EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
March 8, 2006, by and between RAPID LINK INCORPORATED, a Delaware
corporation (the "Company"), and TRIDENT GROWTH FUND, L.P., a Delaware
limited partnership, (the "Purchaser").
WITNESSETH:
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to an exemption from registration contained in
Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act") and Rule 506 promulgated thereunder, the Company desires to issue and
sell to Purchaser, and Purchaser desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt
and adequacy of which are hereby acknowledged, the Company and Purchaser
agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Debenture(s) (as defined herein),
and (b) the following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(i).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to Purchaser,
any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as Purchaser will be
deemed to be an Affiliate of Purchaser.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of Texas are authorized or
required by law or other government action to close.
"Change of Control Transaction" means the occurrence after the
date hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership (as described in Rule 13d-3 of
the Exchange Act) of capital stock of the Company, by contract or
otherwise) of in excess of 40% of the voting securities of the Company,
or (ii) a replacement at one time or within a one year period of more
than one-half of the members of the Company's board of directors which
is not approved by a majority of those individuals who are members of
the board of directors on the date hereof (or by those individuals who
are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the
members of the board of directors who are members on the date hereof),
or (iii) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the
events set forth above in (i) or (ii).
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Business Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) Purchaser's obligations to
pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived. There may be
multiple Closing Dates.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$.001 per share, and any securities into which such common stock shall
hereinafter have been reclassified into.
"Common Stock Equivalents" means any securities of the Company
which would entitle the holder thereof to acquire at any time Common
Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Debenture" means, the 10% Secured Convertible Debenture, in the
form of Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1 hereof.
"Effective Date" means the date that the initial registration
statement filed by the Company for the Registrable Securities or Common
Stock is first declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers or directors of the Company pursuant
to any stock or option plan currently in place as of the date hereof
which has been duly adopted by the Board of Directors and shareholders
of the Company, (b) securities upon the exercise of or conversion of
any securities issued hereunder, convertible securities, options or
warrants issued and outstanding on the date of this Agreement, provided
that such securities have not been amended since the date of this
Agreement to increase the number of such underlying shares in
connection therewith, (c) securities issued pursuant to acquisitions or
strategic transactions, provided any such issuance shall only be to a
Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and
in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities, and (d)
shares of Common Stock or Common Stock Equivalents issued in with that
certain transaction with Telenational Communications, Inc. as
contemplated and set forth in that certain binding letter of intent
entered into between the Company and Telenational Communications, Inc.
on or about February 14, 2006.
"Fully Diluted Basis" shall mean all Common Stock or Common Stock
Equivalents of the Company including the exercise or conversion of all
rights, options, derivative and convertible securities and further
including the conversion (whether convertible or not) of all other
common or preferred stock equivalents outstanding or required to be
issued by the Company.
"Fundamental Transaction" shall mean (A) the Company effects any
merger or consolidation of the Company with or into another Person, (B)
the Company effects any sale of all or substantially all of its assets
in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(n).
"Legend Removal Date" shall have the meaning ascribed to such term
in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right, or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b) hereof.
"Material Permits" shall have the meaning ascribed to such term
in Section 3.1(l).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 6.17.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Public Offering Date" the date that the Company first registers
the Common Stock pursuant to Section 12 under the Exchange Act, or
merges into a corporation (by or through one or a series of related
transactions) already registered pursuant to Section 12 or becomes
public under the Exchange Act in any other manner.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.11.
"Purchaser's Designee" shall have the meaning ascribed to such
term in Section 4.14.
"Qualifying Transaction" shall mean (i) an equity or debt/equity
financing wherein the Company receives gross proceeds equal to at least
$3,000,000 from the sale of Common Stock or Common Stock Equivalents
issued by the Company to unaffiliated third parties or (ii) a
Fundamental Transaction.
"Registrable Securities" means (i) all Underlying Shares
(exercised and unexercised); (ii) any securities issued or transferred
to Purchaser in connection with or arising out of any Transaction
Document; and (iii) any securities issued or issuable upon any stock
split, dividend or other distribution recapitalization or similar event
with respect to the foregoing.
"Registration Statement" means a registration statement covering
the sale or resale of the Registrable Securities.
"Required Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise of the Warrant or conversion
of the Debenture, ignoring any exercise limits set forth therein.
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"SBA" shall have the meaning ascribed to such term in Section 5.1.
"SBA Documents" shall have the meaning ascribed to such term in
Section 5.1(b).
"SBIC" shall have the meaning ascribed to such term in Section
5.1.
"SBIC Act" shall have the meaning ascribed to such term in Section
5.1(a).
"Securities" means the Debenture, the Warrant, and the Underlying
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated as of the
date hereof, between the Company and Purchaser, in the form of Exhibit
B attached hereto.
"Security Documents" shall mean the Security Agreement and any
other documents and filing required thereunder in order to grant
Purchaser a first priority security interest in all of the assets of
the Company, with the exception of the security interests previously
granted to Global Capital Funding Group LP including all UCC-1 filing
receipts.
"Subordination Agreement" means that certain Subordination
Agreement of even date herewith executed by John Jenkins in favor of
the Purchaser in the form of Exhibit D attached hereto.
"Subscription Amount" means, as to Purchaser, the aggregate amount
to be paid for the Debenture and the Warrant purchased hereunder as
specified in Section 2.1 herein, in United States Dollars and in
immediately available funds.
"Subsidiary" means any corporation or limited liability company
of which at least 50% of the outstanding securities having ordinary
voting powers for the election of Board of Directors (or similar
governing body) are at the time owned by the Company. As used herein,
the term "Company" shall be deemed to include all of the Company's
Subsidiaries, if any.
"Trading Market" means, as applicable, the following markets or
exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the
OTC Bulletin Board or the "Pink Sheets" published by the Pink Sheets
LLC.
"Transaction Documents" means this Agreement, the Debenture, the
Security Agreement, the Warrant and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable upon
exercise of the Warrants or conversion of the Debenture, or any other
shares of Common Stock acquired by Purchaser hereby.
"Variable Rate Transaction" shall mean a transaction in which the
Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right
to receive additional shares of Common Stock (A) at a conversion,
exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or
equity securities, (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock, or (C)
whereby the number of underlying shares of Common Stock to be received
upon exercise, conversion, or exchange thereof, is variable in any
respect in which the number of such underlying shares could be
increased.
"Warrant" means the Common Stock Purchase Warrant, in the form of
Exhibit C delivered to Purchaser at the Closing in accordance with
Section 2.2 hereof, which Warrant shall be exercisable immediately and
be exercisable until the close of business on the fifth anniversary
following the Initial Exercise Date (as defined in the Warrant). The
Company and Purchaser agree that the value of the Warrant as of the
date hereof is less than $1,000.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and
Purchaser agrees to purchase the Debenture and the Warrant for an aggregate
amount of SIX HUNDRED THOUSAND DOLLARS ($600,000) (the "Subscription
Amount"). On the Closing Date, Purchaser shall deliver to the Company via
wire transfer of immediately available funds equal to the Subscription
Amount (less all expenses and fees due hereunder), and the Company shall
deliver to Purchaser the Debenture, the Warrant, and the other items set
forth in Section 2.2 issuable at the Closing. On the Closing Date,
contemporaneous with the funding of the purchase made the basis hereof, the
Company shall promptly pay to the order of Purchaser a commitment fee and
origination fee in the aggregate amount of 4% of the Subscription Amount,
such amounts to be offset from the Subscription Amount wire transfer
described above. Upon satisfaction of the conditions set forth in Section
2.2, the Closing shall occur at the offices of Purchaser, or such other
location as the parties shall mutually agree.
2.2 Deliveries
a) On the Closing Date, the Company shall execute and deliver or
cause to be delivered to Purchaser the following, each fully
executed by the appropriate authorized officer or officers of
the Company:
(i) this Agreement (along with all Disclosure Schedules);
(ii) the Debenture;
(iii) the Warrant;
(iv) the Security Agreement along with all Security
Documents;
(v) the Subordination Agreement;
(vi) SBA Form 480 (Size Status Declaration), SBA Form
652 (Assurance of Compliance) and SBA Form 1031 (Portfolio
Finance Report), Parts A and B, in the forms of Exhibit D,
Exhibit E and Exhibit F, respectively, attached hereto;
(vii) Approval by the Board of Directors of the
Company, done in conformance with all applicable law and the
Bylaws of the Company, certified by the Secretary of the
Company as of the Closing Date, approving or otherwise
ratifying the transactions contemplated by this Agreement,
and approving the form of this Agreement and the Transaction
Documents, and authorizing execution, delivery, and
performance thereof;
(viii) A copy of the Certificate of Incorporation of
the Company, as amended to date, certified by an official of
the Company's jurisdiction of formation or incorporation and
further certified by the Secretary of the Company not to have
been altered or amended since certification by such official;
a Certificate of Good Standing dated within 30 days of the
date first written above from the Secretary of State of the
Company's jurisdiction of formation or incorporation; and a
copy of the Bylaws of the Company, certified as true and
correct by the Secretary of the Company;
(ix) Payment of the origination and commitment fees, if
any, referenced in Section 2.1 hereof; and
(x) Such other instruments, documents or items as
Purchaser may reasonably request.
b) On the Closing Date, Purchaser shall deliver or cause to
be delivered to the Company the following:
(i) this Agreement duly executed by Purchaser;
(ii) Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company; and
(iii) the Security Agreement, duly executed by Purchaser.
2.3 Closing Conditions.
a) The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects when made and
on the Closing Date of the representations and warranties of
the Purchaser contained herein;
(ii) all obligations, covenants and agreements of
Purchaser required to be performed at or prior to the Closing
Date shall have been performed; and
(iii) the delivery by Purchaser of the items set forth
in Section 2.2(b) of this Agreement.
b) The obligations of Purchaser hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing
Date of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing
Date shall have been performed;
(iii) the delivery by the Company of the items set forth
in Section 2.2(a) of this Agreement; and
(iv) there shall have been no Material Adverse Effect
with respect to the Company since the date hereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set
forth under the corresponding section of the disclosure schedules delivered
to Purchaser concurrently herewith (the "Disclosure Schedules") which
Disclosure Schedules shall be deemed a part hereof, the Company makes the
representations and warranties set forth below to Purchaser.
a) Subsidiaries. The Company does not have any Subsidiaries.
b) Organization and Qualification. The Company is an entity
duly incorporated, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company is not in violation or
default of any of the provisions of its certificate or articles of
incorporation, bylaws, or other organizational or charter documents.
The Company is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Documents,
(ii) a material adverse effect on the results of operations, assets,
business, prospects or financial condition of the Company, or (iii) a
material adverse effect on the Company's ability to perform in any
material respect on a timely basis its obligations under any
Transaction Documents (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company.
Each Transaction Documents has been (or upon delivery will have been)
duly executed by the Company and, when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated thereby do not and will
not: (i) conflict with or violate any provision of the Company's
certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company, or give to others
any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company debt or
otherwise) or other understanding to which the Company is a party or by
which any property or asset of the Company is bound or affected, or
(iii) conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not have
or reasonably be expected to result in a Material Adverse Effect.
e) Filings, Consents and Approvals. Other than as set forth on
Schedule 3.1(e) and except for filing of a Form D and/or state "blue
sky" securities filings, the Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make
any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents.
f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in
accordance with the terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company or any third party. The Company has reserved
from its duly authorized capital stock a number of shares of Common
Stock for issuance of a number of Underlying Shares at least equal to
the Required Minimum on the date hereof. The Company has not, and to
the knowledge of the Company, no Affiliate of the Company has sold,
offered for sale or solicited offers to buy or otherwise negotiated in
respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of
the sale of the Securities to Purchaser.
g) Capitalization. The capitalization of the Company is as
described in Schedule 3.1(g). The Company has not issued any capital
stock other than as set forth on Schedule 3.1(g). No Person has any
right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by
the Transaction Documents. Except as a result of the purchase and sale
of the Securities or as set forth on Schedule 3.1(g), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving
any Person any right to subscribe for or acquire, any shares of the
Company's capital stock, or contracts, commitments, understandings or
arrangements by which the Company is or may become bound to issue
additional shares of its capital stock, or securities or rights
convertible or exchangeable into shares of its capital stock. The
issuance and sale of the Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other
than Purchaser) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. Except as disclosed in Schedule
3.1(g), there are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders. A complete list of
stockholders of the Company that are officers, directors and
individuals holding 5% or more of the outstanding Common Stock is
included in Schedule 3.1(g).
h) SEC Documents. The Company has filed all required reports,
schedules, forms, statements and other documents with the Commission.
(the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with requirements of the Securities
Act or the Exchange Act, as the case may be and the rules and
regulations of the Commission promulgated thereunder applicable to such
SEC Documents, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent that information contained
in any SEC Document has been revised or superseded by a later filed SEC
Document. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, have been prepared in accordance with
GAAP (except, in the case of unaudited statements as permitted by Form
10-Q or Form 10-QSB) applied on a consistent basis during the periods
involved (except as may be indicted in the notes thereto) and fairly
present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operation and cash flows for the period then ending in
accordance with GAAP (subject, in the case of the unaudited statements,
to normal year end audit adjustments). Except as set forth in the
filed SEC Documents, neither the Company nor any Subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a
consolidated balance sheet of the Company and its consolidated
subsidiaries or in the notes thereto and which could reasonably be
expected to have a Material Adverse Effect.
i) Litigation. Other than as set forth on Schedule 3.1(i),
there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, or any of its respective properties
before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any director or
officer thereof, is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, and
to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any
current or former director or officer of the Company.
j) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
k) Compliance. The Company (i) is not in default under or in
violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the
Company), nor has the Company received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is not in violation of
any order of any court, arbitrator or governmental body, or (iii) is
not or has not been in violation of any statute, rule or regulation of
any governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each
case as could not have a Material Adverse Effect.
l) Regulatory Permits. The Company possesses all certificates,
authorizations and permits issued by the appropriate federal, state,
local or foreign regulatory authorities necessary to conduct its
business as described in Schedule 3.1(l), except where the failure to
possess such permits could not have or reasonably be expected to result
in a Material Adverse Effect ("Material Permits"), and the Company has
not received any notice of Proceedings relating to the revocation or
modification of any Material Permit.
m) Title to Assets. Except as set forth on Schedule 3.1(m), the
Company has good and marketable title in (or licenses or rights to use)
all personal property that is material to the business of the Company,
in each case free and clear of all Liens. The Company does not own any
real property. Any real property and facilities held under lease by the
Company are held by it under valid, subsisting and enforceable leases
of which the Company is in compliance. The Company has not granted,
and no third party has obtained in any manner, other than as
contemplated by the Transaction Documents, any security interest in the
assets of the Company. Schedule 3.1(m) sets forth and details which,
if any, of such assets are owned by any Subsidiary.
n) Intellectual Property.
(i) Schedule 3.1(n) contains a list of the Company's
Intellectual Property. For purposes hereof, "Intellectual Property"
means any or all of the following and all rights and goodwill, arising
out of or associated therewith: (A) all United States, international,
and foreign patents and applications therefor (including provisional
applications) and all reissues, reexaminations, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part
thereof; (B) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information,
know-how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing throughout the world;
(C) all international, U.S. and foreign registered trademarks, trade
names, service marks, logos, slogans, and designs, applications to
register trademarks, trade names, service marks, logos, slogans, and
designs, intent-to-use applications, or other registrations or
applications related to trademarks, service marks, common law
trademarks, trade names, service marks, logos, slogans, and designs and
all associated goodwill associated with all of the foregoing; (D) all
copyrights, copyright registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (E) all
industrial designs and any registrations and applications therefor
throughout the world; (F) all URL's, domain names, trade names, logos,
slogans, designs, common law trademarks and service marks, trademark
and service mark registrations and applications therefor throughout the
world; (G) all databases and data collections and all rights therein
throughout the world; (H) all moral and economic rights of authors and
inventors, however denominated, throughout the world; (I) any other
intellectual property that is the subject of an application,
certificate, filing, registration or other document issued, filed with,
or recorded with any federal, state, local or foreign government or
other public body; and (J) any similar or equivalent rights to any of
the foregoing anywhere in the world. For purposes hereof, "Company
Intellectual Property" means any Company Intellectual Property owned or
licensed by the Company, and "Company Registered Intellectual Property"
means any items of Intellectual Property described in subsections (A),
(C) or (D) of this paragraph.
(ii) No Company Intellectual Property or product or service
of the Company's business related to the Company Intellectual Property
is subject to any Proceeding or outstanding decree, order, judgment,
agreement or stipulation restricting in any manner the use, transfer or
licensing thereof by the Company, or which may affect the validity, use
or enforceability of such Company Intellectual Property. Each item of
Company Registered Intellectual Property is valid and subsisting. All
necessary registration, maintenance and renewal fees currently due in
connection with the Company Registered Intellectual Property have been
made and all necessary documents, recordations and certifications in
connection with such Company Registered Intellectual Property have been
filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case
may be, for the purpose of maintaining such Company Registered
Intellectual Property.
(iii) The Company owns and has good and exclusive title
to, or has licenses (any Intellectual Property subject to any license
to be identified as such in Schedule 3.1(n)) (sufficient for the
conduct of the Company's business as currently conducted) to use each
item of the Company's Intellectual Property free and clear of any Lien;
and the Company is the exclusive owner or exclusive licensee of all
trademarks and service marks, trade names and domain names used in
connection with and material to the operation or conduct of the
Company's business, including the sale of any products or the provision
of any services by same, free and clear of all Liens. The Company
Intellectual Property, other than future improvements, derivations, and
additions to be made by the Company or on behalf of the Company,
constitutes all of the Intellectual Property used or contemplated for
use in connection with the Company's current business and in the
performance of any contract, proposal or letter of intent in connection
with same.
(iv) To the extent that any Company Intellectual Property has
been developed or created by a third party for the Company, the Company
has a written agreement with such third party with respect thereto and
the Company thereby either (A) has obtained ownership of and is the
exclusive owner of, or (b) has obtained a license (sufficient for the
conduct of the Company's business as currently conducted) to all of
such third party's Intellectual Property in such work, material or
invention by operation of law or by valid assignment, to the fullest
extent it is legally possible to do so, each such agreement being
listed on Schedule 3.1(n).
(v) The operation of the Company's business as it is
currently conducted, including the Company's design, development,
marketing and sale of the products or services of the Company
(including with respect to products currently under development) has
not, does not and will not infringe or misappropriate in any manner the
Intellectual Property of any third party or, to the knowledge of the
Company, constitute unfair competition or trade practices under the
laws of any jurisdiction.
(vi) The Company has no knowledge, and has not received
written notice or any other overt threats from any third party, that
the operation of the Company's business as it is currently conducted,
or any act, product or service of the Company's business, infringes or
misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction. The Company's Intellectual Property is not the subject
of any third party communications relating to validity or
enforceability, cease and desist orders, demand letters, warnings or
prior settlement agreements. The Company's Intellectual Property is
not currently the subject of any pending or threatened re-examinations,
oppositions, interferences, or infringement actions.
(vii) To the knowledge of the Company, no Person has or
is infringing or misappropriating any Company Intellectual Property.
(viii) The Company has taken reasonable steps to protect
the rights of the Company in the confidential information and trade
secrets of the Company used in the Company's business or any trade
secrets or confidential information of third parties used in same, and,
without limiting the foregoing, the Company has enforced a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality agreement, and except under confidentiality
obligations or in the context of the attorney-client relationship,
there has not been any disclosure by the Company of any such trade
secrets or confidential information.
o) Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the
Company is engaged, including directors and officers insurance at least
equal to the aggregate principal amount of the Debenture. To the best
of Company's knowledge, such insurance contracts and policies are
accurate and complete. The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a
significant increase in cost.
p) Transactions With Affiliates and Employees. None of the
officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to
any transaction with the Company (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company.
q) Internal Accounting Controls. The Company maintains 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 GAAP 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.
r) Certain Fees. Other than as set forth on Schedule 3.1(r), no
brokerage or finder's fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect
to the transactions contemplated by this Agreement. Purchaser shall
have no obligation with respect to any fees or with respect to any
claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
s) Private Placement. Assuming the accuracy of Purchaser's
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to Purchaser as contemplated
hereby.
t) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
u) Registration Rights. Other than as set forth on Schedule
3.1(u), no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.
v) 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 Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to
Purchaser as a result of Purchaser and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company's issuance of
the Securities and the Purchaser's ownership of the Securities.
w) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided Purchaser or its agents
or counsel with any information that constitutes or might constitute
material, nonpublic information except for such information that will
be publicly disclosed in documents filed with the Commission. The
Company understands and confirms that Purchaser will rely on the
foregoing representations and covenants in effecting transactions
in securities of the Company. All written statements provided to
Purchaser regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
x) No Integrated Offering. Assuming the accuracy of Purchaser's
representations and warranties set forth in Section 3.2, 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 cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions.
y) Solvency. Following the closing of the Telenational
Communications, Inc transaction, based on the financial condition of
the Company as of the Closing Date after giving effect to the receipt
by the Company of the proceeds from the sale of the Securities
hereunder, and anticipated future financing amounts used to fund the
Telenational Communications, Inc and provide additional working capital
into the company, (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of
the Company's existing financing instruments, and debts and other
liabilities (including known contingent liabilities) as they mature,
with the exception of those liabilities that the company is able to
negotiate payment terms, or does not reasonably expect to pay in full
within the next 12 months, for those debts with maturity dates of less
than 1 year; (ii) the Company's assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as
now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements
and capital availability thereof; and (iii) the expected cash flow of
the Company, together with the future proceeds the Company would
receive in a future funding transaction, would provide sufficient
working capital for the Company to continue to operate its business,
and pay all amounts on or in respect of its debt when such amounts are
required to be paid, for debts with maturity dates of 1 year or less as
of the closing date. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect
of its debt). It is understood that the Company intends to pursue a
plan to provide positive cash flow from operations shortly after the
Telenational Communications, Inc. transaction, and to raise additional
financing of not less than $5.0 million, sufficient to purchase
Telenational, and to pay down its debts as described above, and to
provide additional working capital. It is understood by both parties
that the Company does not currently have in place the necessary
financing to close the acquisition, and to meet the obligations as
outlined above.
z) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company has filed all
necessary federal, state and foreign income and franchise tax returns
and has paid or accrued all taxes shown as due thereon, and the Company
has no knowledge of a tax deficiency which has been asserted or
threatened against the Company.
aa) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to Purchaser and
certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
bb) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended
cc) Indebtedness. Other than as set forth on Schedule 3.1(cc),
as of the Closing Date, the Company has no indebtedness.
dd) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants and lawyers formerly
or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers.
ee) Acknowledgment Regarding Purchaser's Purchase of Securities.
The Company acknowledges and agrees that Purchaser is acting solely in
the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby as they
relate to the Company. The Company further acknowledges that Purchaser
is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by Purchaser or
any of its respective representatives or agents to the Company in
connection with this Agreement and the transactions contemplated hereby
is merely incidental to the Purchaser's purchase of the Securities.
ff) Material Liabilities. The sole outstanding material
liabilities of the Company are set forth on Schedule 3.1(ff) .
gg) Material Agreements. Except for those agreements set forth
on Schedule 3.1(gg) hereof, there are no other material agreements to
which the Company is a party.
hh) Board of Directors. The Board of Directors of Company
consists of those persons set forth on Schedule 3.1(hh).
3.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants as of the date hereof and as of the Closing Date to
the Company as follows:
(a) Organization; Authority. Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or
similar action on the part of Purchaser. Each of the Transaction
Documents to which it is a party has been duly executed by Purchaser,
and when delivered by Purchaser in accordance with the terms hereof,
will constitute the valid and legally binding obligation of Purchaser,
enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited
by applicable law.
(b) Purchaser Representation. Purchaser understands that the
Securities are "restricted securities" and have not been registered or
qualified, as the case may be, under the Securities Act or any
applicable state securities law by reason of a specific exemption from
the registration or qualification provisions of the Securities Act or
any applicable state securities laws, the availability of which depends
upon, among other things, the bona fide nature of the investment intent
and the accuracy of Purchaser's representations as expressed herein.
Purchaser represents that it is acquiring the Securities for investment
as principal for its own account and not with a view to or for
distribution or resale of such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting Purchaser's right to sell the Securities pursuant to a
Registration Statement or otherwise in compliance with applicable
federal and state securities laws). Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Purchaser
does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
(c) Purchaser Status. At the time Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants it will be either: (i) an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8)) of Regulation D promulgated under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act.
(d) Experience of Purchaser. Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such
investment. Purchaser understands that the acquisition of the
Securities hereunder is highly a speculative investment which involves
a high degree of loss of Purchaser's investment therein. Purchaser is
able to bear the economic risk of an investment in the Securities and,
at the present time, is able to afford a complete loss of such
investment.
(e) Certain Fees. Purchaser has not entered into an agreement
whereby brokerage or finder's fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by this Agreement.
The Company acknowledges and agrees that Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set
forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an Affiliate of Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act or any applicable state securities laws. As a condition
of transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of Purchaser
under this Agreement.
(b) Purchaser agrees to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in
substantially the following form:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS
AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.
The Company acknowledges and agrees that Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and, if required
under the terms of such arrangement, Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge
or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities.
(c) Certificates evidencing Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof):
(i) while a Registration Statement covering the resale of such
Underlying Shares is effective under the Securities Act, (ii) following
any sale of such Underlying Shares pursuant to Rule 144, (iii) if such
Underlying Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission); provided, however, in
connection with the issuance of the Underlying Shares, Purchaser hereby
agrees to adhere to and abide by all prospectus delivery requirements
under the Securities Act and rules and regulations of the Commission
and all applicable state "blue sky" securities laws. The Company shall
cause its counsel to issue a legal opinion to the Company's transfer
agent promptly after the Effective Date if required by the Company's
transfer agent to effect the removal of the legend hereunder. If all
or any portion of a Warrant is exercised at a time when there is an
effective Registration Statement to cover the resale of the Underlying
Shares, or if such shares may be sold under Rule 144(k) or if such
legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof) then such
shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no
longer required under this Section 4.1(c), it will, no later than two
Business Days following the delivery by Purchaser to the Company or the
Company's transfer agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend (such second
Business Day, the "Legend Removal Date"), deliver or cause to be
delivered to Purchaser a certificate representing such shares that is
free from all restrictive and other legends. The Company may not make
any notation on its records or give instructions to any transfer agent
of the Company that enlarge the restrictions on transfer set forth in
this Section.
(d) In addition to Purchaser's other available remedies, the
Company shall pay to Purchaser, in cash, as partial liquidated damages
and not as a penalty, the greater of (i) $500 for each Business Day
after the Legend Removal Date, the Warrant Share Delivery Date, or
other such date the Underlying Shares are to be delivered to the
Purchaser, as the case may be, until such certificate is delivered with
an appropriate legend or without a restrictive legend, as the case may
be; and (ii) the difference in the Market Value of the Underlying
Shares (based on the closing bid price of the Common Stock on the then
principal Trading Market on the date such Securities are submitted to
the Company's transfer agent) on the delivery date and the date such
shares are actually received by the Holder in such form as required
herein and in the Transaction Documents. Nothing herein shall limit
Purchaser's right to pursue actual damages for the Company's failure to
deliver certificates representing any Securities as required by the
Transaction Documents, and Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Purchaser agrees that the removal of the restrictive legend
from certificates representing Securities as set forth in this Section
4.1 is predicated upon the Company's reliance that Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain
market conditions. The Company further acknowledges that its obligations
under the Transaction Documents, including without limitation its obligation
to issue the Underlying Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the
other stockholders of the Company.
4.3 Furnishing of Information. As long as Purchaser owns restricted
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to Purchaser and make publicly available in accordance with Rule
144(c) such information as is required for Purchaser to sell the Underlying
Shares under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to
the extent required from time to time to enable such Person to sell such
Underlying Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to
Purchaser or, if then listed or quoted on a Trading Market, that would be
integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.
4.5 Exercise Procedures. The form of Notice of Exercise and
Conversion Notice included in the Warrant and Debenture, respectively, set
forth the totality of the procedures required of Purchaser in order to
exercise the Warrant or convert the Debenture. No additional legal opinion
or other information or instructions shall be required of Purchaser to
exercise its Warrants or convert the Debenture. The Company shall honor
exercises of the Warrant and conversions of the Debenture and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods
set forth in such Transaction Documents.
4.6 Intentionally Omitted.
4.7 Shareholders Rights Plan. No claim will be made or enforced by
the Company or, to the knowledge of the Company, any other Person that
Purchaser is an "Acquiring Person" under any shareholders rights plan or
similar plan or arrangement in effect or hereafter adopted by the Company,
or that Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and Purchaser.
4.8 Non-Public Information. If at any time the Company becomes
subject to the reporting provisions of the Exchange Act, the Company
covenants and agrees that neither it nor any other Person acting on its
behalf will provide Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information,
unless prior thereto Purchaser shall have executed a written agreement
regarding the confidentiality and use of such information. The Company
understands and confirms that Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
4.9 Use of Proceeds. Except as set forth in Schedule 4.9, the Company
shall use the net proceeds from the sale of the Securities hereunder for
working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course
of the Company's business and prior practices), to redeem any Common Stock
or Common Stock Equivalents or to settle any outstanding litigation.
Schedule 4.9 shall detail the Company's expected use of proceeds received
from the sale of the Securities hereunder.
4.10 Reimbursement. If Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales or any similar
transaction(s) by Purchaser to or with any current stockholder), solely as a
result of Purchaser's acquisition of the Securities under this Agreement,
and Purchaser is successful in the Proceeding the Company will reimburse
Purchaser for its reasonable legal and other expenses (including the cost of
any investigation preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms and conditions to any Affiliates of Purchaser who are actually named
in such Action, Proceeding or investigation, and partners, directors,
agents, employees and controlling persons (if any), as the case may be, of
Purchaser and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of
the Company, Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in
right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.11 Indemnification of Purchaser. Subject to the provisions of
this Section 4.11, the Company will indemnify and hold the Purchaser and its
directors, officers, managers, shareholders, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including
all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against Purchaser, or any of its Affiliates, by any stockholder
of the Company who is not an Affiliate of Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such
action is based upon a breach of Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or
understandings Purchaser may have with any such stockholder or any
violations by Purchaser of state or federal securities laws or any conduct
by Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party
in respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of
its own choosing. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to
employ counsel or (iii) in such action there is, in the reasonable opinion
of such separate counsel, a material conflict on any material issue between
the position of the Company and the position of such Purchaser Party. The
Company will not be liable to any Purchaser Party under this Agreement (i)
for any settlement by a Purchaser Party effected without the Company's prior
written consent, which shall not be unreasonably withheld or delayed; or
(ii) to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Purchaser Party's breach of any of the
representations, warranties, covenants or agreements made by Purchaser in
this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations
in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall
use commercially reasonable efforts to amend the Company's certificate
or articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at
such time, as soon as possible and in any event not later than the 75th
day after such date; and
(c) The Company shall, if then applicable: (i) in the time and
manner required by the Trading Market or if the Common Stock is listed
on another Trading Market, promptly prepare and file with such Trading
Market an additional shares listing application covering a number of
shares of Common Stock at least equal to the Required Minimum on the
date of such application, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on the Trading Market
as soon as possible thereafter, (iii) provide to Purchaser evidence of
such listing, and (iv) maintain the listing of such Common Stock on any
date at least equal to the Required Minimum on such date on such
Trading Market.
4.14 Appointment of Board Member. At all such times from the Closing
until such time as the Debenture remains outstanding in whole or in part,
the Company shall have the right to appoint a member to the Board of
Directors to (the "Purchaser's Designee"). If within 30 days of the
Company's election to appoint it's Purchaser's Designee to the Board of
Directors of the Company, such appointment of the Purchaser's Designee has
not occurred other than by reason of legal prohibitions or restrictions, the
number of Warrant Shares purchasable pursuant to the Warrant shall be
increased by 10,000 per month (including such initial 30 day period) such
appointment has not occurred. The Company must provide and keep in effect
officers' and directors' liability insurance for the Purchaser's Designee
which liability insurance shall be satisfactory to Purchaser, and such
Purchaser's Designee shall be entitled to receive reasonable and customary
director's fees and such other compensation as is ordinarily given to the
Company's directors as well as the reimbursement of all out of pocket
expenses.
4.15 Registration Rights.
(a) Piggyback Registrations.
A. At any time after the Closing Date, if the Company
proposes to register any Common Stock for sale solely for cash, either
for its own account or for the account of a stockholder or stockholders
(a "Company Registration"), then the Company shall give Purchaser
written notice of its intention to do so and of the intended method of
sale (the "Registration Notice") not fewer than 30 days prior to the
anticipated filing date of the Registration Statement effecting such
Company Registration. Purchaser may request inclusion of any
Registrable Securities in such Company Registration by delivering to
the Company, within 20 days after receipt of the Registration Notice, a
written notice (the "Piggyback Notice") stating the number of shares of
Registrable Securities proposed to be included and that such shares are
to be included in any underwriting only on the same terms and
conditions as the shares of Common Stock otherwise being sold through
underwriters under such Company Registration. The Company shall use
its best efforts to cause all Registrable Securities specified in the
Piggyback Notice to be included in the Company Registration and any
related offering, all to the extent requisite to permit the sale by
Purchaser of such Registrable Securities in accordance with the method
of sale applicable to the other shares of Common Stock included in the
Company Registration. If the Company fails to file the Registrable
Securities in such Registration Statement, then, at the option of
Purchaser, for each full calendar month that the Registrable Securities
are not fully registered, Company shall issue to Purchaser 0.1% of its
Common Stock then outstanding computed on a Fully Diluted Basis per day
until the shares are registered.
B. Limitations on Piggyback Registrations. The Company's
obligation to include Registrable Securities in the Company
Registration pursuant to Section 4.15(a) shall be subject to the
following limitations:
(i) The Company shall not be obligated to include any
Registrable Securities in a registration statement (I) filed on Form S-
4 or Form S-8 or such other similar successor forms then in effect
under the Securities Act, (II) pursuant to which the Company is
offering to exchange its own securities, or (III) relating to dividend
reinvestment plans.
(ii) If the managing underwriter(s), if any, of an
offering related to the Company Registration determines in its
reasonable judgment that marketing factors require a limitation of the
number of shares of Common Stock that can be included in such offering,
the managing underwriter(s) may exclude the appropriate number of
shares of Common Stock held by the stockholders of the Company,
including Purchaser, from such registration. If the managing
underwriter(s) determine(s) to exclude from such offering any
Registrable Securities that Purchaser desires to include or any shares
of Common Stock that other Company stockholders with applicable
registration rights desire to include, Purchaser and such other Company
stockholders (except for such Person or Persons, if any, upon whose
demand such Company Registration is being made) shall share pro rata in
the portion of such offering available to them (the "Available
Portion"), with Purchaser and each such other Company stockholder
entitled to include in such Company Registration and related offering a
number of shares of Common Stock equal to the product of (I) the
Available Portion and (II) a fraction, the numerator of which is the
total number of Registrable Securities which Purchaser desires to
include in such Company Registration (in the case of Purchaser) or the
total number of shares of Common Stock which such other Company
stockholder desires to include in such Company Registration (in the
case of each such other Company stockholder) and the denominator of
which is (x) the total of the number of Registrable Securities which
Purchaser desires to include in such Company Registration plus (y) the
total number of shares of Common Stock that such other Company
stockholders desire to include in such Company Registration.
(b) Demand Registrations.
(i) Requests for Registration. The Purchasers (or any
lawful transferee thereof) may, in accordance herewith, request
registration under the Securities Act of all or any portion of its
Registrable Securities on Form S-1 or any similar long-form
registration (a "Long-Form Registrations"), or on Form S-2 or S-3
(including pursuant to Rule 415 under the Securities Act) or any
similar short-form registration (each, a "Short-Form Registration"), if
available. All registrations requested pursuant to this Section 4.15(b)
are referred to herein as "Demand Registrations." Each request for a
Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered and the anticipated per share
price range for such offering. Upon the Purchaser's request, the
Company will include the offer and sale of Registrable Securities in
such registration statement. In the event that the Company fails to
include the Registrable Securities in a statement as required herein,
the Purchaser shall give notice demanding a registration and within 75
days after the notice the Company shall prepare and file a registration
statement with the SEC with respect to such Registrable Securities. If
the Company fails to file within said time period, then, at the option
of such Purchaser, for each full calendar month following such 75 day
period that the Registrable Securities are not fully registered, the
Company shall issue 0.1 % of its outstanding shares of Common Stock
computed on a fully diluted basis per day until the shares are
registered.
(ii) Long-Form Registrations. Purchaser shall be
entitled to request one Long-Form Registration. A registration shall
not count as one of the permitted Long-Form Registrations until it has
become effective. If Purchaser is unable to register and sell at least
90% of the Registrable Securities it has requested to be included in
the first Long-Form Registration requested by it, it shall be entitled
to a second Long-Form Registration, provided that such second Long-Form
Registration may not be requested within six months of the
effectiveness of the most recent Long-Form Registration requested by
it.
(iii) Short-Form Registrations. In addition to the
Long-Form Registrations, each Purchaser shall be entitled to request an
unlimited number of Short-Form Registrations; provided that the
aggregate gross proceeds to be received by the Purchasers or other
securities exercising their "piggyback" rights granted by the Company
either herein or elsewhere in any such requested Short-Form
Registration must exceed $500,000. Demand Registrations shall be Short-
Form Registrations whenever the Company is permitted to use any
applicable short form. The Company shall use its best efforts to make
Short-Form Registrations on Form S-3 available for the sale of the
Registrable Securities. If the Company, pursuant to the request of
Purchaser, is qualified to and has filed with the SEC a registration
statement under the Securities Act on Form S-3 pursuant to Rule 415
under the Securities Act (the "Required Registration"), then the
Company shall use its best efforts to cause the Required Registration
to be declared effective under the Securities Act as soon as
practicable after filing, and, once effective, the Company shall cause
such Required Registration to remain effective for a period ending on
the earlier of (i) the date on which all Registrable Securities have
been sold pursuant to the Required Registration, or (ii) the date as of
which the Purchaser is able to sell all of the Registrable Securities
then held by it within a ninety-day period in compliance with Rule 144
under the Securities Act.
(iv) Priority on Demand Registrations. The Company shall
not include in any Demand Registration any securities which are not
Registrable Securities or which are not subject to registration rights
agreements outstanding on the date hereof and which are identified on
Schedule 3.1(u) hereto without the prior written consent of the
Purchaser. If a Demand Registration is an underwritten offering and the
managing underwriters advise the Company in writing that, in their
opinion, the number of Registrable Securities and, if permitted
hereunder, other securities requested to be included in such offering
exceeds the number of securities, which can be sold in an orderly
manner in such offering within a price range acceptable to Purchaser,
then the Company shall include in such registration, prior to the
inclusion of any securities which are not Registrable Securities, (i)
first, the Registrable Securities requested to be included in such
registration by the Purchaser, and (ii) second, the other securities
requested to be included in such registration.
(v) Restrictions on Demand Registrations. The Company
shall not be obligated to effect any Demand Registration within 180
days after the effective date of a previous Demand Registration or a
previous registration in which the Purchaser was given piggyback rights
pursuant to Section 4.15(a) above and in which the reduction, if any,
in the number of Registrable Securities requested to be included
therein was not greater than 25%. The Company may postpone for up to
180 days the filing or the effectiveness of a registration statement
for a Demand Registration if the Company, in good faith, concludes that
such Demand Registration would reasonably be expected to have a
Material Adverse Effect generally, and specifically with respect to any
proposal or plan by the Company or any of its Subsidiaries to acquire
financing, engage in any acquisition of assets (other than in the
ordinary course of business), or engage in any merger, consolidation,
tender offer, reorganization, or similar transaction; provided that, in
such event, the Purchaser shall be entitled to withdraw such request
and the Company shall pay all Registration Expenses in connection with
such registration. The Company may delay a Demand Registration
hereunder only once in any calendar year.
(c) Provisions Applying to All Registrations Under Section 4.15.
(i) Selection of Underwriter. Any Company Registration
and related offering shall be managed by the Company; the Company shall
have the power to select the managing underwriter(s) for such offering,
and shall in consultation with the managing underwriter(s) have the
power to determine the offering price, the underwriting discounts and
commissions, the terms of the underwriting agreement and, the timing of
the registration and related offering. To the extent that Purchaser
participates in a Company Registration and related offering pursuant to
Section 4.13(b), Purchaser shall enter into, and sell its Registrable
Securities only pursuant to, the underwriting arranged by the Company,
and shall either commit to attend the closing of the offering and take
such other actions as may be reasonably necessary to effect Purchaser's
participation in the offering and to provide any assurances reasonably
requested by the Company and the managing underwriter(s) in that
regard, or shall deliver to the Company in custody certificates
representing all Registrable Securities to be included in the
registration and shall execute and deliver to the Company a custody
agreement and a power of attorney, each in form and substance
appropriate for the purpose of effecting Purchaser's participation in
the Company Registration and related offering and otherwise reasonably
satisfactory to the Company. If Purchaser disapproves of the features
of the Company Registration and related offering, Purchaser may
withdraw therefrom (in whole or part) by written notice to the Company
and the managing underwriter(s) delivered no later than ten days prior
to the effectiveness of the applicable registration statement and the
Registrable Securities of Purchaser shall thereupon be withdrawn from
such registration.
(ii) The Company shall furnish Purchaser such number of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by it that are included
in such registration;
(ii) Whenever required to include Registrable Securities
in any registration or to effect the registration of any Registrable
Securities pursuant to this Agreement, the Company shall, as
expeditiously as reasonably possible, prepare and file with the SEC a
registration statement with respect to such Registrable Securities and
use its absolute best lawful efforts to cause such registration
statement to become effective, and use its absolute best efforts to
keep such registration statement effective until all such Registrable
Securities have been distributed. In addition, the Company shall use
its best lawful efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the
Purchaser, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify as a broker-
dealer in any states or jurisdictions or to do business or to file a
general consent to service of process in any of such states or
jurisdictions.
(iii) All expenses, other than underwriting
discounts and commissions incurred in connection the registrations
contemplated herein, including, without limitation, all registration,
filing and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Purchaser, shall be borne
by the Company.
(d) Subject to the terms and conditions of this Agreement and the
other Transaction Documents, the right to cause the Company to register
Registrable Securities pursuant to this Agreement may be assigned by
Purchaser to any transferee or assignee of such securities; provided
that said transferee or assignee is a transferee or assignee of at
least five percent (5%) of the such Purchaser's Registrable Securities.
ARTICLE V.
SMALL BUSINESS INVESTMENT COMPANY
5.1 Small Business Investment Company Provisions. The Company
acknowledges that Purchaser, is a small business investment company ("SBIC")
licensed by the United States Small Business Administration (the "SBA"), and
makes the following representations, warranties and covenants to Purchaser
for so long as the Debenture held by Purchaser is outstanding:
(a) Small Business Concern. The Company represents and warrants
that it, taken together with its "affiliates" (as that term is defined
in 13 C.F.R. S121.103), is a "Small Business Concern" within the
meaning of 15 U.S.C. S662(5), that is Section 103(5) of the Small
Business Investment Act of 1958, as amended (the "SBIC Act"), and the
regulations thereunder, including 13 C.F.R. S107, and meets the
applicable size eligibility criteria set forth in 13 C.F.R.
S121.301(c)(1) or the industry standard covering the industry in which
the Company is primarily engaged as set forth in 13 C.F.R.
S121.301(c)(2). Neither the Company nor any of its Subsidiaries
presently engages in any activities for which a small business
investment company is prohibited from providing funds by the SBIC Act,
including 13 C.F.R. S107.
(b) Small Business Administration Documentation. On or before the
Closing Date, Purchaser shall have received SBA Form 480 (Size Status
Declaration) and SBA Form 652 (Assurance of Compliance) which have been
completed and executed by the Company, and SBA Form 1031 (Portfolio
Finance Report), Parts A and B of which have been completed by the
Company (the "SBA Documents").
(c) Inspection. The Company will permit Purchaser or its
representatives, at the Company's expense, and examiners of the SBA to
visit and inspect the properties and assets of the Company, to examine
its books of account and records, and to discuss the Company's affairs,
finances and accounts with the Company's officers, senior management
and accountants, all at such reasonable times as may be requested by
Purchaser or the SBA.
(d) Informational Covenant. Within sixty (60) calendar days after
the end of the Company's fiscal year, the Company will furnish or cause
to be furnished to Purchaser information required by the SBA concerning
the economic impact of Purchaser's investment, for (or as of the end
of) each fiscal year, including but not limited to: (i) board minutes,
(ii) information concerning full-time equivalent employees, (iii)
federal, state and local income taxes paid, (iv) gross revenue, (v)
source of revenue growth, (vi) after-tax profit and loss, and (vii) and
federal, state and local income tax withholding. Such information
shall be forwarded by the Company on a form provided by Purchaser. The
Company also will furnish or cause to be furnished to Purchaser such
other information regarding the business, affairs and condition of the
Company as Purchaser may from time to time reasonably request.
(e) Use of Proceeds. The Company will deliver to Purchaser from
time to time promptly following Purchaser's request, a written report,
certified as correct by an officer, verifying the purposes and amounts
for which proceeds from the Debenture have been disbursed. The Company
will supply to Purchaser such additional information and documents as
Purchaser reasonably requests with respect to the Company's use of
proceeds, and will permit Purchaser to have access to any and all the
Company's records and information and personnel as Purchaser deems
necessary to verify how such proceeds have been or are being used, and
to assure that the proceeds have been used for the purposes specified
on Schedule 4.9.
(f) Activities and Proceeds.
(i) Neither the Company nor any of its Affiliates will
engage in any activities or use directly or indirectly the
proceeds from the Debenture for any purpose for which a SBIC
is prohibited from providing funds by the SBIC Act, including
13 C.F.R. S107.
(ii) Without obtaining the prior written approval of
Purchaser, the Company will not change, within one (1) year
of the Closing Date, the Company's business activity from
that described on Schedule 5.1(f) to a business activity
which a SBIC is prohibited from providing funds by the SBIC
Act. The Company agrees that any such changes in its
business activity without such prior written consent of
Purchaser will constitute a material breach of the
obligations of the Company under the Transaction Documents
(an "Activity Event of Default").
ARTICLE VI.
MISCELLANEOUS
6.1 Intentionally Omitted.
6.2 Fees and Expenses. At the closing, the Company shall reimburse
Purchaser for its legal fees and expenses up to a maximum amount of $20,000.
Except as expressly set forth above and in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement and the other Transaction
Documents. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the issuance of any
Securities.
6.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such
matters, which the parties acknowledge have been merged into such documents,
exhibits and schedules.
6.4 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto prior to 5:30 p.m. (Dallas, Texas time) on a Business Day, (b) the
next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on the signature pages attached hereto on a day that is not a Business Day
or later than 5:30 p.m. (Dallas, Texas time) on any Business Day, (c) the
second Business Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for
such notices and communications shall be as set forth on the signature pages
attached hereto.
6.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an
amendment, by the Company and Purchaser or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either
party to exercise any right hereunder in any manner impair the exercise of
any such right.
6.6 Construction. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. 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.
6.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of Purchaser.
Purchaser may assign any or all of its rights under this Agreement to any
Person to whom Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the Purchaser.
6.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person, except as otherwise set forth in Section
4.10.
6.9 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall
be governed by and construed and enforced in accordance with the internal
laws of the State of Texas, without regard to the principles of conflicts of
law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against
a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the
state and federal courts sitting in the City of Dallas, Texas. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of Dallas, Texas for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), 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 improper or inconvenient
venue for such proceeding. THE PARTIES HEREBY WAIVE ALL RIGHTS TO A TRIAL
BY JURY. If either party shall commence an action or proceeding to enforce
any provisions of the Transaction Documents, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its
attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
6.10 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery of the Securities until the later
of the satisfaction, complete conversion, or exercise of the Debenture
and/or the Warrant, as the case may be.
6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile signature page were an original thereof.
6.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a
valid and enforceable provision that is a reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in this
Agreement.
6.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided,
then Purchaser may rescind or withdraw, in its sole discretion from time to
time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights; provided, however, in the case of a rescission of an exercise of a
Warrant, Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice.
6.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such
replacement Securities.
6.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, Purchaser
and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive
in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.
6.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to Purchaser pursuant to any Transaction Documents or Purchaser
enforces or exercises its rights 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.
6.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be
brought by Purchaser in order to enforce any right or remedy under any
Transaction Documents. Notwithstanding any provision to the contrary
contained in any Transaction Documents, it is expressly agreed and provided
that the total liability of the Company under the Transaction Documents for
payments in the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the "Maximum Rate"), and, without limiting
the foregoing, in no event shall any rate of interest or default interest,
or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction
Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of
interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to
Purchaser with respect to indebtedness evidenced by the Transaction
Documents, such excess shall be applied by Purchaser to the unpaid principal
balance of any such indebtedness or be refunded to the Company, the manner
of handling such excess to be at Purchaser's election.
6.18 Intentionally Omitted.
6.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is
a continuing obligation of the Company and shall not terminate until all
unpaid partial liquidated damages and other amounts have been paid
notwithstanding the fact that the instrument or security pursuant to which
such partial liquidated damages or other amounts are due and payable shall
have been canceled.
(Signature Page Follows)
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
COMPANY
RAPID LINK INCORORATED Address for Notice and Delivery:
17383 Sunset Boulevard
Suite 350
Pacific Palisades, California 90272
Telephone: (310) 566-1700
Facsimile: (310) 573-9435
Attn: John Jenkins, CEO
By:____________________________________
Name: John Jenkins
Title: Chief Executive Officer
PURCHASER
TRIDENT GROWTH FUND, L.P. Address for Notice and Delivery:
By: TRIDENT MANAGEMENT, LLC, its 700 Gemini
GENERAL PARTNER Houston, TX 77058
Telephone: (281) 488-8484
Facsimile: (281) 488-5353
Attn: Larry St. Martin
By:____________________________________
Name:
Title: Authorized Member
ATTACHMENTS
Exhibit A Form of Debenture
Exhibit B Form of Security Agreement
Exhibit C Form of Warrant
Exhibit D Form of Subordination Agreement
Exhibit E SBA Form 480
Exhibit F SBA Form 652
Exhibit G SBA Form 1031
Schedule 3.1(a) Subsidiaries
Schedule 3.1(e) Filings, Consents and Approvals
Schedule 3.1(g) Capitalization
Schedule 3.1(h) Financial Statements
Schedule 3.1(i) Litigation
Schedule 3.1(l) Regulatory Permits
Schedule 3.1(m) Title to Assets (Outstanding liens)
Schedule 3.1(n) Intellectual Property
Schedule 3.1(r) Certain Fees (Broker Fees)
Schedule 3.1(u) Registration Rights
Schedule 3.1(cc) Indebtedness
Schedule 3.1(ff) Material Liabilities
Schedule 3.1(gg) Material Agreements
Schedule 3.1(hh) Board of Directors
Schedule 4.9 Use of Proceeds
Schedule 5.1(f) Business Activity