certain patents, copyrights and
trademarks ("INTELLECTUAL PROPERTY") associated with its business. The
Company and its subsidiaries have all intellectual property rights which are
needed to conduct the business
11
of the Company and its subsidiaries as it is now being conducted or as
proposed to be conducted as disclosed in the SEC Documents. The Company and
its subsidiaries have no reason to believe that the material intellectual
property rights which it owns are invalid or unenforceable or that the use of
such intellectual property by the Company or its subsidiaries infringes upon
or conflicts with any right of any third party, and neither the Company nor
any of its subsidiaries has received notice of any such infringement or
conflict, which individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect. The Company and its subsidiaries
have no knowledge of any infringement of its intellectual property by any
third party.
(p) POISON PILL PROVISIONS. Neither Company nor its
wholly-owned subsidiaries have a stockholder rights plan. None of the
acquisition of Debentures, Warrants, Common Shares or Warrant Shares nor the
deemed beneficial ownership of shares of Common Stock prior to, or the
acquisition of such shares pursuant to, the conversion of Debentures or the
exercise of the Warrants will in any event under any circumstance trigger the
poison pill provisions of any other or subsequently adopted plan or
agreement, or a substantially similar occurrence under any successor or
similar plan.
(q) NO LITIGATION. Except as set forth in the Pre-Agreement
SEC Documents (as defined in Section 2.2(c) (i) below), no litigation or
claim (including those for unpaid taxes) against the Company or any of its
subsidiaries is pending or, to the Company's knowledge, threatened, and no
other event has occurred, which if determined adversely could reasonably be
expected to have a Material Adverse Effect on the Company or could reasonably
be expected to materially and adversely effect the transactions contemplated
hereby. There is no legal proceeding described in the Pre-Agreement SEC
Documents that could reasonably be expected to have a Material Adverse Effect
on the Company.
(r) BROKERS. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company or any Investor relating to this Agreement or
the transactions contemplated hereby, except for amounts owing to Granite
Financial Group, which amounts shall be paid by the Investors, pursuant to a
separate agreement.
(s) ACKNOWLEDGEMENT OF DILUTION. The number of shares of
Common Stock constituting Common Shares or Warrant Shares may increase
substantially in certain circumstances, including the circumstance where the
trading price of the Common Stock declines. The Company acknowledges that its
obligation to issue Common Shares upon conversion of Debentures and Warrant
Shares upon exercise of the Warrants is absolute and unconditional,
regardless of the dilution that such issuance may have on other shareholders
of the Company.
(t) OTHER INVESTORS. Except as set forth on Schedule 2.1(t),
there are no outstanding securities issued by the Company that are entitled
to registration rights under the Act. Except as set forth on Schedule 2.1(t),
there are no outstanding securities issued by the Company that are directly
or indirectly convertible into, exercisable into, or exchangeable for, shares
of Common Stock of the Company, or that have anti-dilution or
12
similar rights that would be affected by the issuance of the Debentures, the
Common Shares, the Warrants or the Warrant Shares.
(u) CERTAIN TRANSACTIONS. Except as disclosed in the
Pre-Agreement SEC Documents or as set forth on Schedule 2.1(u), none of the
officers, directors, or key employees of the Company is presently a party to
any transaction with the Company or any of its subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner.
(v) PERMITS; COMPLIANCE. The Company and each of its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted (collectively, the
"COMPANY PERMITS"), except where failure to possess such Company Permits
would not have a Material Adverse Effect on the Company and there is no
action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits except for such
Company Permits the failure of which to possess, or the cancellation or
suspension of which, would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. To the best of its knowledge, neither
the Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
December 31, 1998, neither the Company nor any of its subsidiaries has
received any notification with respect to possible material conflicts,
material defaults or material violations of applicable laws.
(w) INSURANCE. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and its
direct and indirect subsidiaries are engaged. Except as set forth in Schedule
2.1(w), neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business without a significant increase in
cost.
(x) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's management, to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
13
c
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(y) ENVIRONMENTAL MATTERS. Except as otherwise disclosed in
the Pre-Agreement SEC Documents, the Company and each of its subsidiaries is
in compliance in all respects with all applicable state and federal
environmental laws except where any such non-compliance would not reasonably
be expected to have a Material Adverse Effect on the Company and no event or
condition has occurred that may interfere with the compliance by the Company
or any of its subsidiaries with any environmental law or that may give rise
to any liability under any environmental law that, individually or in the
aggregate, would have a Material Adverse Effect.
(z) SOLVENCY.
(i) Based on the financial condition of the
Company as of the Closing Date, the Company's fair saleable
value of its assets exceeds the amount that will be required to
be paid on or in respect of the Company's existing debts and
other liabilities (including known contingent liabilities) as
they mature.
(ii) Based on the financial condition of the
Company as of the Closing Date, the Company's assets do not
constitute unreasonably small capital to carry out its business
as now conducted and as proposed to be conducted including the
Company's capital needs taking into account the particular
capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability
thereof.
(iii) The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be payable on or
in respect of its debt). Based on the financial condition of
the Company as of the Closing Date, the current cash flow of
the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking
into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when
such amounts are required to be paid.
(iv) Neither the Company nor any of its
subsidiaries is subject to any bankruptcy, insolvency or
similar proceeding.
(aa) TAXES. All federal, state, city and other tax returns,
reports and declarations required to be filed or extended by or on behalf of
the Company and each of its subsidiaries have been filed or extended and all
such filed returns are complete and accurate and disclose all taxes (whether
based upon income, operations, purchases, sales, payroll, licenses,
compensation, business, capital, properties or assets or otherwise) required
to be paid in the periods covered thereby. All taxes required to be withheld
by or on behalf of the Company or any such subsidiary in connection with
amounts paid or owing to any employees, independent contractor, creditor or
other party have been
14
withheld, and such withheld taxes have either been duly and timely paid to
the proper governmental authorities or set aside in accounts for such
purposes.
(bb) TITLE TO PROPERTIES; ENCUMBRANCES. SCHEDULE 2.1(bb)
contains a complete and accurate list of all material real property,
leaseholds, or other interests therein owned by the Company and its
subsidiaries. Each of the Company and its subsidiaries owns (with good and
marketable title in the case of real property) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible
("Company Property")) that it purports to own. All material Company Property
is free and clear of all encumbrances and are not, in the case of real
property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations or limitations of any nature, except,
with respect to all such properties and assets, (a) mortgages, liens or
security interests shown on SCHEDULE 2.1(bb) as securing specified
liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (b)
liens for current taxes not yet due, and (c) with respect to real property,
(i) minor imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company or any of its
subsidiaries, and (ii) zoning laws and other land use restrictions
(including, but not limited to, easements of records) that do not impair the
present or anticipated use of the property subject thereto. All buildings,
plans, and structures owned by the Company or any of its subsidiaries lie
wholly within the boundaries of the real property owned by the Company or
such subsidiaries, and do not encroach upon the property of, or otherwise
conflict with the property rights of, any other person.
(cc) NO RELIANCE ON INVESTORS. The Company acknowledges and
agrees that each Investor is acting solely in the capacity of an arm's length
purchaser with respect to this Agreement and the Registration Rights
Agreement and the performance under the Debentures and the Warrants and the
transactions contemplated hereby and thereby. The Company further
acknowledges that no Investor is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement
and the Registration Rights Agreement and the performance under the
Debentures and the Warrants and the transactions contemplated hereby and
thereby. The Company further represents to the Investor that the Company's
decision to enter into this Agreement and the Registration Rights Agreement
and the performance under the Debentures and the Warrants has been based
solely on the independent evaluation by the Company and its representatives.
(dd) INTENTIONALLY LEFT BLANK.
(ee) GUARANTIES OF SUBSIDIARIES. The subsidiaries listed on
Schedule 4.2(k) hereto represent all of the Company's subsidiaries which have
delivered a guaranty to the Senior Lenders in connection with the Senior Debt
(as defined in Section 3.12).
(ff) INTENTIONALLY LEFT BLANK.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
of the Investors, severally (as to itself) and not jointly hereby makes the
following
15
representations and warranties to the Company as of the date hereof
and on the Closing Date:
(a) ORGANIZATION AND QUALIFICATION. Each of the Investors is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification necessary except where the failure
to be so qualified or in good standing would not reasonably be expected to
have a Material Adverse Effect on such Investor.
(b) AUTHORIZATION; ENFORCEMENT. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and
the Registration Rights Agreement and to purchase the Debentures and to
acquire the Warrants being sold to it hereunder, (ii) the execution and
delivery of this Agreement and the Registration Rights Agreement by such
Investor and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate or
partnership action, and (iii) this Agreement and the Registration Rights
Agreement constitute valid and binding obligations of such Investor
enforceable against such Investor in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the performance
under the Debentures and Warrants and the consummation by such Investor of
the transactions contemplated hereby and thereby do not and will not (i)
result in a violation of such Investor's organizational documents, or (ii)
conflict with any agreement, indenture or instrument to which such Investor
is a party, or (iii) result in a material violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental
agency applicable to such Investor. Such Investor is not required to obtain
any consent or authorization of any governmental agency in order for it to
perform its obligations under this Agreement, the Registration Rights
Agreement, the Warrants or the Debentures.
(d) INVESTMENT REPRESENTATIONS.
(i) INFORMATION. The Company has furnished such
Investor with its Registration Statement on Form S-1 dated
February 11, 2000, its Proxy Statement dated January 24, 2000,
its annual report on Form 10-K for its fiscal year ended
December 31, 1998 (the "FISCAL YEAR END"), its quarterly
reports on Form 10-Q for the fiscal quarters ended March 31,
1999, June 30, 1999 and September 30, 1999, and all other
reports or documents filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act prior to the Closing Date
(the "PRE-AGREEMENT SEC DOCUMENTS").
16
(ii) ACCESS TO OTHER INFORMATION. Such Investor
acknowledges that the Company has made available to such
Investor the opportunity to examine such additional documents
from the Company and to ask questions of, and receive full
answers from, the Company concerning, among other things, the
Company, its financial condition, its management, its prior
activities and any other information which such Investor
considers relevant or appropriate in connection with entering
into this Agreement.
(iii) RISKS OF INVESTMENT. Such Investor
acknowledges that the Securities and the Common Shares and
Warrant Shares issuable upon conversion and/or exercise of
the Securities have not been registered under the Act. Such
Investor is familiar with the provisions of Rule 144 and
understands that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration
under the Act or some other exemption from the registration
requirements of the Act will be required in order to
dispose of the Securities and the Common Shares and
Warrant Shares issuable upon conversion and/or exercise of
the Securities, and that such Investor may be required to
hold its Securities and the Common Shares and Warrant
Shares issuable upon conversion and/or exercise of the
Securities received under this Agreement for a significant
period of time prior to reselling them, subject to the
Company successfully registering the Common Shares and
Warrant Shares pursuant to the Registration Rights
Agreement. Such Investor is capable of assessing the risks of
an investment in the Securities and is fully aware of the
economic risks thereof. Such Investor acknowledges that the
Company's operating results have in the past and may in the
current period and in future periods not meet the
expectations of securities analysts and that failure to
meet such expectations would be likely to have a material
adverse effect on the trading price and salability of the
Common Shares and Warrant Shares.
(iv) INVESTMENT REPRESENTATION. Such Investor is
purchasing the Debentures and the Warrants for its own account
and not with a view to distribution in violation of any
securities laws. Such Investor has no present intention to sell
the Debentures, Warrants, Common Shares, or Warrant Shares in
violation of federal or state securities laws and such Investor
has no present arrangement (whether or not legally binding) to
sell the Debentures, Warrants, Common Shares or Warrant Shares
to or through any person or entity; PROVIDED, however, that by
making the representations herein, such Investor does not
agree to hold the Debentures, Warrants, Common Shares or
Warrant Shares for any minimum or other specific term and
reserves the right to dispose of the Debentures, Warrants,
Common Shares or Warrant Shares at any time in accordance with
federal and state securities laws applicable to such
disposition.
(v) RESTRICTED SECURITIES. It acknowledges and
understands that the terms of issuance have not been reviewed
by the SEC or by any state
17
securities authorities and that the Securities have been issued
in reliance on the certain exemptions for non-public offerings
under the Act, which exemptions depend upon, among other
things, the representations made and information furnished by
such Investor, including the bona fide nature of such
Investor's investment intent as expressed above.
(vi) ACCURACY OF INFORMATION. All information that
such Investor provides to the Company hereunder is correct and
complete as of the date set forth above.
(vii) ABILITY TO BEAR ECONOMIC RISK. It is an
"accredited" investor as defined in Rule 501 of Regulation D,
as amended, under the Act, and that it (i) is able to bear the
economic risk of its investment in the Debentures, (ii) is able
to hold the Debentures for an indefinite period of time, (iii)
can afford a complete loss of its investment in the Debentures
and (iv) has adequate means of providing for its current needs.
(viii) NO PUBLIC SOLICITATION. At no time was such
Investor presented with or solicited by any general mailing,
leaflet, public promotional meeting, newspaper or magazine
article, radio or television advertisement, or any other form
of general advertising or general solicitation in connection
with the issuance.
(ix) RELIANCE BY THE COMPANY. Such Investor
understands that the Debentures and Warrant are being offered
and sold in reliance on a transactional exemptions from the
registration requirements of federal and state securities laws
and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments
and understandings of such Investor set forth herein in order
to determine the applicability of such exemptions and the
suitability of such Investor to acquire the Debentures and
Warrants.
(x) INTENTIONALLY LEFT BLANK.
(e) BROKERS. Such Investor has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby, except for amounts owing to Granite
Financial Group, which amounts shall be paid by the Investors, pursuant to a
separate agreement.
(f) NO HEDGING OR SHORT SELLING. Other than as set forth in the
following sentence, during the period sixty (60) days prior to the date of
this Agreement, the Investor has not engaged in any short sales or hedging of
any kind with respect to the Common Stock in anticipation of this Agreement.
However, the Company has been advised orally that an Investor has engaged in
short sales.
18
ARTICLE 3
COVENANTS
Section 3.1 REGISTRATION AND LISTING; EFFECTIVE REGISTRATION. For
so long as the Debentures and Warrants are outstanding, the Company will
cause the Common Stock issuable upon the exercise of the Securities to
continue at all times to be registered under Section 12(b) or Section 12(g)
of the Exchange Act, will comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or
file any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such reporting and filing obligations.
Until such time as no Debentures or Warrants are outstanding, the Company
shall continue the listing or trading of the Common Stock on the NYSE or one
of the other Approved Markets and comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Approved Market on which the Common Stock is listed. The Company shall cause
the Common Stock to be listed on the NYSE no later than the registration of
the Common Stock under the Act, and at all times shall continue such
listing(s) on one of the Approved Markets. As used herein and in the
Registration Rights Agreement, the Debenture and the Warrants, the term
"EFFECTIVE REGISTRATION" shall mean that all registration obligations of the
Company pursuant to the Registration Rights Agreement and this Agreement have
been satisfied, such registration is not subject to any suspension or stop
order, the prospectus for the Common Stock issuable upon conversion and/or
exercise of the Securities is current and deliverable and such shares of
Common Stock are listed for trading on one of the Approved Markets and such
trading has not been suspended for any reason, none of the Company or any
direct or indirect subsidiary of the Company is subject to any bankruptcy,
insolvency or similar proceeding, and no Interfering Event (as defined in
Section 2(b) of the Registration Rights Agreement) exists.
Section 3.2 DEBENTURES ON CONVERSION AND WARRANTS ON EXERCISE.
(a) Upon any conversion by an Investor (or then holder of
Debentures) of the Debentures pursuant to the terms thereof, the Company
shall issue and deliver to such Investor (or holder) within three (3) Trading
Days (as such term is defined in the Debenture) of the Conversion Date (as
defined in the Debenture), a new certificate or certificates for the
principal amount of Debentures which such Investor (or holder) has not yet
elected to convert but which is evidenced in part by the certificate(s)
submitted to the Company in connection with such conversion (with the number
of and denomination of such new certificate(s) designated by such Investor or
holder).
(b) Upon any partial exercise by an Investor (or then holder
of the Warrants) of the Warrants, the Company shall issue and deliver to such
Investor (or holder) within three (3) days of the date on which such Warrants
are exercised, a new Warrant or Warrants representing the number of adjusted
Warrant Shares, in accordance with the terms of Section 2 of the Warrants.
Section 3.3 REPLACEMENT DEBENTURES AND WARRANTS.
19
(a) The certificate(s) representing the Debentures held by any
Investor (or then holder) may be exchanged by such Investor (or such holder)
at any time and from time to time for certificates with different
denominations representing an equal aggregate number of Debentures, as
requested by such Investor (or such holder) upon surrendering the same. No
service charge will be made for such registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the
Investor (or then holder of the Warrants) at the office of the Company for
other Warrants of different denominations entitling the holder thereof to
purchase in the aggregate the same number of Warrant Shares as are
purchasable under such Warrants. No service charge will be made for such
transfer or exchange.
Section 3.4 EXPENSES. The Company shall pay in immediately
available funds, at the Closing and promptly upon receipt of any further
invoices relating to same, all reasonable due diligence fees and expenses and
reasonable attorneys' fees and expenses of the Investors' Counsel, incurred
by the Investors in connection with the preparation, negotiation, execution
and delivery of this Agreement, the Registration Rights Agreement, the
Debentures, the Warrants and the related agreements and documents and the
transactions contemplated hereunder and thereunder; provided, however, that
the Company shall not be obligated to pay fees and expenses in excess of
$100,000 unless the Investors have obtained the prior written approval of the
Company with respect to any such excess. At Closing, the Company shall pay
the amount estimated to be due for such fees and expenses (which may include
fees and expenses estimated to be incurred for completion of the transaction
including post-closing matters). In the event such amount is ultimately less
than the actual fees and expenses, the Company shall promptly pay such
deficiency upon receipt of an invoice regarding same. In the event such
amount is ultimately greater than the actual fees and expenses, such excess
shall promptly be returned to the Company. In the event that the Company
issues Subsequent Securities pursuant to the exercise of the Company Put
Option, the Investor Call Option or the Additional Investor Call Option, the
Company shall pay in immediately available funds all of the reasonable fees
and expenses of Investors' counsel related to such issuance in accordance
with all of the same terms and conditions in this paragraph relating to the
issuance of the Securities in the issuance; provided, however, that the
Company shall not be obligated to pay fees and expenses in excess of an
additional $25,000 per $5,000,000 principal amount of Subsequent Debentures
issued to the Investors unless the Investors have obtained prior written
approval of the Company with respect to any such excess.
Section 3.5 SECURITIES COMPLIANCE. The Company shall notify the
SEC and the NYSE, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Debenture, the Registration Rights
Agreement and the Warrants, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Debentures hereunder, the
Common Shares issuable upon conversion thereof, the Warrants and the Warrant
Shares issuable upon exercise of the Warrants.
Section 3.6 DIVIDENDS OR DISTRIBUTIONS; PURCHASES OF EQUITY
SECURITIES. Except as set forth in Schedule 3.6, so long as any Debentures or
Warrants remain outstanding, the
20
Company agrees that it shall not (a) declare or pay any dividends or make any
distributions to any holder or holders of Common Stock (other than dividends
payable in Common Stock), or (b) purchase or otherwise acquire for value,
directly or indirectly, any shares of Common Stock or other equity security
of the Company; provided that the Company may purchase or acquire shares of
Common Stock so long as the Company (i) purchases or acquires such shares on
the open market or pursuant to a tender offer directed to all of the
Company's shareholders and (ii) does not utilize the proceeds of the
issuances of the Debentures for such purpose.
Section 3.7 NOTICES. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any
meetings, that are provided to the holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
Common Stock holders.
Section 3.8 USE OF PROCEEDS. The Company agrees that the proceeds
received by the Company from the sale of the Debentures hereunder shall be
used for working capital purposes and repayment of Senior Indebtedness.
Section 3.9 NOTIFICATION OF ADDITIONAL FINANCINGS; ADJUSTMENTS.
(a) Until the twelve (12) month anniversary of the Closing
Date the Company shall provide reasonable advance notice to the Investors of
its intentions to pursue any transaction, the purpose of which is to provide
capital to the Company, in consideration of which the Company will sell or
otherwise issue or deliver or dispose of any share of Common Stock or other
equity securities or any securities which are convertible into or
exchangeable for shares of its Common Stock or other equity securities or any
convertible or exchangeable security, or any warrants or other rights to
subscribe for or to purchase or any options for the purchase of share of
Common Stock or other equity securities (such transactions are referred to as
"Applicable Financing Transactions") the Company agrees to use reasonable
efforts to provide the Investors with the opportunity to provide the
financing in such Applicable Financing Transactions.
(b) If at any time prior to the close of business on the 180th
day after the Closing Date, the Company issues Common Stock (or securities or
rights exercisable or exchangeable for, or convertible into, Common Stock
("Derivative Securities") in a private placement at a discount from (or in an
Investor's sole judgment on terms more favorable to the purchaser thereof
than) the terms specified in Section 5(c) of the Debentures other than shares
issued (i) to any Investor or an affiliate thereof in any future transaction
or (ii) in connection with a strategic investment (including, but not limited
to, an acquisition) that was not essentially a capital raising transaction on
behalf of the Company or (iii) to retain or attract potential non-affiliated
employees, then the Debentures held by such Investor will automatically (at
such Investor's request) be adjusted to provide for such discount or lower or
more favorable Conversion Price, as applicable, provided, however, that the
Investor
21
agrees to promptly advise the Company in writing following receipt of written
notice from the Company of the terms and conditions of any proposed issuance
of Company Common Stock that the Investor considers such issuance either
would or would not be on terms more favorable to the purchaser thereof.
Section 3.10 RESERVATION OF STOCK ISSUABLE UPON CONVERSION AND
UPON EXERCISE OF THE WARRANTS. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the Debentures and the
exercise of the Warrants, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
Debentures and the full exercise of the Warrants and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all the then outstanding Debentures
and the full exercise of the Warrants, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including without limitation engaging
in best efforts to obtain the requisite shareholder approval. Without in any
way limiting the foregoing, the Company agrees to reserve and at all times
keep available solely for purposes of conversion of Debentures and the
exercise of the Warrants such number of authorized but unissued shares of
Common Stock that is at least equal to 200% of the aggregate shares issuable
upon conversion of Debentures, and 200% of the aggregate shares issuable on
exercise of Warrants, which number may be reduced by the number of Common
Shares or Warrant Shares actually delivered pursuant to conversion of
Debentures or exercise of the Warrants and shall be appropriately adjusted
for any stock split, reverse split, stock dividend or reclassification of the
Common Stock. If the Company falls below the reserves specified in the
immediately preceding sentence and does not cure such non-compliance within
30 days of its start, then the Investors will be entitled to the discount
adjustments specified in Section 2(b)(i) of the Registration Rights
Agreement. If at any time the number of authorized but unissued shares of
Common Stock is not sufficient to effect the conversion of all the then
outstanding Debentures or the full exercise of the Warrants, the Investors
shall be entitled to, INTER ALIA, the premium price redemption rights
provided in the Registration Rights Agreement.
Section 3.11 BEST EFFORTS. The parties shall use their best
efforts to satisfy timely each of the conditions described in Article 4 of
this Agreement.
Section 3.12 NO SENIOR INDEBTEDNESS; LIMITATIONS ON ISSUANCE OF
EQUITY.
(a) So long as any Debentures remain outstanding, the Company
agrees that neither the Company nor any subsidiary of the Company shall
create, incur, assume, guarantee, secure or in any manner become liable in
respect of any indebtedness, unless subordinated to the Debentures in all
respects ("Subordinated Debt"), except for (i) trade payables incurred in the
ordinary course of business consistent with past practices (ii) capitalized
lease obligations (to the extent permitted in the Loan Agreement which, in
the aggregate at any point in time, shall not exceed $2 million dollars and
(iii) a senior credit facility with the Senior Lender (the "Senior Debt")
which, in the aggregate, shall not exceed $60 million dollars at any given
time (x) unless such excess does not result in the Senior Leverage Ratio (as
defined in the Loan Agreement) being greater than 5 to 1, and
22
(y) provided that, in no event, shall the Senior Debt exceed $120 million
dollars. If Senior Debt exceeds $60 million, then within ten (10) business
days of the close of any fiscal quarter, the Company shall provide the
Investors with a written statement of its CFO certifying that the Senior
Leverage Ratio of Senior Debt at the close of such quarter for such quarter
is less than 5 to 1. A failure to provide such certificate shall result in a
default under this Agreement and the Debentures.
(b) The Debentures shall be subordinate to the Senior Debt
pursuant to the Subordination Agreement. Any Subordinated Debt shall be
subordinate to the Debentures pursuant to a separate agreement to be entered
into between the potential holders of such Subordinated Debt and the
Investors in a form reasonably satisfactory to the Investors.
(c) The Company shall not contribute or transfer its assets to
any of its subsidiaries, other than a subsidiary that has delivered its
guarantee to the Investor in form and substance satisfactory to the Investors.
(d) Neither the Company nor any subsidiary shall encumber any
of its or their assets, except for Permitted Liens as described in Schedule
3.12(d).
Section 3.13 FORM D; BLUE SKY LAWS. The Company agrees to file a
Form D with respect to the Debentures, Warrants, Common Shares and Warrant
Shares, as required under Regulation D and to provide a copy thereof to each
Investor promptly after such filing. The Company shall, on or before each
Closing Date, take such action as the Company shall have reasonably
determined is necessary to qualify the Debentures, Warrants, Common Shares
and Warrant Shares for sale to the Investors at the Closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Investor on or prior to
the Closing Date.
Section 3.14 DELISTING; BEST EFFORTS. The Investors shall, in the
aggregate, be entitled to convert Debentures into a total of 8,785,351 Common
Shares (20% of the Common Stock issued and outstanding on the date hereof,
which number shall be subject to readjustment for any stock split, stock
dividend or reclassification of the Common Stock) (the "20% Cap"). Each
Investor shall be entitled to convert that amount of its Debentures into such
total number of Common Shares equal to such Investor's Pro Rata Share (as
defined below) of the 20% Cap. An Investor's "Pro Rata Share" shall mean that
total number of Common Shares equal to such Investor's Purchase Price divided
by the aggregate Purchase Price. Once an Investor has received its total Pro
Rata Share upon conversion of its Debentures, it may request that the Company
redeem its remaining Debentures at a price equal to the greater of (a) the
cash value that the Investor would receive upon conversion of the Debenture
at the Conversion Price and subsequent sale of the Common Shares received
thereupon at the Market Price for Shares of Common Stock in existence on such
date and (b) 130% of the Outstanding Principal Amount (as defined in the
Debentures) plus accrued but unpaid interest and default payments in effect
at that time. In the event that the Investor is prevented from exercising its
redemption rights hereunder by reason of the Subordination Agreement, then
the Investor shall have the
23
right to require the Company to pay a default payment at the Default Payment
Rate (as defined in the Debentures) on the Debenture Amount (as defined in
the Debentures) for the Debentures held by such Investor for each 30-day
period that the Investor is prevented from exercising such redemption rights
and that the Company fails to obtain the requisite shareholder approval set
forth below. If an Investor has converted all of its Debentures, but has not
depleted the total number of Pro Rata Shares allocated to it, its remaining
Pro Rata Shares shall be reallocated amongst the Investors still holding
Debentures on a pro rata basis. The restrictions set forth in this Section
3.14 shall cease to apply if (a) the Company obtains written shareholder
approval to issue Common Shares in excess of the 20% Cap pursuant to NYSE
Rule 312.03(c) or (b) the Company provides the Investors with irrevocable
written notice, based upon the advice of its counsel, that any such issuance
of Common Shares upon conversion of the Debentures is not subject to the 20%
Cap pursuant to NYSE Rule 312.03(c). The Company will use its best efforts
promptly to obtain either the shareholder approval or the irrevocable notice
described in the preceding sentence and to provide the Investors with a copy
of same: without limiting the foregoing, the Company shall call a
shareholders meeting by no later than May 31, 2000 in which the Company will
solicit the aforementioned shareholder approval, will solicit proxies in
favor of issuing Common Shares in excess of the 20% Cap and will use its best
efforts to have all affiliates of the Company which own or control shares of
Common Stock to vote their shares in favor of such resolution.
Section 3.15 BOARD APPROVAL. The Company shall use its best efforts
to obtain the approval of the Company's Board of Directors referred to in
Section 1.5 above within 30 days of the Closing Date. The Company shall
notify the Investors immediately upon their receipt of such Board approval or
rejection.
Section 3.16 PRESS RELEASE. Immediately following the Closing, the
Company shall issue a press release. Investors shall have the opportunity to
review such press release prior to its issuance. No press release shall name
the Investors except as shall be required by law. If the Company fails to
issue a press release within 1 business day of the Closing, the Investors may
issue a press release covering the Closing and complying with any legal
requirement applicable to the Investors.
Section 3.17 TRADING. For so long as any of the Debentures or
Warrants are outstanding, such Investor shall not make any short sales or
xxxxxx with respect to the Common Stock with the intention of reducing the
price of the Common Stock to such Investor's benefit. Notwithstanding the
foregoing the Company acknowledges that there is no presumption that sales
(including short sales) are with the intent of reducing the price of Common
Stock even if such price of Common Stock drops during the period that such
sales are taking place.
Section 3.18 GUARANTIES OF SUBSIDIARIES. In the event that, in the
future, any Company subsidiary not listed on Schedule 4.2(k) delivers a
guaranty to the Senior Lender in connection with the Senior Debt, then all
such subsidiaries shall deliver a guarantee to the Investors in the form of
Exhibit 4.2(k) or, at the option of the Investors, such other form that is
used in connection with the Senior Debt.
24
Section 3.19 ADDITIONAL COVENANTS. Notwithstanding anything to the
contrary in this Agreement, the Debentures, the Warrants or the Registration
Rights Agreement, none of the Company, ACG Holding Company, ACG Exchange
Company or any of the Yptel Shareholders listed on Schedule 3.19 shall be
precluded from performing their obligations or exercising their rights in
respect of: (a) at any time (including on the liquidation of the Company),
the exchanging of Class A Special Shares of ACG Exchange Company ("ACG Ex")
for Common Shares of the Company, (b) the making or receiving of
distributions (by way of dividends or otherwise, in cash, shares or
otherwise) on Class A Special Shares of ACG Ex owned by the Yptel
Shareholders in substance and like manner as those distributions made to
shareholders of Common Shares of the Company, on liquidation or otherwise,
(c) the reserving of sufficient shares of Common Stock of the Company to
enable the exchange of shares contemplated in sub-paragraph (a) above, and
(d) the ensuring that upon the occurrence of any stock splits, subdivisions,
combination of shares, conversions, exchanges, distributions or other such
event in respect of the shares of the Company which (based on an exchange of
one Class A Special Share of ACG Ex for one Common Share of the Company as at
the date hereof) would dilute or adversely affect the economic equivalence of
such an exchange, the corresponding adjustments are made to ensure there is
no such dilution or adverse effect upon the holders of Class A Special Shares
of ACG Ex. For the purposes of this Section 3.19, undefined terms shall have
the meaning set forth in the Support Agreement among the Company, ACG Holding
Company, ACG Exchange Company, Certain Shareholders listed in Schedule A
therein, and YPTel/ACG Pledge Corporation, dated February 14, 2000.
ARTICLE 4
CONDITIONS TO CLOSINGS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY
TO SELL THE DEBENTURES. The obligation hereunder of the Company to issue
and/or sell the Debentures to the Investors at the Closing (unless otherwise
specified) is subject to the satisfaction, at or before the Closing, of each
of the applicable conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) ACCURACY OF THE INVESTORS' REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Investor will be true and correct
in all material respects as of the date when made and as of the Closing Date
as though made at that time (except for representations and warranties as of
an earlier date, which will be true and correct in all material respects as
of such date).
(b) PERFORMANCE BY THE INVESTORS. Each Investor shall have
performed all agreements and satisfied all conditions required to be
performed or satisfied by such Investor at or prior to the Closing.
25
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement or the
Debentures or the Warrants.
(d) PURCHASE PRICE. The Company shall have received the
aggregate Purchase Price from the Investors.
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTORS
TO PURCHASE THE DEBENTURES. The obligation hereunder of each Investor to
acquire and pay for the Debentures at the Closing (unless otherwise
specified) is subject to the satisfaction, at or before the Closing, of each
of the applicable conditions set forth below. These conditions are for each
Investor's benefit and may be waived by each Investor at any time in its sole
discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as though made at that time (except for representations and warranties as of
an earlier date, which shall be true and correct in all material respects as
of such date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed all agreements and satisfied all conditions required to be
performed or satisfied by the Company at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive,
judicial or administrative order, decree, ruling or injunction shall have
been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of the transactions contemplated by this Agreement or the Registration Rights
Agreement or the Debenture or the Warrants.
(d) YPTEL ACQUISITION. The shareholders of the Company shall
have approved the YPtel Acquisition and other resolutions presented to the
shareholders for their vote thereon at the meeting to be held on February 16,
2000 or any adjournment thereof and the YPtel Acquisition shall have closed
on terms substantially similar to those set forth in the SEC Documents. Each
of the YP Companies and Pacific Coast Publishing, Ltd. are wholly-owned,
indirect or direct, subsidiaries of the Company.
(e) OPINION OF COUNSEL. At the Closing, the Investors shall
have received an opinion of the independent counsel of the Company, Xxxxxx
and Xxxxx, LLP, in the form attached hereto as EXHIBIT 4.2(e) and such other
opinions, certificates and documents as the Investors or their counsel shall
reasonably require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the
Investors shall have executed and delivered the Registration Rights Agreement
in the form and substance of EXHIBIT 4.2(f) attached hereto.
26
(g) ADVERSE CHANGES. Except as otherwise disclosed in the
Pre-Agreement SEC Documents, since December 31, 1999, no event which had or
is likely to have, in the reasonable judgment of the Investors, a Material
Adverse Effect on the Company or any of its direct or indirect subsidiaries
shall have occurred.
(h) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Investors a certificate in form and substance of EXHIBIT 4.2(h) attached
hereto, executed by an officer of the Company, certifying as to satisfaction
of closing conditions, incumbency of signing officers, and the true, correct
and complete nature of the Charter, By-Laws, good standing and authorizing
resolutions of the Company.
(i) DEBENTURES AND WARRANTS. The Investors shall have received
certificates representing the Debentures and Warrants in the form and
substance of EXHIBIT 1.1A and EXHIBIT 1.1B hereto.
(j) DUE DILIGENCE. Each Investor shall have completed its
financial, accounting, operational and legal due diligence in a manner
satisfactory to such Investor in its sole discretion.
(k) GUARANTIES OF SUBSIDIARIES. The Investors shall have
received a Guarantee in the form of EXHIBIT 4.2(k) by each of the Company's
subsidiaries listed on SCHEDULE 4.2(k), guaranteeing the Company's
obligations under the Debenture, the Registration Rights Agreement and the
Agreement.
ARTICLE 5
LEGEND AND STOCK
The Company will issue one or more certificates representing the
Debentures and the Warrants in the name of the Investor and in such
denominations to be specified by the Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Debentures and the
Warrants and any shares of Common Stock issued upon conversion or exercise
thereof initially shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE TRANSFERRED,
ASSIGNED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
BECAUSE OF AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Debentures and Warrants without the
legend set forth above at such time as (i) the holder thereof is permitted to
dispose of such Debentures and/or Warrants and Common Stock issuable upon
conversion or exercise
27
thereof pursuant to Rule 144 under the Act, or (ii) such Debentures and/or
Warrants are sold to a purchaser or purchasers who (in the opinion of counsel
to the seller or such purchaser(s), in form and substance reasonably
satisfactory to the Company and its counsel) are able to dispose of such
shares publicly pursuant to an Effective Registration or exemption.
Prior to the Registration Statement (as defined in the Registration
Rights Agreement) being declared effective, any Common Shares issued pursuant
to conversion of Debentures or Warrant Shares issued upon exercise of the
Warrants shall bear a legend in the same form as the legend indicated above.
Upon such Registration Statement becoming effective, the Company agrees to
promptly, but no later than three (3) business days thereafter, issue new
certificates representing such Common Shares and Warrant Shares without such
legend. Except as provided in Section 2(f) of the Registration Rights
Agreement, any Common Shares issued pursuant to conversion of Debentures or
Warrant Shares issued upon exercise of the Warrants after the Registration
Statement has become effective shall be free and clear of any legends,
transfer restrictions and stop orders. Notwithstanding the removal of such
legend, each Investor agrees to sell the Common Shares and Warrant Shares
represented by the new certificates in accordance with the applicable
prospectus delivery requirements (if copies of a current prospectus are
provided to such Investor by the Company) or in accordance with an exception
from the registration requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE 6
MISCELLANEOUS
Section 6.1 STAMP TAXES. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Debentures and
Warrants pursuant hereto, the Common Shares issued upon conversion thereof,
and the Warrant Shares issued upon exercise of the Warrants.
Section 6.2 SPECIFIC PERFORMANCE; CONSENT TO JURISDICTION; JURY
TRIAL.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY
IRREVOCABLY SUBMITS TO THE NON EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT, THE NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED
STATES SITTING IN NEW
28
YORK COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND
AGREES NOT TO ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY AND EACH OF THE INVESTORS CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF
TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT
AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF
PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT
ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
(c) THE COMPANY AND EACH INVESTOR HEREBY WAIVES ALL RIGHTS TO
A TRIAL BY JURY.
Section 6.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, together
with the Registration Rights Agreement, the Warrants, the Debentures and the
agreements and documents executed in connection herewith and therewith,
contains the entire understanding of the parties with respect to the matters
covered hereby and thereby and, except as specifically set forth herein or
therein, neither the Company nor any Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be waived or amended other than by a written instrument
signed by the party against whom enforcement of any such amendment or waiver
is sought.
Section 6.4 NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, facsimile or
personal delivery and shall be effective upon actual receipt of such notice.
The addresses for such communications shall be:
29
to the Company:
Advanced Communications Group, Inc.
000 X. Xxxxx Xxxx Xxxx, Xxxxx 000
Xx. Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
Facsimile: (000) 000-0000
with copies to:
Xxxxxx and Xxxxx, LLP
000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
to the Investors:
To each Investor at the address and/or fax
number set forth on SCHEDULE I of this
Agreement.
with copies to:
Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving at least 10 days' written notice of such changed address to the other
parties hereto.
Section 6.5 INDEMNITY. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees but
excluding consequential damages) incurred as a result of such parties' breach
of any representation, warranty, covenant or agreement in this Agreement; or
incurred as a result of the enforcement of this indemnity.
Section 6.6 WAIVERS. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission
of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
30
Section 6.7 HEADINGS. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
Section 6.8 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The parties hereto may
amend this Agreement without notice to or the consent of any third party. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of all Investors (which consent may be
withheld for any reason in their sole discretion), except that the Company
may assign this Agreement in connection with the sale of all or substantially
all of its assets provided that the Company is not released from any of its
obligations hereunder, such assignee assumes all obligations of the Company
hereunder, and appropriate adjustment of the provisions contained in this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants
is made, in form and substance satisfactory to the Investors, to place the
Investors in the same position as they would have been but for such
assignment, in accordance with the terms of the Debentures and the Warrants.
No Investor may assign this Agreement (in whole or in part) or any rights or
obligations hereunder without the consent of the Company (which shall not be
unreasonably withheld), except that an Investor may assign its rights
hereunder in connection with an assignment of Securities.
Section 6.9 NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 6.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE.
Section 6.11 SURVIVAL. The representations and warranties and
the agreements and covenants of the Company and each Investor contained
herein shall survive the Closing.
Section 6.12 EXECUTION. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
Section 6.13 PUBLICITY. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of any
Investor without the express written agreement of such Investor, unless and
until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement. The Company agrees that it will
deliver a copy of any public announcement regarding the matters covered by
this Agreement or any agreement and document executed herewith to each
Investor and any public announcement including the name of an Investor to
such Investor, reasonably in advance of the release of such announcements.
31
Section 6.14 SEVERABILITY. The parties acknowledge and agree that
the Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investor
hereunder are several and not joint, that no Investor shall have any
responsibility or liability for the representations, warrants, agreements,
acts or omissions of any other Investor, and that any rights granted to
"Investors" hereunder shall be enforceable by each Investor hereunder.
Section 6.15 LIKE TREATMENT OF HOLDERS; REDEMPTION. Neither the
Company nor any of its affiliates shall, directly or indirectly, pay or cause
to be paid any consideration (immediate or contingent), whether by way of
interest, fee, payment for the redemption or conversion of Debentures or
exercise of the Warrants, or otherwise, to any holder of Debentures or
Warrants, for or as an inducement to, or in connection with the solicitation
of, any consent, waiver or amendment of any terms or provisions of the
Debenture or this Agreement or the Registration Rights Agreement or the
Warrants, unless such consideration is required to be paid to all holders of
Debentures and Warrants bound by such consent, waiver or amendment whether or
not such holders so consent, waive or agree to amend and whether or not such
holders tender their Debentures or Warrants for redemption, conversion or
exercise. The Company shall not, directly or indirectly, redeem any
Debentures unless such offer of redemption is made pro rata to all holders of
Debentures on identical terms.
Section 6.16 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
SIGNATURE PAGE FOLLOWS
32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
COMPANY:
ADVANCED COMMUNICATIONS
GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------
Name:
Title:
INVESTORS:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By: /s/ Xxxxxx X. Xxxxxx
--------------------------
Name: Xxxxxx X. Xxxxxx
Title: Managing Director
XXXXXXX ASSOCIATES, L.P.
By: /s/ Xxxx Xxxxxx
--------------------------
Name: Xxxx Xxxxxx
Title:
WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC.
Attorney-in-Fact
By: /s/ Xxxx Xxxxxx
--------------------------
Name: Xxxx Xxxxxx
Title:
SIGNATURE PAGE TO ADVANCED COMMUNICATIONS GROUP, INC.
DEBENTURE PURCHASE AGREEMENT
33
EXHIBITS AND SCHEDULES
Schedule I List of Investors
Exhibit 1.1A Form of Debenture
Exhibit 1.1B Form of Warrant
Schedule 2.1(a) List of Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(c) Certain Transactions
Exhibit 2.1(c)(i) Certificate of Incorporation of the Company
Exhibit 2.1(c)(ii) By-Laws of the Company
Schedule 2.1(w) Insurance
Schedule 2.1(bb) Real Property
Schedule 3.6 Dividends or Distributions
Schedule 3.12(d) Permitted Liens
Schedule 3.19 Yptel Shareholders
Exhibit 4.2(e) Opinion of Company Counsel
Exhibit 4.2(f) Registration Rights Agreement
Schedule 4.2(h) Officer's Certificate
Schedule 4.2(k) Subsidiaries Providing Guaranties
Exhibit 4.2(k) Form of Guaranty
SCHEDULE I
OUTSTANDING NUMBER
PRINCIPAL AMOUNT OF
INVESTOR OF WARRANTS PURCHASE PRICE
DEBENTURES
---------------- -------- --------------
HALIFAX FUND, LP $15,000,000 429,262 $15,000,000
c/o The Palladin Group, L.P.
Investment Manager
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxx Xxxxxxx
Tax I.D. No.:
Facsimile: (000) 000-0000
XXXXXXX ASSOCIATES, L.P. $ 2,500,000 71,544 $ 2,500,000
000 Xxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxx
Tax I.D. No. _______________
Facsimile: (000) 000-0000
WESTGATE INTERNATIONAL, L.P. $ 2,500,000 71,544 $ 2,500,000
c/o Stonington Management Corporation
000 Xxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxx
Tax I.D. No. ________________
Facsimile: (000) 000-0000
