Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of February
23, 2000, by and among Log On America, Inc., a Delaware corporation, with
headquarters located at Three Regency Plaza, Providence, Rhode Island 02903 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized the following new series of its preferred
stock, par value $0.01 per share: the Company's Series A Convertible Preferred
Stock (the "Preferred Stock"), which shall be convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Preferred
Stock, substantially in the form attached hereto as Exhibit A (the "Certificate
of Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of up to 15,000 shares of the Preferred
Stock (the "Initial Preferred Shares") in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers and warrants, substantially
in the form attached hereto as Exhibit B (the "Initial Warrants"), to acquire a
number of shares of Common Stock for each Initial Preferred Share purchased
equal to 39.6136 (as exercised, collectively, the "Initial Warrant Shares"), as
set forth opposite each Buyers name on the Schedule of Buyers;
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers will be required to buy and the Company will be required to sell an
aggregate of 10,000 shares of Preferred Stock (pro rata based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares purchased) (the "Mandatory Preferred Shares") and
warrants, substantially in the form attached hereto as Exhibit B (the "Mandatory
Warrants") to acquire a number of shares of Common Stock for each Mandatory
Preferred Share purchased equal to the product of (i) the quotient of (a) $1,000
divided by (b) the Closing Price for the Mandatory Preferred Shares multiplied
by (ii) 0.65, (as exercised, collectively, the "Mandatory Warrant Shares");
E. Subject to the terms and conditions set forth in this Agreement,
each Buyer may have the right to purchase and the Company may be required to
sell up to an aggregate of 5,000 shares of Preferred Stock (pro rata based on
the number of Initial Preferred Shares each Buyer purchased in relation to the
total number of Initial Preferred Shares) (collectively, the "Additional
Preferred
Shares") and warrants, substantially in the form attached hereto as Exhibit B
(the "Additional Warrants") to acquire a number of shares of Common Stock for
each Additional Preferred Share purchased equal to the product of (i) the
quotient of (a) $1,000 divided by (b) the Closing Price for the Additional
Preferred Shares multiplied by (ii) 0.65 (as exercised, collectively, the
"Additional Warrant Shares");
F. Subject to the terms and conditions set forth in this Agreement,
each Buyer may have the right to purchase and the Company may be required to
sell up to an aggregate of 5,000 shares of Preferred Stock (pro rata based on
the number of Initial Preferred Shares each Buyer purchased in relation to the
total number of Initial Preferred Shares) (collectively, the "Call Preferred
Shares") and warrants, substantially in the form attached hereto as Exhibit B
(the "Call Warrants") to acquire a number of shares of Common Stock for each
Call Preferred Share purchased equal to the product of (i) the quotient of (a)
$1,000 divided by (b) the Closing Price for the Call Preferred Shares multiplied
by (ii) 0.65 (as exercised, collectively, the "Call Warrant Shares"). The
Initial Preferred Shares, the Mandatory Preferred Shares, the Additional
Preferred Shares and the Call Preferred Shares collectively are referred to in
this Agreement as the "Preferred Shares"; the Initial Warrants, the Mandatory
Warrants, the Additional Warrants and the Call Warrants collectively are
referred to in this Agreement as the "Warrants"; and the Initial Warrant Shares,
the Mandatory Warrant Shares, the Additional Warrant Shares and the Call Warrant
Shares are collectively referred to as the "Warrant Shares"; and
G. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6(a) and 7(a) below, the
Company shall issue and sell to each Buyer and each Buyer severally agrees to
purchase from the Company the respective number of Initial Preferred Shares set
forth opposite such Buyer's name on the Schedule of Buyers, along with the
related Initial Warrants (the "Initial Closing"). Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 1(c), 6(b) and 7(b), each
Buyer shall buy and the Company shall issue and sell that number of Mandatory
Preferred Shares equal to such
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Buyer's pro rata portion of an aggregate of 10,000 Mandatory Preferred Shares
(based on the number of Initial Preferred Shares each Buyer purchased in
relation to the total number of Initial Preferred Shares purchased), along with
the related Mandatory Warrants (the "Mandatory Closing"). Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 1(d), 6(c) and
7(c), at the option of each Buyer, the Company shall issue at multiple closings,
if applicable, and sell to each such Buyer and each such Buyer may purchase from
the Company that number of Additional Preferred Shares equal to such Buyer's pro
rata portion of an aggregate of 5,000 Additional Preferred Shares (based on the
number of Initial Preferred Shares each Buyer purchased in relation to the total
number of Initial Preferred Shares issued), along with the related Additional
Warrants (each an "Additional Closing"). Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 1(e), 6(d) and 7(d), at the option of
each Buyer, the Company shall issue at multiple closings, if applicable, and
sell to each such Buyer and each such Buyer may purchase from the Company that
number of Call Preferred Shares equal to such Buyer's pro rata portion of an
aggregate of 5,000 Call Preferred Shares (based on the number of Initial
Preferred Shares each Buyer purchased in relation to the total number of Initial
Preferred Shares issued), along with the related Call Warrants (each a "Call
Closing" and collectively with the Initial Closing, the Mandatory Closing and
the Additional Closings, the "Closings"). The purchase price (the "Purchase
Price") of each Preferred Share and the related Warrants at each of the Closings
shall be an aggregate of $1,000. "Business Days" means any day other than
Saturday, Sunday or other day on which commercial banks in the City of New York
are authorized or required by law to remain closed.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Central Time, within
three (3) Business Days following the date hereof, subject to the satisfaction
(or waiver) of the conditions to the Initial Closing set forth in Sections 6(a)
and 7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of Katten Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois 60661-3693.
c. The Mandatory Closing Date. The date and time of the
Mandatory Closing (an "Mandatory Closing Date") shall be 10:00 a.m. Central
Time, on July 17, 2000, subject to satisfaction (or waiver) of the conditions to
the Mandatory Closing set forth in Sections 6(b) and 7(b) and the conditions
contained in this Section 1(c) (or such later date as is mutually agreed to by
the Company and the Buyers). On July 3, 2000 (the "Mandatory Share Notice
Date"), subject to the satisfaction of the requirements and the conditions
contained in this Section 1(c), the Company shall deliver written notice to each
Buyer (a "Mandatory Share Notice"). The Mandatory Share Notice shall set forth
(A) the number of Mandatory Preferred Shares and the number of related Mandatory
Warrant Shares subject to Mandatory Warrants each Buyer is required to purchase
at the Mandatory Closing and (B) the aggregate Purchase Price for the Mandatory
Preferred Shares and the related Mandatory Warrants to be purchased.
Notwithstanding the foregoing, no Buyer shall be required to purchase the
Mandatory Preferred Shares and the related Mandatory Warrants and the Company
shall not issue a Mandatory Share Notice unless each of the following conditions
is satisfied: (i) the Initial Registration Statement (as defined in the
Registration Rights Agreement) registering all the Registrable Securities (as
defined in the Registration Rights Agreements) related to the Initial Preferred
Shares and the Initial Warrants is filed on or before April 25, 2000; (ii)
during the period beginning on the date of this Agreement and ending on and
including the Mandatory Closing Date, there shall not have occurred either (I)
the consummation of a Change of Control (as defined in Section 4(b) of the
Certificate of Designations) or a public announcement of a pending, proposed or
intended Change of Control which has not been abandoned or terminated or (II) a
Triggering Event (as defined in Section 3(b) of the Certificate of Designations)
or a Liquidity Default (as defined in Section 3(g) of the Certificate of
Designations) or an event that with the passage of
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time or giving of notice and without being cured would constitute a Triggering
Event or a Liquidity Default; (iii) at all times during the period beginning on
the date of this Agreement and ending on and including the Mandatory Closing
Date, the Common Stock shall have been designated for quotation on the Nasdaq
National Market ("Nasdaq") or listed on The New York Stock Exchange, Inc.
("NYSE") or The American Stock Exchange ("AMEX") and shall not have been
suspended from trading on such exchanges nor shall delisting or suspension by
such exchanges have been threatened either (I) in writing by such exchanges or
(II) by falling below the minimum listing maintenance requirements of such
exchanges; (iv) during the period beginning on the Initial Closing Date and
ending on and including the Mandatory Closing Date, the Company shall have
delivered Conversion Shares and Warrant Shares upon conversion or exercise, as
the case may be, of the Preferred Shares and the Warrants on a timely basis as
set forth in Section 2(d)(ii) of the Certificate of Designations or Section 2(a)
of the Warrants and otherwise shall have been in compliance with and shall not
have breached any provision of the Transaction Documents (as defined below) and
the Certificate of Designations; (v) the Company shall have received the
approval of the Company's stockholders, pursuant to Section 4(m), to issue the
Conversion Shares upon the conversion of the Preferred Shares in excess of the
Exchange Cap (as defined in the Certificate of Designation); (vi) the arithmetic
average of the Closing Bid Prices (as defined in the Certificate of
Designations) of the Common Stock for the fifteen (15) consecutive trading days
ending on the including July 17, 2000 shall equal or exceed $25.00 (as adjusted
for stock split, stock dividends, stock combination or similar transactions);
and (vii) on each day during the period beginning on the Mandatory Share Notice
Date and ending on and including the Mandatory Closing Date the Closing Bid
Price of the Common Stock shall equal or exceed $23.00 (as adjusted for stock
splits, stock dividends, stock combinations and similar transactions). The
Mandatory Closing shall occur on an Mandatory Closing Date at the offices of
Katten Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693.
d. The Additional Closing Date. The date and time of each
Additional Closing (an "Additional Closing Date") shall be 10:00 a.m. Central
time, on the date specified in the Additional Share Notice (as defined below),
subject to satisfaction (or waiver) of the conditions to each Additional Closing
set forth in Sections 6(c) and 7(c) and the conditions contained in this Section
1(d) (or such later date as is mutually agreed to by the Company and the
Buyers). At any time during the period beginning on the Initial Closing Date and
ending on and including the date which is 90 days after the date on which the
Initial Registration Statement is declared effective by the SEC (as defined
below), but subject to the requirements of Sections 6(c) and 7(c) and the
conditions contained in this Section 1(d); each Buyer may purchase, at such
Buyer's option, Additional Preferred Shares and related Additional Warrants by
delivering written notice to the Company (a "Additional Share Notice") at least
five Business Days (the "Additional Share Notice Date") prior to the Additional
Closing Date set forth in the Additional Share Notice. The Additional Share
Notice shall set forth (i) the number of Additional Preferred Shares and the
number of related Additional Warrant Shares subject to the Additional Warrant
such Buyer will purchase, which number shall not exceed such Buyers pro rata
portion (based on the number of Initial Preferred Shares each Buyer purchased in
relation to the total number of Initial Preferred Shares purchased by all the
Buyers) of the aggregate number of Additional Preferred Shares which may be
purchased at all Additional Closings, (ii) the aggregate Purchase Price for the
Additional Preferred Shares and the related Additional Warrants to be purchased
and (iii) the Additional Closing Date. The Additional
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Closing shall occur on an Additional Closing Date at the offices of Katten
Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
e. The Call Closing Date. The date and time of each Call
Closing (a "Call Closing Date" and collectively with the Initial Closing Date,
the Mandatory Closing Date and the Additional Closing Dates, the "Closing
Dates") shall be 10:00 a.m. Central time, on the date specified in the Call
Share Notice (as defined below), subject to satisfaction (or waiver) of the
conditions to each Call Closing set forth in Sections 6(d) and 7(d) and the
conditions contained in this Section 1(e) (or such later date as is mutually
agreed to by the Company and the Buyers). At any time during the period
beginning on the Initial Closing Date and ending on and including the date which
is 90 days after the date on which the Initial Registration Statement is
declared effective by the SEC, but subject to the requirements of Sections 6(d)
and 7(d) and the conditions contained in this Section 1(e); each Buyer may
purchase, at such Buyer's option, Call Preferred Shares and related Call
Warrants by delivering written notice to the Company (a "Call Share Notice") at
least five Business Days (the "Call Share Notice Date") prior to the Call
Closing Date set forth in the Call Share Notice. The Call Share Notice shall set
forth (i) the number of Call Preferred Shares and the number of related Call
Warrant Shares subject to the Call Warrant such Buyer will purchase, which
number shall not exceed such Buyers pro rata portion (based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares purchased by all the Buyers) of the aggregate number of
Call Preferred Shares which may be purchased at all Call Closings, (ii) the
aggregate Purchase Price for the Call Preferred Shares and the related Call
Warrants to be purchased and (iii) the Call Closing Date. Notwithstanding the
foregoing, the Company shall not be required to issue the Call Preferred Shares
and the related Call Warrants and a Buyer shall not deliver a Call Share Notice
unless, on each of the 5 consecutive trading days ending on and including the
Call Share Notice Date, the Closing Bid Price of the Common Stock is greater
than or equal to $20.00 (subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions). The Call Closing
shall occur on an Call Closing Date at the offices of Katten Muchin Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
f. Form of Payment. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares and
the related Warrants to be issued and sold to such Buyer at such Closing, by
wire transfer of immediately available funds in accordance with the Company's
written wire instructions, less any amount withheld for expenses pursuant to
Section 4(i), and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "Preferred
Stock Certificates") representing such number of the Preferred Shares which such
Buyer is then purchasing hereunder along with warrants representing the related
Warrants, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares issuable upon conversion thereof and (iii)
upon exercise of the Warrants, will acquire the Warrant Shares issuable upon
exercise thereof (the Preferred Shares, the Conversion Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the "Securities"), for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or
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transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act, as amended, (or a successor rule thereto) ("Rule
144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
Notwithstanding the foregoing, the Securities may be pledged in connection with
a bona fide margin account or other loan secured by the securities.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold. Such Buyer
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acknowledges, covenants and agrees to sell Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act or (ii) advice of counsel to
such Buyer that such sale is exempt from the registration requirements of
Section 5 of the 1933 Act.
h. Authorization; Enforcement; Validity. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Buyer and are valid and binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country
specified in its address on the Schedule of Buyers.
j. Ownership of the Company's Common Stock. Neither such Buyer
nor such Buyer's Affiliates (as defined below) has traded in the Company's
Common Stock during the 60 consecutive days ending on the Initial Closing Date
and as of the Initial Closing Date, neither will such Buyer nor such Buyer's
Affiliates have any short position. Notwithstanding the foregoing, an Affiliate
of Marshall Capital Management, Inc. (a Buyer) shall not be subject to the
representations or restrictions set forth in this Section 2(k) solely to the
extent that such Affiliate is not acting in concert with, or at the direction
of, Marshall Capital Management, Inc. "Affiliate" for purposes of this Sections
2(k) means, with respect to any person or entity, another person or entity that,
directly or indirectly, (i) controls that person or entity, (ii) is controlled
by that person or entity or (iii) shares common control with that person or
entity. "Control" or "controls" for purposes of this Section 2(j) means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being conducted. 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 its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below). The Company has no Subsidiaries except as set forth on Schedule 3(a).
b. Authorization; Enforcement; Validity. (i) The Company has
the requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Warrants
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents and the execution and filing of the Certificate of Designations by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Preferred Shares and
the Warrants and the reservation for issuance and the issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise thereof, have
been duly authorized and unanimously approved by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) this Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company, (iv) the Transaction Documents, upon execution and delivery thereof,
will constitute the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies, and (v) prior to the Initial Closing Date, the Certificate of
Designations has been filed with the Secretary of State of the State of Delaware
and will be in full force and effect, enforceable against the Company in
accordance with its terms and shall not have been amended unless in compliance
with its terms.
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c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 125,000,000 shares of Common Stock,
of which as of the date hereof, 8,289,793 shares are issued and outstanding,
2,500,000 shares are reserved for issuance pursuant to the Company's stock
option and purchase plans and 995,667 shares are issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and the
Warrants) exercisable or exchangeable for, or convertible into, shares of Common
Stock and (ii) 25,000,000 shares of Preferred Stock, of which as of the date
hereof, no shares are issued and outstanding. All of such outstanding shares
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), (A) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (B)
there are no outstanding debt securities issued by the Company; (C) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (D) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (E) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (G) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's Bylaws, as amended and as in effect on the date hereof (the "Bylaws"),
and the terms of all securities convertible into or exercisable for Common Stock
and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. At least 2,500,000
shares of Common Stock (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(f) below) have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants. Upon conversion or exercise in accordance with the Certificate of
Designations or the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from
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registration under the 1933 Act, assuming that the representations and
warranties of each of the Buyers contained in Section 2 are true and correct as
to factual matters.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the Bylaws; (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party; (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the Principal Market (as defined below)) 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 as disclosed in Schedule 3(e), neither
the Company nor its Subsidiaries is in violation of any term of its Certificate
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or Bylaws or their
organizational charter or bylaws, respectively. Except as disclosed in Schedule
3(e), neither the Company or any of its Subsidiaries is in violation or any term
of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except where such
violation would not result, either individually or in the aggregate, in a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, ordinance
or regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents or to perform its
obligations under the Certificate of Designations, in each case in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3(e), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company is not in violation of the listing requirements of the
Principal Market, including, without limitation, the requirements set forth in
Rule 4310(c)(25)(H) of the Principal Market and has no actual knowledge of any
facts which would reasonably lead to delisting or suspension of the Common Stock
by the Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since April 22, 1999,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein
-11-
being hereinafter referred to as the "SEC Documents"). The Company has delivered
to the Buyers or their respective representatives true and complete copies of
the SEC Documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, 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 exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d), contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Buyers with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since April 22, 1999 there has been no material adverse change and no
material adverse development in the business, properties, assets, operations,
results of operations, financial conditions or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
Except as disclosed in Schedule 3(g), since April 22, 1999 the Company has not
declared or paid any dividends, sold any assets, individually or in the
aggregate, in excess of $2,000,000 outside of the ordinary course of business or
had capital expenditures, individually or in the aggregate, in excess of
$2,000,000.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry (except for inquiries that would not have, individually or
in the aggregate, a Material Adverse Effect) or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Subsidiaries or any of the Company's or the Subsidiaries' officers or directors
in their capacities as such, except as expressly set forth in Schedule 3(h).
Except as set forth in Schedule 3(h), to the knowledge of the Company none of
the directors or officers of the Company have been involved in securities
related litigation during the past five years.
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i. Acknowledgment Regarding Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the Certificate of Designation and the transactions
contemplated hereby and thereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
Certificate of Designation and the transactions contemplated hereby and thereby
and any advice given by any of the Buyers or any of their respective
representatives or agents in connection with the Transaction Documents and the
Certificate of Designation and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Stock and Warrants
contemplated by this Agreement, no event, liability, development or circumstance
has occurred or exists, or is contemplated to occur, with respect to the Company
or its Subsidiaries or their respective business, properties, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement on Form
SB-2 filed with the SEC relating to an issuance and sale by the Company of its
Common Stock and which has not been publicly disclosed.
k. No General Solicitation. 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 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor 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 any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designations and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement
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and the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer, to
the best knowledge of the Company and its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted. Except as set forth on
Schedule 3(o), none of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, trade secrets or other intellectual property rights of
others, or of any development of similar or identical trade secrets or technical
information by others and, except as set forth on Schedule 3(o), there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its Subsidiaries regarding
its trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
or infringement of other intellectual property rights; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
p. Environmental Laws. Except in such instances as could not,
either individually or in the aggregate, have a Material Adverse Effect, the
Company and its Subsidiaries (i) are in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to
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conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
q. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(q) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries.
r. 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
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and 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 at a cost that would not have a Material Adverse Effect, taken as a
whole.
s. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient 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 action is taken with respect to any differences.
u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
-15-
v. Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes), (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and for which the Company has made appropriate reserves for on its
books, and (iii) has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations (referred to in clause (i) above) apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the date
hereof, and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or 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 such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyers'
ownership of the Securities.
y. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
z. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate,
-16-
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
aa. Year 2000 Compliance. The Company has initiated a review
and assessment of all areas within its and each Subsidiary's business and
operations that could be materially adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the Company or
any of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on the foregoing, the Company believes that the
computer applications that are currently material to its or any Subsidiary's
business and operations are reasonably expected to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000.
bb. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
cc. Fees and Expenses. As of the Initial Closing Date and the
Initial Funding Date (as defined in the Credit Agreement (as defined in Section
7(a)(xv))), the aggregate amount of fees, costs and/or expenses paid or payable
by the Company relating to the issuance of the Preferred Shares does not and
will not exceed $250,000.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at each of the Closings pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the Buyers on or prior to the Closing Dates. The Company shall make all filings
and reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following each of the Closing Dates.
c. Reporting Status. Until the later of (i) the date which is
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date which is five (5) years from
the last Closing Date to occur (the "Reporting Period"), the Company shall file
all reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
-17-
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Reporting Period: (i) within two (2) days after the filing
thereof with the SEC (unless available on the EDGAR System, in which case within
seven (7) days after the filing thereof with the SEC), a copy of its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on
Form 8-K and any registration statements (other than on Form S-8) or amendments
filed pursuant to the 1933 Act, provided that if any such report is not filed
with the SEC through EDGAR then the Company shall deliver a copy of such report
to each Investor by facsimile on the same day it is filed with the SEC; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon conversion of all
outstanding Preferred Shares (without regard to any limitations on conversions)
and 100% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon exercise of all outstanding Warrants
(without regard to any limitations on exercises).
g. Additional Financing; Right of First Refusal. Subject to
the exceptions described below, the Company and its Controlled Subsidiaries (as
defined below) agree that during the period beginning on the date hereof and
ending six (6) months following the Initial Closing Date (the "Lock-Up Period"),
neither the Company nor the Controlled Subsidiaries will, without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, negotiate or contract with any party for any equity
financing (including any debt financing with an equity component) or issue any
equity securities of the Company or any Controlled Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or any
Controlled Subsidiary (including debt securities with an equity component) in
any form (a "Future Offering"). In addition, subject to the exceptions described
below, the Company and its Controlled Subsidiaries agrees that during the period
beginning on the date hereof and ending on and including the date which is one
(1) year after the Initial Closing Date, neither the Company nor its Controlled
Subsidiaries will negotiate or contract with any party for any Future Offering
unless it shall have first delivered to each Buyer or a designee appointed by
such Buyer written notice (the "Future Offering Notice") describing the proposed
Future Offering, including the buyer and terms and conditions thereof, and
providing each Buyer an option to purchase its Aggregate Percentage (as defined
below) of the securities to be issued in such Future Offering (the limitations
referred to in this and the preceding sentence are collectively referred to as
the "Capital Raising Limitations"). For purposes
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of this Section 4(g), "Aggregate Percentage" shall mean the percentage obtained
by dividing (i) the aggregate number of Preferred Shares initially issued to
such Buyer by (ii) the aggregate number of Preferred Shares initially issued to
all the Buyers. A Buyer can exercise its option to participate in a Future
Offering by delivering written notice to the Company within ten (10) Business
Days after receipt of a Future Offering Notice, which notice shall state whether
such Buyer will purchase its Aggregate Percentage, and that number of securities
such Buyer is willing to purchase in excess of its Aggregate Percentage. In the
event that one or more Buyers fail to elect to purchase each of such Buyer's
Aggregate Percentage, then each Buyer which has indicated that it is willing to
purchase a number of securities in such Future Offering in excess of its
Aggregate Percentage shall be entitled to purchase its pro rata portion
(determined in the same manner as described in the preceding sentence) of the
securities in the Future Offering which one or more of the Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section 4(g) and
such Future Offering includes gross proceeds to the Company in excess of $25
million, the Company shall not be obligated to sell any of the Future Offering
to the Buyer and shall have 45 days thereafter to sell the securities in such
Future Offering upon terms and conditions, no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Buyers
fail to elect to fully participate in the Future Offering within the periods
described in this Section 4(g) and such Future Offering includes gross proceeds
to the Company equal to or less than $25 million, the Company shall have 45 days
thereafter to sell the securities in the Future Offering that the Buyers did not
elect to purchase upon terms and conditions, no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Company
has not sold such securities of the Future Offering within such 45 day period,
the Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(g). The Capital Raising Limitations shall not apply to (i) a loan from a
commercial bank which does not have any equity feature, (ii) any transaction
involving the Company's issuances of securities (A) as consideration in a merger
or consolidation, (B) in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or (C) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof and (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings. "Controlled Subsidiaries" means any
entity in which the Company, directly or indirectly, owns at least 50% of the
capital stock, equity or similar interest of such entity.
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time
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issuable under the terms of the Transaction Documents and the Certificate of
Designations. The Company shall maintain the Common Stock's authorization for
quotation on Nasdaq or listed on NYSE or AMEX (as applicable, the "Principal
Market"). Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock from the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at the Initial
Closing, the Company shall pay an expense allowance of $40,000 to HFTP
Investment L.L.C. (a Buyer) which amount shall be withheld by such Buyer from
its Purchase Price to be paid at the Initial Closing.
j. Filing of Form 8-K. On or before the third (3rd) Business
Day following the Initial Closing Date, the Company shall file a Form 8-K with
the SEC describing the terms of the transactions contemplated by the Transaction
Documents and including as exhibits to such 8-K this Agreement, the Certificate
of Designation, the Registration Rights Agreement and the Form of Warrant, in
the form required by the 1934 Act. On or before the first (1st) Business Day
following the Mandatory Closing Date, each Additional Closing Date, each Call
Closing Date, each Additional Share Notice Date and each Call Share Notice Date,
the Company shall file a Form 8-K with the SEC describing the transaction
consummated or proposed on such date. The Company shall also file a Form 8-K
with the SEC prior to or concurrent with the Form 8-K referred to in the first
sentence of this Section 4(j), disclosing the financing with Nortel Networks,
Inc. and including as an exhibit the Credit Agreement (as defined in Section
7(a)(xv)).
k. Transactions With Affiliates. So long as (i) any Preferred
Shares or Warrants are outstanding or (ii) any Buyer owns Conversion Shares or
Warrant Shares with a market value equal to or greater than $500,000, the
Company shall not, and shall cause each of its Controlled Subsidiaries not to,
enter into, amend, modify or supplement any agreement, transaction, commitment
or arrangement with any of its or any Controlled Subsidiary's officers,
directors, persons who were officers or directors at any time during the
previous two years, stockholders who beneficially own 5% or more of the Common
Stock, or affiliates of the Company or its Controlled Subsidiaries or with any
individual related by blood, marriage or adoption to any such individual or with
any entity in which any such entity or individual owns a 5% or more beneficial
interest (each a "Related Party"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or any
Controlled Subsidiary shall not be a disinterested director with respect to any
such agreement, transaction, commitment or arrangement. "Affiliate" for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (i) has a 5% or more equity interest in that
person or entity, (ii) has 5% or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common control with
that person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
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l. Capital and Surplus; Special Reserves. The Company agrees
that the capital of the Company (as such term is used in Section 154 of the
General Corporation Law of Delaware) in respect of the Preferred Shares shall be
equal to the aggregate par value of such Preferred Shares and that it shall not
increase the capital of the Company with respect to any shares of the Company's
capital stock at anytime on or after the date of this Agreement. The Company
also agrees that it shall not create any special reserves under Section 171 of
the General Corporation Law of Delaware without the prior written consent of
each holder of Preferred Shares. As any Preferred Shares remain outstanding, the
Company shall not account for as surplus or transfer to or otherwise allocate to
the Company's surplus account for purposes of the Delaware General Corporation
Law any of the capital represented by the Preferred Shares, including, without
limitation, for the purpose of reducing any of its capital stock as contemplated
by Section 244 of the Delaware General Corporation Law. The amount to be
represented in the capital account for the Preferred Stock at all times for each
outstanding Preferred Share shall be an amount equal to the product of (i) the
Liquidation Preference (as defined in the Certificate of Designations) and (ii)
125%.
m. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
occur on or before the earlier of (A) the date on which the Company holds its
next annual meeting of stockholders and (B) May 31, 2000 (the "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such annual stockholder meeting for approval of the
Company's issuance of all of the Securities as described in this Agreement in
accordance with applicable law and the rules and regulations of the Principal
Market (such affirmative approval being referred to herein as the "Stockholder
Approval"), and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal. Such proxy statement shall not seek approval of any matters other
than the approval described in the preceding sentence and the election of
directors.
n. Corporate Existence. So long as a Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on Nasdaq, AMEX or NYSE.
o. Restriction on Short Sales. Each Buyer agrees that, subject
to the exceptions described below, during the period beginning on the Initial
Closing Date and ending on but excluding the earlier of (i) the first date on
which such Buyer no longer holds any Preferred Shares and (ii) the date which is
180 days after the Initial Closing Date, neither such Buyer nor any of its
affiliates shall engage in any transaction constituting a "short sale" (as
defined in Rule 3b-3 of the 1934 Act) of the Common Stock (collectively, "Short
Sales"); provided, however, that each Buyer
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and its Affiliates are entitled to engage in transactions which constitute Short
Sales to the extent that following such transaction the aggregate net short
position of such Buyer and its Affiliates does not exceed the sum of (a) the
number of shares of Common Stock equal to the aggregate number of Warrant Shares
which such Buyer and its Affiliates have the right to acquire upon exercise of
the Warrants held by such Buyer and its Affiliates (without regard to any
limitations on exercises of the Warrants), plus (b) during the period beginning
on and including the First Company's Conversion Election Notice Date (as defined
in Section 7 of the Certificate of Designations) and ending on and including the
First Company's Election Conversion Date (as defined in Section 7 of the
Certificate of Designations), that number of shares of Common Stock equal to the
number of shares of Common Stock issuable upon conversion of such Buyer's First
Required Conversion Amount (as defined in Section 7 of the Certificate of
Designations) (without regard to any limitations on conversions), plus (c)
during the period beginning on and including the Second Company's Conversion
Election Notice Date (as defined in Section 8 of the Certificate of
Designations) and ending on and including the Second Company's Election
Conversion Date (as defined in Section 8 of the Certificate of Designations),
that number of shares of Common Stock equal to the number of shares of Common
Stock issuable upon conversion of such Buyers Second Required Conversion Amount
(as defined in Section 8 of the Certificate of Designations) (without regard to
any limitations on conversions). Notwithstanding the foregoing, the restriction
on Short Sales set forth in the first sentence of this Section 4(o) shall not
apply (a) with respect to any Short Sale at a price greater than or equal to the
Fixed Conversion Price (as defined in the Certificate of Designations) of the
Initial Preferred Shares then in effect; (b) at any time after the first date
after the Initial Closing Date on which the Closing Bid Price of the Common
Stock is less than 50% of applicable Closing Price (as defined in the
Certificate of Designations) (equitably adjusted for stock splits, stock
dividends, stock combinations and other similar transactions) for any 10 trading
days during the 12 consecutive trading days immediately preceding such date of
determination; (c) on and after any date on which the Common Stock is not listed
or quoted on the Nasdaq National Market or The New York Stock Exchange, Inc. or
has been suspended from trading on any such exchange (excluding suspensions of
not more than one day resulting from business announcements by the Company), or
any such delisting or suspension is threatened or pending either (I) in writing
by such exchanges or (II) by falling below the minimum listing maintenance
requirements of such exchanges; (d) on or after any date on which there shall
have occurred an event constituting a Change of Control or a Triggering Event or
a Liquidity Default or an event that with the passage of time and without being
cured would constitute a Triggering Event or a Liquidity Default; (e) on or
after any date on which there shall have been an announcement of a pending,
proposed or intended Change of Control; (f) on or after any date on which the
Company issues or sells or is deemed to have issued or sold any Convertible
Securities or Options (both as defined in the Certificate of Designations) that
are convertible into or exercisable or exchangeable for shares of Common Stock
at a conversion or exercise price which varies or may vary with the market price
of the Common Stock, including by way of one or more reset(s) to a fixed price;
(g) on or after the Stockholder Meeting Deadline if the Company fails to receive
the Stockholder Approval on or before the Stockholder Meeting Deadline; or (h)
with respect to a short sale so long as the Buyer delivers a Conversion Notice
(as defined in the Certificate of Designations) within two Business Days of such
Short Sale entitling such Buyer to receive a number of shares of Common Stock at
least equal to the number of shares of Common Stock sold in such Short Sale.
Notwithstanding the foregoing, an Affiliate of Marshall Capital Management, Inc.
(a Buyer) shall not be subject to the restrictions set forth in this Section
4(o) solely to the extent that such Affiliate
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is not acting in concert with, or at the direction of, Marshall Capital
Management, Inc. "Affiliate" for purposes of this Sections 4(o) means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (i) controls that person or entity, (ii) is controlled by that
person or entity or (iii) shares common control with that person or entity.
"Control" or "controls" for purposes of this Section 4(o) means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
p. Local Exchange Carrier. The Company has been approved as a
competitive local exchange carrier in the states of Rhode Island and
Massachusetts, and will use its best efforts to maintain such designations.
q. Nortel Agreement. So long as any Preferred Shares or
Warrants are outstanding, the Company shall comply in all respects with the
Credit Agreement (as defined in Section 7(a)(xv)) and shall immediately pay all
amounts due and owing under the Credit Agreement. The Company shall not amend,
modify, increase, supplement, renew, extend, restate or refinance the Credit
Agreement unless, after giving affect to such amendment, modification, increase,
supplement, renewal, extension, restatement or refinancing, the Company would
still have the ability to borrow up to $30 million (including previous
drawdowns) under the Credit Agreement upon the issuance of the Initial Preferred
Shares and up to $45 million (including previous drawdowns) under the Credit
Agreement upon the issuance of no less than $10 million of additional Preferred
Shares (including, without limitation, all of the Mandatory Preferred Shares).
The Company shall not amend, modify, increase, supplement, renew, extend,
restate or refinance the Credit Agreement, except for such amendments,
modifications, increases, supplements, renewals, extensions, restatements or
refinancings which do not (i) amend Section 9.4(d), Section 9.4(e), Section
9.4(f), Section 9.4(g) or Section 9.4(h) of the Credit Agreement (or the
analogous provisions of any refinancing agreement) in any manner that would
adversely affect the rights of the holders of the Preferred Shares to receive
Restricted Payments (as defined in the Credit Agreement) pursuant to any such
Section (or the analogous provisions of any refinancing agreement) or otherwise
amend the Credit Agreement in any manner that would effectively accomplish any
of the foregoing referred to in this clause (i), or (ii) amend Section 11.1(q),
Section 11.1(t) or Section 11.1(u) of the Credit Agreement (or the analogous
provisions of any refinancing agreement) in any manner that would allow the
Designated Senior Debt Representative (as defined in the Certificate of
Designations) or any of the Lenders (as defined in the Credit Agreement) to
claim that an Event of Default (as defined in Section 11.1 of the Credit
Agreement (or the analogous provisions of any refinancing agreement)) has
occurred under any such Section (or the analogous provisions of any refinancing
agreement) which such person would not have, absent such amendment, been able to
claim prior to such amendment or otherwise amend the Credit Agreement in any
manner that would effectively accomplish any of the foregoing referred to in
this clause (ii).
5. TRANSFER AGENT INSTRUCTIONS.
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The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and the Warrant Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 2(f) (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act) will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. If a Buyer
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act or the Buyer provides the
Company with reasonable assurances that the Securities can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Buyer and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyers shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company to
issue and sell the Initial Preferred Shares and the Initial Warrants to each
Buyer at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price (less, in the case of HFTP Investment LLC, the amounts
withheld pursuant to Section 4(i)) for the
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Initial Preferred Shares and the Initial Warrants being purchased by
such Buyer at the Initial Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to the
Closing Date.
b. Mandatory Closing Date. The obligation of the Company
hereunder to issue and sell the Mandatory Preferred Shares and the Mandatory
Warrants to each Buyer at the Mandatory Closing is subject to the satisfaction,
at or before such Mandatory Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Mandatory Preferred Shares and the related
Mandatory Warrants being purchased by such Buyer at the Mandatory
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Mandatory Closing Date.
c. Additional Closing Date. The obligation of the Company
hereunder to issue and sell the Additional Preferred Shares and the Additional
Warrants to each Buyer at each Additional Closing is subject to the
satisfaction, at or before such Additional Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Additional Preferred Shares and the related
Additional Warrants being purchased by such Buyer at the applicable
Additional Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the applicable
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such
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Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by
such Buyer at or prior to the applicable Additional Closing Date.
d. Call Closing Date. The obligation of the Company hereunder
to issue and sell the Call Preferred Shares and the Call Warrants to each Buyer
at each Call Closing is subject to the satisfaction, at or before such Call
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Call Preferred Shares and the related Call
Warrants being purchased by such Buyer at the applicable Call Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the applicable Call
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the applicable Call Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares and the Initial Warrants from
the Company at the Initial Closing is subject to the satisfaction, at or before
the Initial Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents and delivered the same to such Buyer.
(ii) The Certificate of Designations, shall have been filed
with the Secretary of State of the State of Delaware, and a copy
thereof certified by such Secretary of State shall have been delivered
to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on the Principal Market
nor shall suspension by the SEC or the Principal Market have been
threatened either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of
the Principal Market; and the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise of the Initial Preferred Shares be
shall be listed upon the Principal Market.
-26-
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, without limitation, an
update as of the Closing Date regarding the representation contained in
Section 3(c) above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the Initial Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for the Initial Preferred
Shares and the Initial Warrants being purchased by such Buyer at the
Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Initial Preferred Shares
and the exercise of the Initial Warrants, at least 2,500,000 shares of
Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such entity's state of incorporation or
organization issued by the Secretary of State of such state of
incorporation or organization as of a date within ten days of the
Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware as of a date within ten
days of the Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate, dated as the Closing Date, as to (A) the
Resolutions, (B) the Certificate of Incorporation and (C) the Bylaws,
each as in effect at the Initial Closing.
-27-
(xiii) The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate
the issuance of the Securities pursuant to this Agreement in compliance
with such laws.
(xiv) Each Buyer shall have delivered the Purchase Price for
the Initial Preferred Shares and the Initial Warrants to be purchased
by such Buyer at the Initial Closing pursuant to this Agreement.
(xv) The Company and Nortel Networks, Inc., a Delaware
corporation ("Nortel"), shall have entered into the Credit Agreement,
dated January 31, 2000 by and among the Company and Nortel in the form
last delivered to such Buyer prior to the date of this Agreement (the
"Credit Agreement").
(xvi) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
b. Mandatory Closing Date. The obligation of each Buyer
hereunder to purchase the Mandatory Preferred Shares and the Mandatory Warrants
from the Company at the Mandatory Closing is subject to the satisfaction, at or
before the Mandatory Closing Date, of each of the following conditions, provided
that these conditions are for each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(c).
(ii) The Certificate of Designations shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of the
State of Delaware shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on or delisted from the
Principal Market nor shall delisting or suspension by such Principal
Market have been threatened either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market; and all of the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Mandatory Preferred Shares and the Mandatory Warrants,
as the case may be, shall be listed upon the Principal Market.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied in all respects with the
covenants, agreements
-28-
and conditions required by the Transaction Documents or the Certificate
of Designations to be performed, satisfied or complied with by the
Company at or prior to the Mandatory Closing Date. Such Buyer shall
have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Mandatory Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of the
applicable Mandatory Closing Date regarding the representation
contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the Mandatory Closing Date, in
form, scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for the Mandatory Preferred
Shares and the Mandatory Warrants being purchased by such Buyer at the
Mandatory Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the Mandatory Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of shares of Common Stock which would be issuable upon conversion in
full of the then outstanding Preferred Shares (without regard to any
limitations on conversions) and 100% of the number of shares of Common
Stock which would be issuable upon exercise in full of the then
outstanding Warrants (without regard to any limitations on exercises),
including for such purposes the Mandatory Preferred Shares and the
Mandatory Warrants to be issued at the Mandatory Closing.
(ix) The Irrevocable Transfer Agent Instructions shall remain
in effect as of the Mandatory Closing Date and the Company shall cause
its Transfer Agent to deliver a letter to the Buyers to that effect.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten days of
the Mandatory Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
Mandatory Closing Date.
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(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at
the Mandatory Closing.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Mandatory
Closing Date.
(xiv) The Initial Registration Statement covering the resale
of all the Registrable Securities related to the Initial Preferred
Share and the Initial Warrants, in accordance with the Registration
Rights Agreement, shall have been filed on or before April 25, 2000.
(xv) Each Buyer shall have delivered the Purchase Price for
the Mandatory Preferred Shares and the Mandatory Warrants to be
purchased by such Buyer at the Mandatory Closing pursuant to this
Agreement.
(xvi) The Company shall have received the Stockholder Approval
on or prior to the Stockholder Meeting Deadline.
(xvii) An Event of Default (as defined in the Credit
Agreement) shall not have occurred on or prior to the Mandatory Closing
Date, no event that with the passage of time and without being cured
would constitute an Event of Default shall have occurred and be
continuing on the Mandatory Closing Date and the Company shall
otherwise be in compliance in all material respects with all of its
obligations and covenants under the Credit Agreement as of the
Mandatory Closing Date.
(xviii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
c. Additional Closing Dates. The obligation of each Buyer
hereunder to purchase the Additional Preferred Shares and the Additional
Warrants from the Company at each of the applicable Additional Closings is
subject to the satisfaction, at or before each of the Additional Closing Dates,
of each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(d).
(ii) The Certificate of Designations shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of the
State of Delaware shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on or delisted from the
Principal Market
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nor shall delisting or suspension by such Principal Market have been
threatened either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of
the Principal Market; and all of the Conversion Shares and the Warrant
Shares issuable upon conversion or exercise of the Additional Preferred
Shares and the Additional Warrants, as the case may be, shall be listed
upon the Principal Market.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the applicable
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by the Transaction Documents or the Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the applicable Additional Closing Date. Such Buyer shall
have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Additional Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of the
applicable Additional Closing Date regarding the representation
contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the applicable Additional Closing
Date, in form, scope and substance reasonably satisfactory to such
Buyer and in substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for the Additional Preferred
Shares and the Additional Warrants being purchased by such Buyer at the
applicable Additional Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the applicable Additional Closing Date, the
Company shall have reserved out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, a number of shares of Common Stock equal to at least
200% of the number of shares of Common Stock which would be issuable
upon conversion in full of the then outstanding Preferred Shares
(without regard to any limitations on conversions) and 100% of the
number of shares of Common Stock which would be issuable upon exercise
in full of the then outstanding Warrants (without regard to any
limitations on exercises), including for such purposes the Additional
Preferred Shares and the Additional Warrants to be issued at such
Additional Closing.
-31-
(ix) The Irrevocable Transfer Agent Instructions shall remain
in effect as of the Additional Closing Date and the Company shall cause
its Transfer Agent to deliver a letter to the Buyers to that effect.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten days of
the applicable Additional Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
applicable Additional Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at
the applicable Additional Closing.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the
applicable Additional Closing Date.
(xiv) The Initial Registration Statement covering the resale
of the Conversion Shares and Warrant Shares has been declared effective
by the SEC and at all times since being declared effective other than
during an Allowable Grace Period and has been effective and available
for the sale of no less than the sum of (A) 200% of the number of
Conversion Shares then issuable upon the conversion of all outstanding
Initial Preferred Shares (without regard to any limitations on
conversions), (B) 100% of the number of Warrant Shares into which all
outstanding Initial Warrants are then exercisable (without regard to
any limitations on exercises) and (C) the number of Conversion Shares
and Warrant Shares outstanding, which were acquired upon conversion or
exercise of the Initial Preferred Shares or the Initial Warrants, as
the case may be, and held by the Buyers at such time.
(xv) The Company shall have received the Stockholder Approval
on or prior to the Stockholder Meeting Deadline.
(xvi) An Event of Default (as defined in the Credit Agreement)
shall not have occurred on or prior to the Additional Closing Date, no
event that with the passage of time and without being cured would
constitute an Event of Default shall have occurred and be continuing on
the applicable Additional Closing Date and the Company shall otherwise
be in compliance in all material respects with all of its obligations
and covenants under the Credit agreement as of the applicable
Additional Closing Date.
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(xvii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
d. Call Closing Dates. The obligation of each Buyer hereunder
to purchase the Call Preferred Shares and the Call Warrants from the Company at
each of the applicable Call Closings is subject to the satisfaction, at or
before each of the Call Closing Dates, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(e).
(ii) The Certificate of Designations shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of the
State of Delaware shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on or delisted from the
Principal Market nor shall delisting or suspension by such Principal
Market have been threatened either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market; and all of the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Call Preferred Shares and the Call Warrants, as the
case may be, shall be listed upon the Principal Market.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the applicable
Call Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by the Transaction Documents or the Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the applicable Call Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Call Closing Date, to the foregoing effect and
as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the applicable Call
Closing Date regarding the representation contained in Section 3(c)
above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the applicable Call Closing Date,
in form, scope and substance reasonably satisfactory to such Buyer and
in substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for
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the Call Preferred Shares and the Call Warrants being purchased by such
Buyer at the applicable Call Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the applicable Call Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred
Shares, a number of shares of Common Stock equal to at least 200% of
the number of shares of Common Stock which would be issuable upon
conversion in full of the then outstanding Preferred Shares (without
regard to any limitations on conversions) and 100% of the number of
shares of Common Stock which would be issuable upon exercise in full of
the then outstanding Warrants (without regard to any limitations on
exercises), including for such purposes the Call Preferred Shares and
the Call Warrants to be issued at such Call Closing.
(ix) The Irrevocable Transfer Agent Instructions shall remain
in effect as of the Call Closing Date and the Company shall cause its
Transfer Agent to deliver a letter to the Buyers to that effect.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten days of
the applicable Call Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
applicable Call Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at
the applicable Call Closing.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the
applicable Call Closing Date.
(xiv) The Initial Registration Statement covering the resale
of the Conversion Shares and Warrant Shares has been declared effective
by the SEC and at all times since being declared effective, other than
during an Allowable Grace Period, has been effective and available for
the sale of no less than the sum of (A) 200% of the number of
Conversion Shares then issuable upon the conversion of all outstanding
Initial Preferred Shares (without regard to any limitations on
conversions), (B) 100% of the number of Warrant Shares into which all
outstanding Initial Warrants are then exercisable (without regard to
any limitations
-34-
on exercises) and (C) the number of Conversion Shares and Warrant
Shares outstanding, which were acquired upon conversion or exercise of
the Initial Preferred Shares or the Initial Warrants, as the case may
be, and held by the Buyers at such time.
(xv) The Company shall have received the Stockholder Approval
on or prior to the Stockholder Meeting Deadline.
(xvi) An Event of Default (as defined in the Credit Agreement)
shall not have occurred on or prior to the Call Closing Date, no event
that with the passage of time and without being cured would constitute
an Event of Default shall have occurred and be continuing on the Call
Closing Date and the Company shall otherwise be in compliance in all
material respects with all of its obligations and covenants under the
Credit Agreement as of the Call Closing Date.
(xvii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (d) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or (e) the status of such Buyer or holder of the
Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 8 shall be the same as those set forth
in Sections 6(a) and (d) of the
-35-
Registration Rights Agreement, including, without limitation, those procedures
with respect to the settlement of claims and the Company's rights to assume the
defense of claims. Each Buyer's rights to receive payments for indemnification
pursuant to this Section 8 shall be subject to Section 3(i) of the Certificate
of Designations. A Buyer shall provide the Designated Senior Debt Representative
(as defined in the Certificate of Designations) written notice ("Notice of
Indemnification Claim") via facsimile and overnight courier at least 10 Business
Days prior to a payment by the Company to such Buyer pursuant to this Section 8.
Subject to Section 3(i) of the Certificate of Designations, the Company shall
deliver any payment due under this Section 8 to such Buyer on the date which is
ten (10) Business Days after the Designated Senior Debt Representative's receipt
of a Notice of Indemnification Claim. Any notice required to be delivered to the
Designated Senior Debt Representative by a Buyer pursuant to this Section 8
shall be delivered to Nortel Networks, Inc., GMS 991 15 A40, 2221 Lakeside
Blvd., Richardson, Texas 75082-4399, Attention Paul D. Day, Vice President,
Customer Finance North America and Charles M. Helm, Esq. (Telephone:
972-684-2271, Facsimile: 972-684-3679), and Mail Stop 468/05/B40, 2100 Lakeside
Blvd., Richardson , Texas 75083-3858, Attention: Kimberly Poe, Director, Loan
Administration (Telephone: 972-684-7687, Facsimile: 972-685-3255) or such other
address or facsimile number as may be specified in writing from time to time by
the Designated Senior Debt Representative and provided to each Buyer at least
five (5) Business Days prior to the date on which a holder sends a Notice of
Indemnification Claim.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws
of the State of Delaware shall govern all issues concerning the relative rights
of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
-36-
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Initial Preferred
Shares on the Initial Closing Date or, if prior to the Initial Closing Date, the
Buyers listed on the Schedule of Buyers as being obligated to purchase at least
two-thirds (2/3) of the Initial Preferred Shares, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares or Warrants
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designations unless the same
consideration also is offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
-37-
If to the Company:
Log On America, Inc.
Three Regency Plaza
Providence, Rhode Island 02903
Telephone: (401) 453-6100
Facsimile: (401) 459-6222
Attention: President
With a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
Telephone: (212) 779-8600
Facsimile: (212) 779-8858
Attention: Peter Silverman, Esq.
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
Two Broadway, 19th Floor
New York, New York 10004
Telephone: (212) 509-4000
Facsimile: (212) 616-7616
Attention: Roger Bernhammer
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, including by merger or consolidation, except pursuant
to a Change of Control (as defined in Section 4(c) of the Certificate of
Designations) with respect to which the
-38-
Company is in compliance with Section 4 of the Certificate of Designations. A
Buyer may assign some or all of its rights hereunder without the consent of the
Company, provided, however, that any such assignment shall not release such
Buyer from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption, which
consent shall not be unreasonably withheld. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Buyers shall be entitled to
pledge the Securities in connection with a bona fide margin account or other
loan secured by Securities.
h. 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.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closings. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law, regulation, or rule of the NASD or Principal
Market (although each Buyer shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its release and shall
be provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall
not have occurred with respect to a Buyer on or before five (5) Business Days
from the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6(a) and 7(a) above (and the nonbreaching
party's failure to waive such unsatisfied condition(s)), the nonbreaching party
shall have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain obligated to reimburse
any nonbreaching Buyers for the expenses described in Section 4(i) above.
m. Placement Agent. The Company has not engaged a placement
agent in connection with the sale of the Preferred Shares and the related
Warrants. The Company shall be responsible for the payment of any placement
agent's fees or broker's commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
-39-
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. 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.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Designations and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Registration
Rights Agreement, the Certificate of Designations or Warrants or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
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IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
- -------- -------
LOG ON AMERICA, INC. HFTP INVESTMENT L.L.C.
By: /s/ David Paolo By: Promethean Asset Management L.L.C.
------------------------------
Name: David Paolo Its: Investment Manager
Title: President
By: /s/
------------------------------
Name: Jamie F. O'Brien, Jr.
Title: Managing Member
MARSHALL CAPITAL MANAGEMENT, INC.
By: /s/
------------------------------
Name: Al Weine
Title: President
FISHER CAPITAL LTD.
By: /s/
------------------------------
Name: Kenneth A. Simpler
Its: Vice President
WINGATE CAPITAL LTD.
By: /s/
------------------------------
Name: Kenneth A. Simpler
Its: Vice President
SCHEDULE OF BUYERS
Investor Address
Investor's Name and Facsimile Number
- -------------------------------- ----------------------------------------
HFTP Investment L.L.C. c/o Promethean Asset Management,
L.L.C.
750 Lexington Avenue, 22nd Floor
New York, NY 10022
Attention: David M. Kittay
John Floegel
Telephone: (212) 702-5200
Facsimile: (212) 758-9334
Residence: New York
Marshall Capital Management, Inc. Marshall Capital Management, Inc.
C/O Credit Suisse First Boston
11 Madison Ave., 7th Floor
New York, NY 10010
Attention: Allan Weine
Charles Gassenheimer
Telephone: (212) 325-0038
Facsimile: 212 325-6519
Facsimile: 312 750-1031
Residence: New York
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C.
225 West Washington Street, Suite 1600
Chicago, Illinois 60606
Attention: Daniel Hopkins
Telephone: (312) 696-2100
Facsimile: (312) 338-0780
Residence: Cayman Islands
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C.
225 West Washington Street, Suite 1600
Chicago, Illinois 60606
Attention: Daniel Hopkins
Telephone: (312) 696-2100
Facsimile: (312) 338-0780
Residence: Cayman Islands
Number of Number of
Intial Initial Investor's Legal Representatives'
Investor's Name Preferred Warrant Address and Facsimile Number
Shares Shares
- -------------------------------- --------- --------- -------------------------------------
HFTP Investment L.L.C. 3,750 148,551 Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
Marshall Capital Management, Inc. 7,500 297,102 Solomon, Zauderer, Ellenhorn,
Frischer & Sharp
45 Rockefeller Plaza
New York, New York 10111
Attention: Robert Mazzeo
Telephone: (212) 956-3700
Facsimile: (212) 956-4068
Fisher Capital Ltd. 2,325 92,102 Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
Wingate Capital Ltd. 1,425 56,449 Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061