EXHIBIT 10.2
COMMON STOCK PURCHASE
AGREEMENT
Dated as of October 30, 2002
by and among
FIBERNET TELECOM GROUP, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Common Stock.................................1
Section 1.1 Purchase and Sale of Common Stock..........................1
Section 1.2 Purchase Price and Closing.................................1
ARTICLE II Representations and Warranties...................................2
Section 2.1 Representations and Warranties of the Company..............2
Section 2.2 Representations and Warranties of the
Purchasers................................................11
ARTICLE III Covenants......................................................13
Section 3.1 Securities Compliance.....................................13
Section 3.2 Registration and Listing..................................13
Section 3.3 Inspection Rights.........................................13
Section 3.4 Compliance with Laws......................................13
Section 3.5 Keeping of Records and Books of Account...................14
Section 3.6 Reporting Requirements....................................14
Section 3.7 Other Agreements..........................................14
Section 3.8 Subsequent Financings; Right of First Refusal.............14
ARTICLE IV Conditions......................................................15
Section 4.1 Conditions Precedent to the Obligation of the
Company to Close and to Sell the Shares...................15
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close and to Purchase the Shares............16
ARTICLE V Certificate Legend...............................................17
Section 5.1 Legend....................................................17
ARTICLE VI Indemnification.................................................18
Section 6.1 General Indemnity.........................................18
Section 6.2 Indemnification Procedure.................................18
ARTICLE VII Miscellaneous..................................................19
Section 7.1 Fees and Expenses.........................................19
Section 7.2 Specific Enforcement; Consent to Jurisdiction.............20
Section 7.3 Entire Agreement; Amendment...............................20
Section 7.4 Notices...................................................20
Section 7.5 Waivers...................................................21
Section 7.6 Headings..................................................21
Section 7.7 Successors and Assigns....................................22
Section 7.8 No Third Party Beneficiaries..............................22
Section 7.9 Governing Law.............................................22
Section 7.10 Survival.................................................22
Section 7.11 Counterparts.............................................22
Section 7.12 Publicity................................................22
TABLE OF CONTENTS
(continued)
Page
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Section 7.13 Severability.............................................22
Section 7.14 Further Assurances.......................................22
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT this ("Agreement"), dated as of
October 30, 2002 by and between FiberNet Telecom Group, Inc., a Delaware
corporation (the "Company"), and the purchasers listed on Exhibit A hereto (each
a "Purchaser" and collectively, the "Purchasers"), for the purchase and sale of
shares of the Company's common stock, par value $.001 per share (the "Common
Stock") by the Purchasers.
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Common Stock
Section 1.1 Purchase and Sale of Common Stock and Warrants.
(a) Upon the following terms and conditions, the Company shall issue and
sell to the Purchasers, and the Purchasers shall purchase from the Company, an
aggregate of 38,000,000 shares of Common Stock (the "Shares") at a price per
share of $.10 (the "Per Share Purchase Price") for an aggregate purchase price
of $3,800,000 (the "Purchase Price"). The Company and the Purchasers are
executing and delivering this Agreement in accordance with and in reliance upon
the exemption from securities registration afforded by Section 4(2) of the U.S.
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"), including Regulation D ("Regulation D"),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
to be made hereunder.
(b) Upon the following terms and conditions, the Purchasers shall be issued
Warrants, in substantially the form attached hereto as Exhibit B-1 (the
"Warrants"), to purchase the number of shares of Common Stock set forth opposite
such Purchaser's name on Exhibit A hereto. The Warrants shall have an exercise
price equal to $0.12 per share and shall be immediately exercisable.
Section 1.2 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the number of
Shares and Warrants, in each case, set forth opposite their respective names on
Exhibit A. The closing of the purchase and sale of the Shares to be acquired by
the Purchasers from the Company under this Agreement shall take place at the
offices of Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler Building, 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Closing") at 10:00 a.m., New
York time (i) on or before October 31, 2002, provided, that all of the
conditions set forth in Article IV hereof and applicable to the Closing shall
have been fulfilled or waived in accordance herewith, or (ii) at such other time
and place or on such date as the Purchasers and the Company may agree upon (the
"Closing Date"). At the Closing, the Company shall deliver or cause to be
delivered to each
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Purchaser (i) a certificate registered in the name of the Purchaser representing
the number of Shares that such Purchaser is purchasing pursuant to the terms
hereof and (ii) a certificate representing a Warrant to purchase such number of
shares of Common Stock as is set forth opposite the name of such Purchaser on
Exhibit A. At the Closing, each Purchaser shall deliver its Purchase Price by
wire transfer to an account designated by the Company.
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers as follows, as of the date
hereof and the Closing Date, except as set forth on the Schedule of Exceptions
attached hereto with each numbered Schedule corresponding to the section number
herein:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as defined in Section
2.1(g)) or own securities of any kind in any other entity except as set forth on
Schedule 2.1(g) hereto. The Company and each such Subsidiary (as defined in
Section 2.1(g)) 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 except for
any jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect. For the purposes of this
Agreement, "Material Adverse Effect" means any effect on the business,
operations, properties, prospects or financial condition of the Company that is
material and adverse to the Company and its Subsidiaries, taken as a whole, and
any condition, circumstance or situation that would prohibit the Company from
entering into and performing any of its obligations hereunder and under the
other Transaction Documents (as defined below).
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Warrants and
that certain Registration Rights Agreement by and among the Company and the
Purchasers, dated as of the date hereof, substantially in the form of Exhibit B
attached hereto (the "Registration Rights Agreement" and, together with this
Agreement, the "Transaction Documents") and to issue and sell the Shares in
accordance with the terms hereof. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth on Schedule 2.1(b), no
further consent or authorization of the Company, its Board of Directors or
stockholders is required. When executed and delivered by the Company, each of
the Transaction Documents shall constitute a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor's rights and remedies or
by other equitable principles of general application.
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(c) Capitalization. The authorized capital stock of the Company as of the
date of this Agreement consists of 2,000,000,000 shares of Common Stock, of
which 64,331,722 were issued and outstanding as of September 30, 2002, and
20,000,000 shares of preferred stock, par value $.001 per share, of which
104,881 were issued and outstanding as of September 30, 2002. All of the
outstanding shares of the Common Stock and any other outstanding security of the
Company have been duly and validly authorized. Except as set forth in this
Agreement and as set forth on Schedule 2.1(c) hereto, no shares of Common Stock
or any other security of the Company are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and as set forth on
Schedule 2.1(c) hereto, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. Except as set forth on Schedule 2.1(c), the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company.
(d) Issuance of Shares. The Shares to be issued at the Closing have been
duly authorized by all necessary corporate action and, when paid for and issued
in accordance with the terms hereof, the Shares will be validly issued, fully
paid and nonassessable and free and clear of all liens, encumbrances and rights
of refusal of any kind and the holders shall be entitled to all rights accorded
to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Certificate of Incorporation (the "Certificate") or
Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries are bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations, which singularly or in the
aggregate do not and will not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is required under federal, state,
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foreign or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under the Transaction Documents or issue and sell the Shares in accordance with
the terms hereof (other than any filings, consents and approvals which may be
required to be made by the Company under applicable state and federal securities
laws, rules or regulations, the Nasdaq SmallCap Market prior to or subsequent to
the Closing, or any registration provisions provided in the Registration Rights
Agreement).
(f) Commission Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
on Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the "Commission") pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "Commission
Documents"). At the time of its filing, the Form 10-Q for the fiscal quarter
ended June 30, 2002 (the "Form 10-Q") and the Form 10-K for the fiscal year
ended December 31, 2001, as amended prior to the date of this Agreement (as so
amended, the "Form 10-K") complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and the Form 10-Q and Form 10-K did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the Notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing
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the rights to subscribe for any shares of such capital stock. Neither the
Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since June 30, 2002, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i)
hereto, since June 30, 2002, neither the Company nor any of its Subsidiaries has
incurred any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
other than those incurred in the ordinary course of the Company's or its
Subsidiaries respective businesses and which, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. Since June 30, 2002, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date hereof
all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $300,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others in excess of $100,000, whether or not the same are or should be reflected
in the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. All said leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
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(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth on Schedule 2.1(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened, against or involving the
Company, any Subsidiary or any of their respective properties or assets, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the Subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the Commission Documents or on Schedule 2.1(n) hereto or
such that, individually or in the aggregate, the noncompliance therewith could
not reasonably be expected to have a Material Adverse Effect. The Company and
each of its Subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company and
each of the Subsidiaries has accurately prepared and filed all federal, state
and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the Subsidiaries for all current taxes
and other charges to which the Company or any Subsidiary is subject and which
are not currently due and payable. Except as disclosed on Schedule 2.1(o)
hereto, none of the federal income tax returns of the Company or any Subsidiary
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments
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furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. Except as set forth on Schedule 2.1(r) hereto,
the Company and each of the Subsidiaries owns or possesses the rights to all
patents, trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries, except for such instances as would not
individually or in the aggregate have a Material Adverse Effect. The Company and
each of its Subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or would be reasonably likely to violate any Environmental Law
after the Closing or that would be reasonably likely to give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including, without limitation,
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(t) Books and Records; Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or
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accounts receivable of the Company or any Subsidiary. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions are taken with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents (with respect
to clause (i) only), as disclosed in the Commission Documents or as set forth on
Schedule 2.1(u) hereto, or as would not be reasonably likely to have a Material
Adverse Effect, (i) the Company and each of its Subsidiaries has performed all
obligations required to be performed by them to date under any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement,
filed or required to be filed with the Commission (the "Material Agreements"),
(ii) the Company nor any of its Subsidiaries have received any notice of default
under any Material Agreement and, (iii) to the best of the Company's knowledge
the Company and its Subsidiaries are not in default under any Material Agreement
now in effect.
(v) Transactions with Affiliates. Except as set forth on Schedule 2.1(v)
hereto, there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company, any Subsidiary or any of their respective customers or
suppliers on the one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its Subsidiaries, or any person
owning any capital stock of the Company or any Subsidiary or any member of the
immediate family of such officer, employee, consultant, director or stockholder
or any corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate family of such
officer, employee, consultant, director or stockholder which, in each case, is
required to be disclosed in the Commission Documents or in the Company's most
recently filed definitive proxy statement on Schedule 14A, that is not so
disclosed in the Commission Documents or in such proxy statement.
(w) Securities Act of 1933. Based in material part upon the representations
herein of the Purchasers, the Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Shares or similar securities to, or solicit
offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring
the issuance and sale of any of the Shares under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares.
(x) Governmental Approvals. Except as set forth on Schedule 2.1(x) hereto,
and except for the filing of any notice prior or subsequent to the Closing that
may be required
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under applicable state and/or federal securities laws (which if required, shall
be filed on a timely basis), no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the execution or delivery of the
Shares, or for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth on Schedule 2.1(y) hereto. Except as set forth on Schedule 2.1(y)
hereto, neither the Company nor any Subsidiary has any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company or such Subsidiary
required to be disclosed in the Commission Documents that is not so disclosed.
Since June 30, 2002, no officer, consultant or key employee of the Company or
any Subsidiary whose termination, either individually or in the aggregate, would
be reasonably likely to have a Material Adverse Effect, has terminated or, to
the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any Subsidiary.
(z) Absence of Certain Developments. Except as provided on Schedule 2.1(z)
hereto, since June 30, 2002, neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any right,
options or warrants with respect thereto;
(ii) borrowed any amount in excess of $300,000 or incurred or become
subject to any other liabilities in excess of $100,000 (absolute or contingent)
except current liabilities incurred in the ordinary course of business which are
comparable in nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the business of
the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in excess of $250,000
or paid any obligation or liability (absolute or contingent) in excess of
$250,000, other than current liabilities paid in the ordinary course of
business;
(iv) declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock, in each
case in excess of $50,000 individually or $100,000 in the aggregate;
(v) sold, assigned or transferred any other tangible assets, or canceled
any debts or claims, in each case in excess of $250,000, except in the ordinary
course of business;
9
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights in excess of $250,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;
(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate in
excess of $500,000;
(x) entered into any material transaction, whether or not in the ordinary
course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss, whether
or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to take any of the
foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Shares will be used
by the Company for working capital and general corporate purposes.
(bb) Public Utility Holding Company Act and Investment Company Act Status.
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon the Closing will not
be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its Subsidiaries
which is or would be materially adverse to the Company and its Subsidiaries. The
execution and delivery of this Agreement and the issue and sale of the Shares
will not involve any transaction which is subject to the prohibitions of Section
406 of ERISA or in connection with which a tax could be imposed pursuant to
Section 4975 of the Internal Revenue Code of 1986, as amended, provided that, if
any of the Purchasers, or any person or entity that owns a beneficial interest
in any of the
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Purchasers, is an "employee pension benefit plan" (within the meaning of Section
3(2) of ERISA) with respect to which the Company is a "party in interest"
(within the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section
2.1(cc), the term "Plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(dd) Delisting Notification. The Company has not received a delisting
notification from the Nasdaq SmallCap Market.
Section 2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers hereby represents and warrants to the Company with respect solely to
itself and not with respect to any other Purchaser as follows as of the date
hereof and as of the Closing Date:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Shares being sold to it hereunder. The execution, delivery and performance
of the Transaction Documents by each Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required. When executed and delivered by the Purchasers, the other
Transaction Documents shall constitute valid and binding obligations of each
Purchaser enforceable against such Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(c) No Conflict. The execution, delivery and performance of the Transaction
Documents by the Purchaser and the consummation by the Purchaser of the
transactions contemplated thereby and hereby do not and will not (i) violate any
provision of the Purchaser's charter or organizational documents, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Purchaser is a party or by which the Purchaser's respective
properties or assets are bound, or (iii) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Purchaser or by which any property or asset of the Purchaser are bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration,
11
cancellations and violations as would not, individually or in the aggregate,
materially and adversely affect the Purchaser's ability to perform its
obligations under the Transaction Documents.
(d) Acquisition for Investment. Each Purchaser is purchasing the Shares
solely for its own account for the purpose of investment and not with a view to
or for sale in connection with distribution. Each Purchaser does not have a
present intention to sell any of the Shares, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of any of the
Shares to or through any person or entity. Each Purchaser acknowledges that it
(i) has such knowledge and experience in financial and business matters such
that Purchaser is capable of evaluating the merits and risks of Purchaser's
investment in the Company and is (ii) able to bear the financial risks
associated with an investment in the Shares and (iii) that it has been given
full access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation.
(e) Rule 144. Each Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Each Purchaser acknowledges that such
person is familiar with Rule 144 of the rules and regulations of the Commission,
as amended, promulgated pursuant to the Securities Act ("Rule 144"), and that
such Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. Each Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Shares without either
registration under the Securities Act or the existence of another exemption from
such registration requirement.
(f) General. Each Purchaser understands that the Shares are being offered
and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares. Each Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Shares.
(g) No General Solicitation. Each Purchaser acknowledges that the Shares
were not offered to such Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which such
Purchaser was invited by any of the foregoing means of communications.
(h) Accredited Investor. Each Purchaser is an "accredited investor" (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Shares. Each Purchaser acknowledges that an
investment in the Shares is speculative and involves a high degree of risk. Each
Purchaser has completed or caused to be completed the
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Investor Questionnaire Certification attached hereto as Exhibit C certifying as
to its status as an "accredited investor" and understands that the Company is
relying upon the truth and accuracy of the Purchaser set forth therein to
determine the suitability of such Purchaser to acquire the Shares.
(i) Certain Fees. The Purchasers have not employed any broker or finder or
incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
ARTICLE III
Covenants
The Company covenants with each Purchaser as follows, which covenants are
for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the Commission
in accordance with its rules and regulations, of the transactions contemplated
by any of the Transaction Documents and shall take all other necessary action
and proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares to the Purchasers, or
their respective subsequent holders.
Section 3.2 Registration and Listing. The Company shall use its reasonable
best efforts to cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, to comply in all respects with its
reporting and filing obligations under the Exchange Act, to comply with all
requirements related to any registration statement filed pursuant to this
Agreement, and to not take any action or file any document (whether or not
permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company shall use its reasonable best efforts to continue
the listing or trading of its Common Stock on the Nasdaq SmallCap Market or any
successor market. The Company will promptly file the "Listing Application" for,
or in connection with, the issuance and delivery of the Shares.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Shares or shall beneficially own
any Shares, for purposes reasonably related to such Purchaser's interests as a
stockholder to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, and key employees.
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Section 3.4 Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which would be reasonably likely to have a Material Adverse
Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall keep
and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall furnish the following to each Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Shares or shall beneficially own Shares:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available, and in any event within forty-five (45) days after the end of each of
the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company; and
(c) Copies of all notices, information and proxy statements in connection
with any meetings, that are, in each case, provided to holders of shares of
Common Stock, contemporaneously with the delivery of such notices or information
to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.8 Subsequent Financings; Right of First Refusal. (a) For a period
of one (1) year following the Closing Date, the Company covenants and agrees to
promptly notify (in no event later than five (5) days after making or receiving
an applicable offer) in writing (a "Rights Notice") the Purchasers of the terms
and conditions of any proposed offer or sale to, or exchange with (or other type
of distribution to) any third party (a "Subsequent Financing"), of Common Stock
or any securities convertible, exercisable or exchangeable into Common Stock,
including convertible debt securities (collectively, the "Financing
Securities"). The Rights Notice shall describe, in reasonable detail, the
proposed Subsequent Financing, the proposed closing date of the Subsequent
Financing, which shall not be within twenty (20) calendar days from the date the
Rights Notice is given nor later than forty five (45) calendar days from the
date the Rights Notice is given, including, without limitation, all of the
material terms and conditions thereof. The Rights Notice shall provide each
Purchaser an option (the "Rights Option") during the five (5) trading days
following delivery of the Rights Notice (the "Option Period") to
14
purchase such amount as the Company and each Purchaser may agree to up to such
Purchaser's pro rata portion of the Purchase Price of the securities being
offered in such Subsequent Financing on the same, absolute terms and conditions
as contemplated by such Subsequent Financing (the "First Refusal Rights").
Delivery of any Rights Notice constitutes a representation and warranty by the
Company that there are no other material terms and conditions, arrangements,
agreements or otherwise except for those disclosed in the Rights Notice, to
provide additional compensation to any party participating in any proposed
Subsequent Financing, including, but not limited to, additional compensation
based on changes in the Purchase Price or any type of reset or adjustment of a
purchase or conversion price or to issue additional securities at any time after
the closing date of a Subsequent Financing. If the Company does not receive
notice of exercise of the Rights Option from any of the Purchasers within the
Option Period, the Company shall have the right to close the Subsequent
Financing with a third party (and, if applicable, with such Purchasers as shall
have exercised their Rights Option); provided that all of the material terms and
conditions of the closing are the same as those provided to the Purchasers in
the Rights Notice. If the closing of the proposed Subsequent Financing does not
occur within 60 days from the date the Rights Notice is given, any closing of
the contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section, including, without limitation,
the delivery of a new Rights Notice.
(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (1) shares of Common Stock to be issued to strategic
partners and/or in connection with a strategic merger or acquisition; (2) shares
of Common Stock or the issuance of options to purchase shares of Common Stock to
employees, officers, directors, consultants and vendors in accordance with the
Company's equity incentive policies; (3) the issuance of securities pursuant to
an underwritten public offering of the Company's securities; (4) the conversion
or exercise of convertible or exercisable securities issued or outstanding prior
to the date hereof; (5) the registered exchange offer to be effected by the
Company to holders of all of its warrants outstanding prior to the Closing Date,
as described in the Common Stock and Warrant Purchase Agreement dated as of
October 30, 2002, by and among the Company and the lenders under its senior
credit facility; (6) any agreement entered into after the date hereof between
SDS Merchant Fund, L.P. ("SDS") and the Company providing for the surrender by
SDS to the Company of that certain promissory note issued by the Company to SDS
in March 2002 in an initial principal amount of $2,000,000; and (7) any related
agreement or amendment to the Common Stock and Warrant Purchase Agreement dated
as of October 30, 2002 by and among the Company and the lenders under the
Company's senior credit facility providing for the issuance of additional shares
of Common Stock and/or warrants to the lenders under the Company's senior credit
facility in connection with the conversion of additional indebtedness or
interest accrued thereon under such credit facility.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Close
and to Sell the Shares. The obligation hereunder of the Company to close and
issue and sell the
15
Shares to the Purchasers at the Closing Date is subject to the satisfaction or
waiver, at or before the Closing of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Shares shall
have been delivered to the Company on the Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents shall have
been duly executed and delivered by the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Shares. The obligation hereunder of the Purchasers to
purchase the Shares and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of each of the conditions set forth below. These conditions are for the
Purchasers' sole benefit and may be waived by the Purchasers at any time in
their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all material respects
as of the Closing Date, except for representations and warranties that speak as
of a particular date, which shall be true and correct in all material respects
as of such date.
(b) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to
the Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial
16
Markets ("Bloomberg") shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State authorities.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an opinion of
counsel to the Company, dated the date of such Closing, substantially in the
form of Exhibit D hereto, with such exceptions and limitations as shall be
reasonably acceptable to counsel to the Purchasers.
(g) Shares and Warrants. At or prior to the Closing, the Company shall have
delivered to the Purchasers certificates representing the Shares (in such
denominations as each Purchaser may request) and certificates representing the
Warrants, in each case, being acquired by the Purchasers at the Closing.
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(i) Officer's Certificate. On the Closing Date, the Company shall have
delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of the Closing Date, confirming the accuracy of
the Company's representations, warranties and covenants as of the Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in paragraphs (a)-(e) and (k) of this Section 4.2 as of the Closing Date
(provided that, with respect to the matters in paragraphs (d) and (e) of this
Section 4.2, such confirmation shall be based on the knowledge of the executive
officer after due inquiry).
(j) Registration Rights Agreement. As of the Closing Date, the parties
shall have entered into the Registration Rights Agreement in the form of Exhibit
B attached hereto.
17
(k) Approval of Proxy Statement. The Company's stockholders shall have
approved the proposals contained in the Company's proxy statement filed with the
Commission on September 4, 2002.
(l) Consummation of Recapitalization. The Recapitalization shall have been
consummated. For purposes of this Agreement, "Recapitalization" shall mean the
transactions contemplated by: (1) the Series J-1 Share Exchange Agreement dated
as of October 30, 2002 by and among the Company and each of the holders of the
Company's Series J-1 preferred stock; (2) the Note Exchange Agreement dated as
of October 30, 2002 by and among the Company and SDS (in connection with the
surrender by SDS of the promissory note issued December 7, 2001 by the Company
to Nortel Networks, Inc.); and (3) the Share Exchange Agreement dated as of
October 30, 2002 by and among the Company and each of the purchasers therein
named (which agreement provides for the issuance of Common Stock upon surrender
of shares of the Company's Series H preferred stock).
ARTICLE V
Certificate Legend
Section 5.1 Legend. Each certificate representing the Shares shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required by applicable state securities or "blue sky"
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR FIBERNET TELECOM GROUP,
INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the Shares,
without the legend set forth above if at such time, prior to making any transfer
of any such Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request. Such proposed transfer and removal will not be effected
until: (a) the Company has notified such holder that either (i) in the opinion
of Company counsel, the registration of the Shares under the Securities Act is
not required in connection with such proposed transfer; or (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act; and (b) the Company has notified such holder that either: (i) in
the opinion of Company counsel, the registration or qualification under the
securities or "blue sky" laws of any state is not required in connection
18
with such proposed disposition, or (ii) compliance with applicable state
securities or "blue sky" laws has been effected. The Company will respond to any
such notice from a holder within five (5) Business Days. In the case of any
proposed transfer under this Section 5, the Company will use reasonable efforts
to comply with any such applicable state securities or "blue sky" laws, but
shall in no event be required, (x) to qualify to do business in any state where
it is not then qualified, (y) to take any action that would subject it to tax or
to the general service of process in any state where it is not then subject, or
(z) to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. The restrictions on
transfer contained in this Section 5.1 shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in any other
section of this Agreement.
ARTICLE VI
Indemnification
Section 6.1 General Indemnity.
(a) The Company agrees to indemnify and hold harmless each Purchaser (and
its respective directors, officers, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) ("Losses") incurred by each Purchaser as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company herein. The Purchasers severally but not jointly agree to indemnify
and hold harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all Losses incurred by the
Company as result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Purchasers herein.
(b) Notwithstanding the foregoing, neither the Company nor the Purchasers
shall be entitled to any indemnification under this Article 6 unless and until
all Losses of the Company or the Purchasers, as applicable, in the aggregate,
are in excess of $50,000 and the Company, or the Purchasers, as applicable,
shall then only be liable for Losses in excess of such amount. The maximum
aggregate liability of the Company pursuant to its indemnification obligations
under this Article 6 shall not exceed the aggregate Purchase Price received
hereunder, and the maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations shall not exceed the portion of the Purchase Price
paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
19
reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will not contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
Miscellaneous
Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses
of its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement, provided, however, that
the Company shall pay such fees and expenses set forth on Schedule 2.1(p)
hereto, including all reasonable attorneys' fees and expenses (exclusive of
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with the
20
preparation, negotiation, execution and delivery of this Agreement and the other
Transaction Documents and the transactions contemplated thereunder up to an
aggregate amount of $50,000.
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the other Transaction Documents
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Shares, this Agreement or
the Registration Rights Agreement, shall be entitled to reimbursement for
reasonable legal fees from the non-prevailing party.
Section 7.3 Entire Agreement; Amendment. This Agreement and the Transaction
Documents contain the entire understanding and agreement of the parties with
respect to the matters covered hereby and, except as specifically set forth
herein or in the other Transaction Documents, neither the Company nor any
Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of all Shares then held by the Purchasers. Any amendment or waiver effected in
accordance with this Section 7.3 shall be binding upon each Purchaser (and their
permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
21
If to the Company: FiberNet Telecom Group, Inc.
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies (which copies
shall not constitute notice
to the Company) to: Xxxxxxx Xxxx & Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on Exhibit
A to this Agreement.
with copies to: Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement. Subject to
Section 5.1 hereof, the Purchasers may assign the Shares and its rights under
this Agreement and the other Transaction Documents and any other rights hereto
and thereto without the consent of the Company.
22
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the Company
and the Purchasers shall survive the execution and delivery hereof and the
Closing until the second anniversary of the Closing Date, except the agreements
and covenants set forth in Articles I, III, V, VI and VII of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.
Section 7.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 7.12 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the names of the Purchasers without
the consent of the Purchasers, which consent shall not be unreasonably withheld
or delayed, or unless and until such disclosure is required by law, rule or
applicable regulation, and then only to the extent of such requirement.
Section 7.13 Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.
Section 7.14 Further Assurances. From and after the date of this Agreement,
upon the request of the Purchasers or the Company, the Company and each
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the
Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
FIBERNET TELECOM GROUP, INC.
By: /s/ Xxxxxxx X. Xxxx
------------------------------
Name: Xxxxxxx X. Xxxx
Title: President and Chief
Executive Officer
PURCHASERS:
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Investor
By: /s/ Xxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President, Xxxxxx Enterprises
By: /s/ Xxxx X. Xxxxx
---------------------------------------
Name: Xxxx X. Xxxxx
Title: Investor
By: /s/ Xxxxxx Xxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxx
Title: Investor
By: /s/ Xxxxx D'Anduno
---------------------------------------
Name: Xxxxx D'Anduno
Title: Investor
By: /s/ Xxxxxxx X. Xxxxxxx, Xx.
---------------------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx.
Title: Chairman, Xxxxx Xxxx, Inc.
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxx
Xxxxxx & Associates
By: /s/ Xxxxx Xxxxxxxxx
---------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Director, Alexander Enterprise
Holdings Corp.
By: /s/ Xxxx Xxxxxxx
---------------------------------------
Name: Xxxx Xxxxxxx
Title: Investor
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------------
Name: Xxxxx X. Xxxxxxx
By: /s/ Xxxxxx Xxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxx
Title: General Partner,
Xxxxxxxx Xxxxxxxxx
8701 Opportunities Fund
By: /s/ Xxxxxx Xxxxxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxxxxx
Title: President, SMFS, Inc.
By: /s/ Xxxxxxxx Xxxxx
---------------------------------------
Name: Xxxxxxxx Xxxxx
Title: President, LPS Consultants Inc.
By: /s/ Xxxxxxx X. Xxxx
---------------------------------------
Name: Xxxxxxx X. Xxxx
Title: Sole Member, MLS Investments LLC
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Investor
By: /s/ Xxxxxx Xxxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Investor
By: /s/ Xxxxxx Xxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
DMG Legacy Fund LLC
By: /s/ Xxxxxx Xxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
DMG Legacy International Ltd.
By: /s/ Xxxxxx Xxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
DMG Legacy Institutional
Fund LLC
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx
Title: Principal
Sargon Capital International
Fund Ltd.
By: /s/ Xxxxx X. Xxxxx
---------------------------------------
Name: Xxxxx X. Xxxxx
Title: General Counsel,
SDS Merchant Fund LP
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Investor
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Trustee, Xxxxx Xxxxx
Marital Trust
