EXHIBIT 1
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
SOVEREIGN PARTNERS, L.P.
AND
C-PHONE CORPORATION
Dated as of September 18, 1998
ARTICLE I CERTAIN DEFINITIONS..................................... 1
Section 1.1 Defined Terms............................ 1
ARTICLE II PURCHASE AND SALE OF COMMON STOCK....................... 8
Section 2.1 Investments.............................. 8
Section 2.2 Mechanics................................ 8
Section 2.3 Closings................................. 9
Section 2.4 Special Circumstances; Adjustment Period. 9
Section 2.5 Termination of Investment Obligation..... 10
Section 2.6 Blackout Shares......................... 10
Section 2.7 Liquidated Damages...................... 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR............. 11
Section 3.1 Intent.................................. 11
Section 3.2 Sophisticated Investor.................. 11
Section 3.3 Authority............................... 11
Section 3.4 Not an Affiliate........................ 12
Section 3.5 Organization and Standing............... 12
Section 3.6 Absence of Conflicts.................... 12
Section 3.7 Disclosure; Access to Information....... 12
Section 3.8 Manner of Sale.......................... 12
Section 3.9 Financial Capability.................... 12
Section 3.10 No SEC or NASD Proceedings.............. 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 13
Section 4.1 Organization of the Company............. 13
Section 4.2 Authority............................... 13
Section 4.3 Capitalization.......................... 13
Section 4.4 Common Stock............................ 14
Section 4.5 SEC Documents........................... 14
Section 4.6 Exemption from Registration;
Valid Issuances......................... 14
Section 4.7 No General Solicitation or Advertising
in Regard to this Transaction........... 15
Section 4.8 Corporate Documents..................... 15
Section 4.9 No Conflicts............................ 15
Section 4.10 No Material Adverse Change.............. 16
Section 4.11 No Undisclosed Liabilities.............. 16
Section 4.12 No Undisclosed Events or Circumstances.. 16
Section 4.13 No Integrated Offering.................. 16
Section 4.14 Litigation and Other Proceedings........ 16
Section 4.15 No Misleading or Untrue Communication... 17
Section 4.16 Material Non-Public Information......... 17
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ARTICLE V COVENANTS OF INVESTOR.................................. 17
Section 5.1 Compliance with Law..................... 17
Section 5.2 Limitation on Short Sales............... 17
ARTICLE VI COVENANTS OF THE COMPANY............................... 18
Section 6.1 Registration Rights..................... 18
Section 6.2 Reservation of Common Stock............. 17
Section 6.3 Listing of Common Stock................. 18
Section 6.4 Exchange Act Registration............... 18
Section 6.5 Legends................................. 18
Section 6.6 Corporate Existence..................... 18
Section 6.7 Additional SEC Documents................ 19
Section 6.8 Notice of Certain Events Affecting
Registration; Suspension of Right
to Make a Put........................... 19
Section 6.9 Expectations Regarding Put Notices...... 20
Section 6.10 Consolidation; Merger................... 20
Section 6.11 Issuance of Put Shares and Blackout
Shares.................................. 20
Section 6.12 Legal Opinion on Subscription Date...... 20
ARTICLE VII CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS
TO CLOSING............................................. 20
Section 7.1 Conditions Precedent to the Obligation
of the Company to Issue and Sell
Common Stock............................ 20
Section 7.2 Conditions Precedent to the Right of the
Company to Deliver a Put Notice and the
Obligation of Investor to Purchase Put
Shares.................................. 20
Section 7.3 Due Diligence Review; Non-Disclosure of
Non-Public Information.................. 23
ARTICLE VIII LEGENDS................................................ 24
Section 8.1 Legends................................. 24
Section 8.2 No Other Legend or Stock Transfer
Restrictions............................ 25
Section 8.3 Investor's Compliance................... 25
ARTICLE IX NOTICES; INDEMNIFICATION............................... 26
Section 9.1 Notices................................. 26
Section 9.2 Indemnification......................... 27
Section 9.3 Method of Asserting
Indemnification Claims.................. 28
ARTICLE X MISCELLANEOUS.......................................... 30
Section 10.1 Governing Law; Jurisdiction............. 30
Section 10.2 Assignment.............................. 31
Section 10.3 Third Party Beneficiaries............... 31
Section 10.4 Termination............................. 31
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Section 10.5 Entire Agreement, Amendment; No Waiver.. 31
Section 10.6 Fees and Expenses....................... 31
Section 10.7 No Brokers.............................. 31
Section 10.8 Counterparts............................ 31
Section 10.9 Survival; Severability.................. 32
Section 10.10 Further Assurances...................... 32
Section 10.11 No Strict Construction.................. 32
Section 10.12 Equitable Relief........................ 32
Section 10.13 Title and Subtitles..................... 32
Section 10.14 Reporting Entity for the Common Stock... 33
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PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 18th day of
September, 1998 (this "AGREEMENT"), by and between SOVEREIGN PARTNERS, L.P., an
entity organized and existing under the laws of Delaware ("INVESTOR"), and
C-PHONE CORPORATION, a corporation organized and existing under the laws of the
State of New York (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, up to five million
dollars ($5,000,000) of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933 and the rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings specified or indicated (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined)
"ADJUSTMENT PERIOD" shall have the meaning specified in
Section 2.4(b).
"ADJUSTMENT PERIOD NOTICE" shall have the meaning specified
in Section 2.4(a).
"AGREEMENT" shall have the meaning specified in the
preamble hereof.
"BID PRICE" shall mean the closing bid price of the Common
Stock on the Principal Market.
"BLACKOUT NOTICE" shall have the meaning specified in the
Registration Rights Agreement.
"BLACKOUT SHARES" shall have the meaning specified in
Section 2.6.
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section
4.8.
"CLAIM NOTICE" shall have the meaning specified in Section
9.3(a).
"CLOSING" shall mean one of the closings of a purchase and
sale of shares of Common Stock pursuant to Section 2.1.
"CLOSING DATE" shall mean, with respect to a Closing, the
tenth (10th) Trading Day following the Put Date related to such Closing, or such
earlier date as the Company and Investor shall agree, provided all conditions to
such Closing have been satisfied on or before such Trading Day.
"COMMITMENT PERIOD" shall mean the period commencing on the
earlier to occur of (a) the Effective Date or (b) such earlier date as the
Company and Investor shall agree, and expiring on the earlier to occur of (i)
the date on which Investor shall have purchased Put Shares pursuant to this
Agreement for an aggregate Purchase Price of the Maximum Commitment Amount, (ii)
the date this Agreement is terminated pursuant to Section 2.5, or (iii) the date
occurring eighteen (18) months from the date of commencement of the Commitment
Period.
"COMMON STOCK" shall mean the Company's common stock, par
value $.01 per share, and any shares of any other class of common stock whether
now or hereafter authorized, having the right to participate in the distribution
of dividends (as and when declared) and assets (upon liquidation of the
Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble
to this Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning
specified in Section 7.2.
"DAMAGES" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
"DISCOUNT" shall mean fifteen percent (15%).
"DISPUTE PERIOD" shall have the meaning specified in
Section 9.3(a).
"DTC" shall the meaning specified in Section 2.3.
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"DWAC" shall the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"INDEMNIFIED PARTY" shall have the meaning specified in
Section 9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in
Section 9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in
Section 9.3(b).
"INITIAL REGISTRABLE SECURITIES" shall have the meaning
specified in the Registration Rights Agreement.
"INITIAL REGISTRATION STATEMENT" shall have the meaning
specified in the Registration Rights Agreement.
"INVESTMENT AMOUNT" shall mean the dollar amount (within
the range specified in Section 2.2) to be invested by Investor to purchase Put
Shares with respect to any Put Date as notified by the Company to Investor in
accordance with Section 2.2.
"INVESTOR" shall have the meaning specified in the preamble
to this Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the average of
the Bid Prices for the five (5) Trading Days immediately preceding the Put Date.
"MAXIMUM COMMITMENT AMOUNT" shall mean five million dollars
($5,000,000), subject to increase as agreed to by the Company and Investor.
"MINIMUM COMMITMENT AMOUNT" shall mean one million dollars
($1,000,000).
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"MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties, prospects or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to enter into and
perform its obligations under any of (a) this Agreement and (b) the Registration
Rights Agreement.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put,
one million dollars ($1,000,000), subject to increase as agreed to by the
Company and Investor.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put,
five hundred thousand dollars ($500,000), subject to decrease as agreed to by
the Company and Investor.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"NEW BID PRICE" shall have the meaning specified in Section
2.6.
"OLD BID PRICE" shall have the meaning specified in Section
2.6.
"OUTSTANDING" shall mean, with respect to the Common
Stock, at any date as of which the number of shares of Common Stock is to be
determined, all issued and outstanding shares of Common Stock, including all
shares of Common Stock issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common Stock
then directly or indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"PREFERRED STOCK" shall mean the Company's preferred stock,
par value $.01 per share.
"PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
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"PURCHASE PRICE" shall mean, with respect to a Put, the
Market Price on the applicable Put Date (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of this
Agreement) less the product of the Discount and the Market Price.
"PUT" shall mean each occasion that the Company elects to
exercise its right to tender a Put Notice requiring Investor to purchase shares
of Common Stock, subject to the terms and conditions of this Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment
Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).
"PUT NOTICE" shall mean a written notice to Investor
setting forth the Investment Amount with respect to which the Company intends to
require Investor to purchase shares of Common Stock pursuant to the terms of
this Agreement.
"PUT SHARES" shall mean all shares of Common Stock issued
or issuable pursuant to a Put that has been exercised or may be exercised in
accordance with the terms and conditions of this Agreement.
"REGISTRABLE SECURITIES" shall mean the (a) Put Shares, (b)
the Blackout Shares and (c) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (i) a Registration Statement has been declared effective by the SEC and
such Registrable Securities have been disposed of pursuant to a Registration
Statement, (ii) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities Act
or the need for an exemption from any such registration requirements and without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration
rights agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the
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SEC and, if not, on such other form promulgated by the SEC for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
which form shall be available for the resale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement and
the Registration Rights Agreement and in accordance with the intended method of
distribution of such securities), for the registration of the resale by Investor
of the Registrable Securities under the Securities Act.
"REGULATION D" shall have the meaning specified in the
recitals of this Agreement.
"REMAINING PUT SHARES" shall have the meaning specified in
Section 2.6.
"RULE 144" shall mean Rule 144 under the Securities Act or
any similar provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the
recitals of this Agreement.
"SECURITIES ACT" shall have the meaning specified in the
recitals of this Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all
reports and other documents file by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since the beginning of the Company's then most
recently completed fiscal year as of the time in question (provided that if the
date in question is within ninety days of the beginning of the Company's fiscal
year, the term shall include all documents filed since the beginning of the
second preceding fiscal year).
"SUBSCRIPTION DATE" shall mean the date on which this
Agreement is executed and delivered by the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in
Section 9.3(a).
"TRADING CUSHION" shall mean a minimum of twenty (20)
Trading Days between Put Dates, unless a shorter period is agreed to by the
Company and Investor.
"TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
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"TRANSFER AGENT" shall mean the transfer agent for the
Common Stock (and to any substitute or replacement transfer agent for the Common
Stock upon the Company's appointment of any such substitute or replacement
transfer agent).
"UNDERWRITER" shall mean any underwriter participating in
any disposition of the Registrable Securities on behalf of Investor pursuant to
a Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes any
other distribution of shares of Common Stock, except for dividends paid
with respect to the Preferred Stock;
(c) issues any warrants, options or other rights to
subscribe for or purchase shares of Common Stock and the price per
share for which shares of Common Stock may at any time thereafter be
issuable pursuant to such warrants, options or other rights shall be
less than the Bid Price in effect immediately prior to such issuance;
(d) issues any securities convertible into or exchangeable
for shares of Common Stock and the consideration per share for which
shares of Common Stock may at any time thereafter be issuable pursuant
to the terms of such convertible or exchangeable securities shall be
less than the Bid Price in effect immediately prior to such issuance;
(e) issues shares of Common Stock otherwise than as
provided in the foregoing subsections (a) through (d), at a price per
share less, or for other consideration lower, than the Bid Price in
effect immediately prior to such issuance, or without consideration;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend in
liquidation or by way of return of capital or other than as a dividend
payable out of earnings or surplus legally available for dividends
under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets
(other than under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Common Stock, other than an action described in any of the foregoing
subsections (a) through (f) hereof, inclusive, which in the opinion of
the Company's Board of
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Directors, determined in good faith, would have a materially adverse
effect upon the rights of Investor at the time of a Put.
"VALUATION PERIOD" shall mean the period of five (5)
Trading Days immediately preceding the date on which the applicable Put Notice
is deemed to be delivered and during which the Purchase Price of the Common
Stock is valued; provided, however, that if a Valuation Event occurs during any
Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the fifth
Trading Day thereafter.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article VII), on any
Put Date the Company may exercise a Put by the delivery of a Put Notice. The
number of Put Shares that Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by the
Purchase Price with respect to such Put Date.
(b) MINIMUM AMOUNT OF PUTS. The Company shall, in
accordance with Section 2.2(a), deliver to Investor during the Commitment
Period, Put Notices with an aggregate Investment Amount at least equal to the
Minimum Commitment Amount. If the Company for any reason fails to issue and
deliver such Put Shares during the Commitment Period, on the first Trading Day
after the expiration of the Commitment Period, the Company shall wire to
Investor a sum in immediately available funds equal to the product of (i) the
Minimum Commitment Amount minus the aggregate Investment Amounts of the Put
Notices delivered to Investor hereunder and (ii) the Discount.
(c) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains
the requisite approval of its shareholders in accordance with the corporate laws
of the State of New York and the applicable rules of the Principal Market, no
more than 1,543,765 shares of Common Stock (representing approximately 19.99% of
the Outstanding Common Stock on the date hereof) may be issued and sold to
Investor pursuant to this Agreement.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment
Period, the Company may deliver a Put Notice to Investor, subject to the
conditions set forth in
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Section 7.2; provided, however, the Investment Amount for each Put as designated
by the Company in the applicable Put Notice shall be neither less than the
Minimum Put Amount nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall
be deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by Investor if such notice is received on or prior to 12:00 noon New
York time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon New York time on a Trading Day or at any
time on a day which is not a Trading Day.
Section 2.3 CLOSINGS. On each Closing Date for a Put, (a) the
Company shall deliver to Investor one or more certificates, at Investor's
option, representing the Put Shares to be purchased by Investor pursuant to
Section 2.1 herein, registered in the name of Investor and (b) Investor shall
deliver to the Company the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to an account designated by the Company
on or before the Closing Date. In lieu of delivering physical certificates
representing the Common Stock issuable in accordance with clause (a) of this
Section 2.3, and provided that the Transfer Agent then is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of Investor, the Company shall use its commercially
reasonable efforts to cause the Transfer Agent to electronically transmit the
Put Shares by crediting the account of the holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. In addition, on
or prior to such Closing Date, each of the Company and Investor shall deliver to
the other all documents, instruments and writings required to be delivered or
reasonably requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein.
Section 2.4 SPECIAL CIRCUMSTANCES; ADJUSTMENT PERIOD.
(a) ADJUSTMENT PERIOD NOTICE. In the event that the
Company shall in good faith anticipate executing an agreement of acquisition,
merger or consolidation within ninety (90) days after giving Investor Adjustment
Period Notice (as defined below), the Company may, in its sole discretion, give
Investor at least twenty-one (21) days' irrevocable advance notice, in the form
of Exhibit B hereto ("ADJUSTMENT PERIOD NOTICE"), that the Company shall
initiate an Adjustment Period (as defined below). The Company shall not give
such Adjustment Period Notice if it constitutes the disclosure of material
non-public information to Investor.
(b) ACTIONS DURING THE ADJUSTMENT PERIOD. During the
Adjustment Period:
(i) the Discount shall be increased to seventeen
percent (17%);
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(ii) the duration of the Trading Cushion shall be
shortened to ten (10) Trading Days until the expiration of five (5) consecutive
weeks after the date on which the Adjustment Period Notice was given (the
"ADJUSTMENT PERIOD"); and
(iii) the Company may not deliver a Put Notice
such that the number of Put Shares to be purchased by Investor upon the
applicable Closing, when aggregated with all other shares of Common Stock then
owned by Investor beneficially or deemed beneficially owned by Investor, would
result in Investor owning more than 4.9% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Section 13(d)
of the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section 2.4(b)(iii), in the event that the amount of Common Stock
outstanding as determined in accordance with Section 13(d) of the Exchange Act
is greater on a Closing Date than on the date upon which the Put Notice
associated with such Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes of determining
whether Investor, when aggregating all purchases of Common Stock made pursuant
to this Agreement would own more than 4.9% of the Common Stock following such
Closing Date.
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The
obligation of Investor to purchase shares of Common Stock shall terminate
permanently (including with respect to a Closing Date that has not yet occurred)
in the event that (a) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspension during a Blackout Period in accordance with the Registration
Rights Agreement, as a result of corporate developments subsequent to the
Subscription Date that would require such Registration Statement to be amended
to reflect such event in order to maintain its compliance with the disclosure
requirements of the Securities Act or (b) the Company shall at any time fail to
comply with the requirements of Section 6.3, 6.4, 6.5 or 6.6 and such failure
shall continue for more than thirty (30) days.
Section 2.6 BLACKOUT SHARES. In the event that, (a) within
five Trading Days following any Closing Date, the Company gives a Blackout
Notice to Investor of a Blackout Period in accordance with the Registration
Rights Agreement, and (b) the Bid Price on the Trading Day immediately preceding
such Blackout Period ("OLD BID PRICE") is greater than the Bid Price on the
first Trading Day following such Blackout Period that Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("NEW BID
PRICE"), then the Company shall issue to Investor the number of additional
shares of Registrable Securities (the "BLACKOUT SHARES") equal to the difference
between (i) the product of the number of Put Shares held by Investor immediately
prior to the Blackout Period that were issued on the most recent Closing Date
(the "REMAINING PUT SHARES") multiplied by the Old Bid Price, divided by the New
Bid Price, and (ii) the Remaining Put Shares.
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Section 2.7 LIQUIDATED DAMAGES. Each of the Company and
Investor acknowledge and agree that the sum payable under Section 2.1(b) and the
requirement to issue Blackout Shares under Section 2.6 shall give rise to
liquidated damages and not penalties. Each of the Company and Investor further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts specified in
such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by Investor in
connection with the failure by the Company to make Puts with aggregate Purchase
Prices totaling at least the Minimum Commitment Amount or in connection with a
Blackout Period under the Registration Rights Agreement, and (c) each of the
Company and Investor are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement
for its own account and Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein,
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 SOPHISTICATED INVESTOR. Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and Investor
has such experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in Common Stock. Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 AUTHORITY. (a) Investor has the requisite power
and authority to enter into and perform its obligations under this Agreement and
the transactions contemplated hereby in accordance with its terms; (b) the
execution and delivery of this Agreement and the Registration Rights Agreement,
and the consummation by it of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action and no further consent or
authorization of Investor or its partners is required; and (c) this Agreement
has been duly authorized and validly executed and delivered by Investor and is a
valid and binding agreement of Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or
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similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 3.4 NOT AN AFFILIATE. Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 ORGANIZATION AND STANDING. Investor is a limited
partnership duly organized, validly existing and in good standing under the laws
of the Delaware and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Investor is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a material adverse
effect on Investor.
Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery
of this Agreement and any other document or instrument contemplated hereby, and
the consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements hereof and thereof, will not (a) violate any
law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on Investor, (b) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, or conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (that has not been obtained) pursuant to any
material contract, instrument, agreement, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Investor has
received all documents, records, books and other information pertaining to
Investor's investment in the Company that have been requested by Investor.
Investor has reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE. At no time was Investor presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the
financial capacity and the necessary capital to perform its obligations
hereunder and shall and has provided to the Company such financial and other
information that the Company has requested to demonstrate such capacity.
12
Section 3.10 NO SEC OR NASD PROCEEDINGS. To the knowledge of
Investor, there are no disciplinary proceedings involving Investor or any of its
employees pending before the NASD, the SEC or any other regulatory authority to
which Investor is subject.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of New York and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company does not own more than fifty percent (50%) of the
outstanding capital stock of or control any other business entity. The Company
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the Registration Rights Agreement and to issue the Put Shares
and the Blackout Shares, if any; (b) the execution and delivery of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (c) each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3 CAPITALIZATION. As of September 15, 1998, the
authorized capital stock of the Company consisted of 20,000,000 shares of Common
Stock, of which 7,718,830 shares were issued and outstanding, and 1,000,000
shares of Preferred stock, of which 482 shares designated as Series A
Convertible Preferred Stock were issued and outstanding. Except for (a) options
to purchase 361,892 shares of Common Stock with exercises prices ranging between
$2.6875 and $10.375 per share; (b) warrants to purchase 175,000 shares of Common
Stock with an exercise price of $8.05 per share, (c) warrants to purchase 75,000
shares of Common Stock with an exercise price of $9.10 per share, (d) 482 shares
of Series A Convertible Preferred Stock, and
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(e) 30,000 shares of Common Stock issued in the Company's March 1997 private
placement which continue to have associated "contingent value rights" whereby a
maximum of 16,432 additional shares of Common Stock may be issued, as of
September 15, 1998, there were no options, warrants,
or rights to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.
Section 4.4 COMMON STOCK. The Company has registered the
Common Stock pursuant to Section 12(b) or 12(g) of the Exchange Act and is in
full compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing or quotation
of the Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. As of the date of this Agreement, the Principal Market is the
Nasdaq National Market.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made
available to Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to Investor any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and other
federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (a) as may be otherwise
indicated in such financial statements or the notes thereto or (b) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. The
sale and issuance of the Put Shares and the Blackout Shares, if any in
accordance with the terms and on the bases of the representations and warranties
set forth in this Agreement, may and shall be properly issued by the Company to
Investor pursuant to Section 4(2), Regulation D and/or any applicable state law.
When issued and paid for as herein provided, the Put Shares, and the Blackout
Shares, if any, shall be duly and validly issued, fully paid, and nonassessable.
Neither the sales of the Put Shares or the Blackout Shares, if any, pursuant to,
14
nor the Company's performance of its obligations under, this Agreement or the
Registration Rights Agreement shall (a) result in the creation or imposition of
any liens, charges, claims or other encumbrances upon the Put Shares or the
Blackout Shares, if any, or any of the assets of the Company, or (b) entitle the
holders of Outstanding Common Stock to preemptive or other rights to subscribe
to or acquire the Common Stock or other securities of the Company. The Put
Shares and the Blackout Shares, if any, shall not subject Investor to personal
liability by reason of the ownership thereof.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD
TO THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (a) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D) or
general advertising with respect to any of the Put Shares or the Blackout
Shares, if any, or (b) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or
made available to Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"CERTIFICATE"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "BY-LAWS").
Section 4.9 NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby, including without limitation the
issuance of the Put Shares and the Blackout Shares, if any, do not and will not
(a) result in a violation of the Certificate or By-Laws or (b) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (c) result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect) nor is the
Company otherwise in violation of, conflict with or in default under any of the
foregoing; provided, however, that for purposes of the Company's representations
and warranties as to violations of foreign law, rule or regulation referenced in
clause (c), such representations and warranties are made only to the best of the
Company's knowledge insofar as the execution, delivery and
15
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby are or may be affected by the status of
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq National
Market); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of Investor herein.
Section 4.10 NO MATERIAL ADVERSE CHANGE. Since March 1, 1998,
no event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations that are material, individually or in the aggregate,
and that are not disclosed in the SEC Documents or otherwise publicly announced,
other than those incurred in the ordinary course of the Company's businesses
since March 1, 1998 and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since
March 1, 1998, no event or circumstance has occurred or exists with respect to
the or its businesses, properties, prospects, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 NO INTEGRATED OFFERING. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, other than pursuant to this Agreement, under
circumstances that would require registration of the Common Stock under the
Securities Act.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may be
set forth in the SEC Documents, there are no lawsuits or proceedings pending or
to the best
16
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would have a Material Adverse Effect. Except as set forth
in the SEC Documents, no judgment, order, writ, injunction or decree or award
has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The
Company, any Person representing the Company, and, to the knowledge of the
Company, any other Person selling or offering to sell the Put Shares or the
Blackout Shares, if any, in connection with the transactions contemplated by
this Agreement, have not made, at any time, any oral communication in connection
with the offer or sale of the same which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is
not in possession of, nor has the Company or its agents disclosed to Investor,
any material non-public information that (a) if disclosed, would reasonably be
expected to have a materially adverse effect on the price of the Common Stock or
(b) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
17
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities
with respect to shares of the Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the NASD and the Principal Market on which the Common
Stock is listed.
Section 5.2 LIMITATION ON SHORT SALES. Investor and its
Affiliates shall not engage in short sales of the Common Stock; provided,
however, that Investor may enter into any short sale or other hedging or similar
arrangement it deems appropriate with respect to Put Shares after it receives a
Put Notice with respect to such Put Shares so long as such sales or arrangements
do not involve more than the number of such Put Shares (determined as of the
date of such Put Notice).
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date
hereof, the Company has available and the Company shall reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares and the Blackout Shares, if any; such amount of shares of Common Stock to
be reserved shall be calculated based upon a minimum Purchase Price of $2.00 for
the Put Shares under the terms and conditions of this Agreement and a good faith
estimate by the Company in consultation with Investor of the number of Blackout
Shares, if any, that will need to be issued. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.
Section 6.3 LISTING OF COMMON STOCK. The Company shall
maintain the listing of the Common Stock on a Principal Market, and will cause
the Put Shares and the Blackout Shares, if any, to be listed on the Principal
Market. The Company further shall, if the Company applies to have the Common
Stock traded on any other Principal Market, include in such application the Put
Shares and the Blackout Shares, if any, and shall take such other action as is
necessary or desirable in the reasonable opinion of Investor to cause the Common
Stock to be listed on such other Principal Market as promptly as possible. The
Company shall use its commercially reasonable efforts to continue the listing
and trading of the Common Stock on the Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take
all commercially reasonable steps to cause the Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its
commercially reasonable efforts to comply in all material respects with its
reporting and filing obligations under said Act, and will not take any action or
file any document (whether or not permitted by said Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.
Section 6.5 LEGENDS. The certificates evidencing the Put
Shares and the Blackout Shares, if any, shall be free of legends, except as
provided for in Article VIII.
Section 6.6 CORPORATE EXISTENCE. The Company shall take all
commercially reasonable steps necessary to preserve and continue the corporate
existence of the Company.
18
Section 6.7 ADDITIONAL SEC DOCUMENTS. The Company shall
deliver to Investor, promptly after the originals thereof are submitted to the
SEC for filing, copies of all SEC Documents so furnished or submitted to the
SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify Investor
upon the occurrence of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of Registrable
Securities: (a) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or supplements to the
registration statement or related prospectus; (b) the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company undertakes to notify
Investor as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver Put Notices during such calendar quarter. The failure by the Company to
comply with this provision can be cured by the Company's notifying Investor at
any time as to its reasonable expectations with respect to the current calendar
quarter.
19
Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at
any time after the date hereof, effect any merger or consolidation of the
Company with or into, or a transfer of all or substantially all of the assets of
the Company to, another entity unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligation to
deliver to Investor such shares of stock and/or securities as Investor is
entitled to receive pursuant to this Agreement.
Section 6.11 ISSUANCE OF PUT SHARES AND BLACKOUT SHARES. The
sale of the Put Shares, the issuance of the Blackout Shares, if any, shall be
made in accordance with the provisions and requirements of Regulation D and any
applicable state law.
Section 6.12 LEGAL OPINION ON SUBSCRIPTION DATE. The Company's
legal counsel shall deliver to Investor upon execution of this Agreement an
opinion in the form of Exhibit C, except for paragraph 7 thereof.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company
to issue and sell the Put Shares to Investor incident to each Closing is subject
to the satisfaction, at or before each such Closing, of each of the conditions
set forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATION AND
WARRANTIES. The representations and warranties of Investor shall be true and
correct in all material respects as of the date of this Agreement and as of the
date of each such Closing as though made at each such time, except for changes
which have not had a Material Adverse Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by Investor at or prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY
TO DELIVER A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES.
The right of the Company to deliver a Put Notice and the obligation of Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
20
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE
SEC. As set forth in the Registration Rights Agreement, the Company shall have
filed with the SEC the Initial Registration Statement with respect to the resale
of the Initial Registrable Securities by Investor and such Registration
Statement shall have been declared effective by the SEC prior to the first Put
Date, and in any event no later than ninety (90) days after filing of the
Initial Registration Statement. For the purposes of any Put Notice with respect
to the Registrable Securities other than the Initial Registrable Securities, the
Company shall have filed with the SEC a Registration Statement with respect to
the resale of such Registrable Securities by Investor which shall have been
declared effective by the SEC prior to the Put Date therefor.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in
the Registration Rights Agreement, a Registration Statement shall have
previously become effective for the resale by Investor of the Registrable
Securities subject to such Put Notice and such Registration Statement shall
remain effective on each Condition Satisfaction Date and (i) neither the Company
nor Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to such Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of such Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
such Registration Statement or related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which have
been corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental authority of competent
jurisdiction that prohibits or directly and materially adversely affects any of
the transactions contemplated by this
21
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely to
have a Material Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. The trading of the Common Stock shall not have been suspended by the SEC,
the Principal Market or the NASD and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from the Principal
Market.
(h) LEGAL OPINION. The Company shall have caused to be
delivered to Investor, within five (5) Trading Days of the effective date of the
Initial Registration Statement and each subsequent Registration Statement, an
opinion of the Company's legal counsel in the form of Exhibit C hereto,
addressed to Investor.
(i) DUE DILIGENCE. No dispute between the Company and
Investor shall exist pursuant to Section 7.3 as to the adequacy of the
disclosure contained in any Registration Statement.
(j) TEN PERCENT LIMITATION. On each Closing Date, the
number of Put Shares then to be purchased by Investor shall not exceed the
number of such shares that, when aggregated with all other shares of Registrable
Securities then owned by Investor beneficially or deemed beneficially owned by
Investor, would result in Investor owning no more than 9.9% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 7.2(j), in the event that the amount of
Common Stock outstanding as determined in accordance with Section 16 of the
Exchange Act and the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Put Notice associated with such Closing
Date is given, the amount of Common Stock outstanding on such Closing Date shall
govern for purposes of determining whether Investor, when aggregating all
purchases of Common Stock made pursuant to this Agreement and Blackout Shares,
if any, would own more than 9.9% of the Common Stock following such Closing
Date.
(k) MINIMUM BID PRICE. The average of the Bid Prices
for the twenty (20) Trading Days immediately preceding the Put Notice shall have
equaled or exceeded $1.00 (as adjusted for stock splits, stock dividends,
reverse stock splits, and similar events).
22
(l) NO KNOWLEDGE. The Company shall have no knowledge
of any event more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective (which event is
more likely than not to occur within the fifteen Trading Days following the
Trading Day on which such Notice is deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have
elapsed since the immediately preceding Put Date.
(n) SHAREHOLDER VOTE. The issuance of shares of Common
Stock with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market.
(o) OTHER. On each Condition Satisfaction Date,
Investor shall have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by Investor
in order for Investor to confirm the Company's satisfaction of the conditions
set forth in this Section 7.2., including, without limitation, a certificate in
substantially the form and substance of Exhibit D hereto, executed by an
executive officer of the Company and to the effect that all the conditions to
such Closing shall have been satisfied as at the date of each such certificate.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC
INFORMATION.
(a) The Company shall make available for inspection
and review by Investor, advisors to and representatives of Investor (who may or
may not be affiliated with Investor and who are reasonably acceptable to the
Company), any Underwriter, any Registration Statement or amendment or supplement
thereto or any blue sky, NASD or other filing, all financial and other records,
all SEC Documents and other filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by Investor or any
such representative, advisor or Underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of such Registration Statement for
the sole purpose of enabling Investor and such representatives, advisors and
Underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of such
Registration Statement.
(b) Each of the Company, its officers, directors,
employees and agents shall in no event disclose non-public information to
Investor, advisors to or representatives of Investor (including, without
limitation, in connection with the giving of
23
the Adjustment Period Notice pursuant to Section 2.4) unless prior to disclosure
of such information the Company identifies such information as being non-public
information and provides Investor, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require Investor's advisors and representatives to enter into a
confidentiality agreement in form and substance reasonably satisfactory to the
Company and Investor.
(c) Nothing herein shall require the Company to
disclose non-public information to Investor or its advisors or representatives,
and the Company represents that it does not disseminate non-public information
to any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company shall, as
hereinabove provided, immediately notify the advisors and representatives of
Investor and any Underwriters of any event or the existence of any circumstance
(without any obligation to disclose the specific event or circumstance) of which
it becomes aware, constituting non-public information (whether or not requested
of the Company specifically or generally during the course of due diligence by
such persons or entities), which, if not disclosed in the prospectus included in
a Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 7.3 shall be construed
to mean that such persons or entities other than Investor (without the written
consent of Investor prior to disclosure of such information) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms and conditions of this Agreement and nothing herein shall prevent
any such persons or entities from notifying the Company of their opinion that
based on such due diligence by such persons or entities, any Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in such Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following legend
(the "LEGEND"):
The securities represented by this certificate
have not been registered under the Securities Act
of 1933 (the "Securities Act") or qualified under
applicable state securities laws. These securities
may not be offered, sold, pledged, hypothecated,
24
transferred or otherwise disposed of except
pursuant to (I) an effective registration
statement and qualification in effect with respect
thereto under the Securities Act and under any
applicable state securities law, (ii) to the
extent applicable, Rule 144 under the Securities
Act, or (iii) an opinion of counsel reasonably
acceptable to C-Phone Corporation that such
registration and qualification is not required
under applicable federal and state securities
laws."
As soon as practicable after the execution and delivery
hereof, the Company shall issue to the Transfer Agent instructions in
substantially the form of Exhibit E hereto. Such instructions shall be
irrevocable by the Company from and after the date thereof or from and after the
issuance thereof except as otherwise expressly provided in the Registration
Rights Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the Transfer Agent to issue to Investor certificates
evidencing shares of Common Stock incident to a Closing, free of the Legend,
without consultation by the transfer agent with the Company or its counsel and
without the need for any further advice or instruction or documentation to the
Transfer Agent by or from the Company or its counsel or Investor; provided that
(a) a Registration Statement shall then be effective, (b) Investor confirms to
the Transfer Agent and the Company that it has or intends to sell such Common
Stock to a third party which is not an affiliate of Investor or the Company and
Investor agrees to redeliver the certificate representing such shares of Common
Stock to the Transfer Agent to add the Legend in the event the Common Stock is
not sold, and (c) if reasonably requested by the transfer agent or the Company,
Investor confirms to the transfer agent and the Company that Investor has
complied with the prospectus delivery requirement under the Securities Act. At
any time after the Effective Date, upon surrender of one or more certificates
evidencing Common Stock that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No
legend other than the one specified in Section 8.1 has been or shall be placed
on the share certificates representing the Common Stock and no instructions or
"stop transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3 INVESTOR'S COMPLIANCE. Nothing in this Article
VIII shall affect in any way Investor's obligations under any agreement to
comply with all applicable securities laws upon resale of the Common Stock.
25
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (a) personally served,
(b) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (c) delivered by reputable air courier service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company:
C-Phone Corporation
6714 Netherlands Drive
Attention: Daniel P. Flohr
Wilmington, North Carolina 28405
Telephone: (910) 395-6100
Facsimile: (910) 395-6108
with a copy (which shall not constitute notice) to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attention: Michael D. Schwamm
Telephone: (212) 984-7832
Facsimile: (212) 984-7893
26
if to Investor:
Sovereign Partners, L.P.
Executive Pavilion
90 Grove Street
Ridgefield, Connecticut 06877
Attn: Steve Hicks
Telephone: (203) 431-8300
Facsimile: (203) 431-8301
Either party hereto may from time to time change its
address or facsimile number for notices under this Section 9.1 by giving at
least ten (10) days' prior written notice of such changed address or facsimile
number to the other party hereto.
Section 9.2 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
Investor and its officers, directors, employees, and agents, and each Person or
entity, if any, who controls Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the Controlling
Persons (as defined in the Registration Rights Agreement) from and against any
Damages, joint or several, and any action in respect thereof to which Investor,
its partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its officers,
directors, employees, agents or Controlling Persons negligence, recklessness or
bad faith in performing its obligations under this Agreement.
(b) Investor agrees to indemnify and hold harmless the
Company and its officers, directors, employees, and agents, and each Person or
entity, if any, who controls Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the Controlling
Persons from and against any Damages, joint or several, and any action in
respect thereof to which Investor, its partners, affiliates, officers,
directors, employees, and duly authorized agents, and any such Controlling
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred, except to the extent such Damages result primarily
from the Company's failure to perform any covenant or agreement contained in
this Agreement or the Company's or its officers, directors, employees, agents or
Controlling Persons negligence, recklessness or bad faith in performing its
obligations under this Agreement.
27
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All
claims for indemnification by any Indemnified Party (as defined below) under
Section 9.2 shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of
which any person claiming indemnification under any provision of Section 9.2 (an
"INDEMNIFIED PARTY") might seek indemnity under Section 9.2 is asserted against
or sought to be collected from such Indemnified Party by a person other than a
party hereto or an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of Section 9.2 against any person (the
"INDEMNIFYING PARTY"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "CLAIM NOTICE") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "DISPUTE PERIOD") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.2 and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim.
(i) If the Indemnifying Party notifies the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Indemnified Party with respect to the Third Party Claim pursuant to this
Section 9.3(a), then the Indemnifying Party shall have the right to defend, with
counsel reasonably satisfactory to the Indemnified Party, at the sole cost and
expense of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 9.2). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate
28
to protect its interests; and provided further, that if requested by the
Indemnifying Party, the Indemnified Party will, at the sole cost and expense of
the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party
in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party Claim at any time
if it irrevocably waives its right to indemnity under Section 9.2 with respect
to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 9.3(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified Party
(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in clause
(iii) below, the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this clause (ii) or of
the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified
Party that it does not dispute its liability or the amount of its liability to
the Indemnified
29
Party with respect to the Third Party Claim under Section 9.2 or fails to notify
the Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes its liability or the amount of its liability to the Indemnified Party
with respect to such Third Party Claim, the amount of Damages specified in the
Claim Notice shall be conclusively deemed a liability of the Indemnifying Party
under Section 9.2 and the Indemnifying Party shall pay the amount of such
Damages to the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute; provided, however, that it the
dispute is not resolved within thirty (30) days after the Claim Notice, the
Indemnifying Party shall be enlisted to institute such legal action as it deems
appropriate.
(b) In the event any Indemnified Party should have a
claim under Section 9.2 against the Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver a written notification of
a claim for indemnity under Section 9.2 specifying the nature of and basis for
such claim, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such claim (an "INDEMNITY
NOTICE") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that the Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim or the amount
of the claim described in such Indemnity Notice or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that it the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
enlisted to institute such legal action as it deems appropriate.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall
be governed by and interpreted in accordance with the laws of the State of New
York without regard to the principles of conflicts of law. Each of the Company
and Investor hereby submit to the exclusive jurisdiction of the United States
Federal and state courts located in New York, New York with respect to any
dispute arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby.
30
Section 10.2 ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Company and Investor and their respective
successors and permitted assigns. Neither this Agreement nor any rights of
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by Investor hereunder with respect to the
Common Stock held by such person, and (b) Investor's interest in this Agreement
may be assigned at any time, in whole but not in part, to any affiliate of
Investor.
Section 10.3 THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the Company and Investor 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.
Section 10.4 TERMINATION. This Agreement shall terminate twelve
(12) months after the commencement of the Commitment Period (unless extended by
the agreement of the Company and Investor); provided, however, that the
provisions of Article VI, VIII, and Sections 10.1, 10.2, and 10.4 shall survive
the termination of this Agreement.
Section 10.5 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This
Agreement and the instruments referenced herein contain the entire understanding
of the Company and Investor with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor Investor makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the party to be charged
with enforcement.
Section 10.6 FEES AND EXPENSES. Each of the Company and
Investor agrees to pay its own expenses in connection with the preparation of
this Agreement and performance of its obligations hereunder.
Section 10.7 NO BROKERS. Each of the Company and Investor
represents that it has had no dealings in connection with this transaction with
any finder or broker who will demand payment of any fee or commission from the
other party. The Company on the one hand, and Investor, on the other hand, agree
to indemnify the other against and hold the other harmless from any and all
liabilities to any persons claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 10.8 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
Company and
31
Investor and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. This Agreement,
once executed by a party, may be delivered to the other parties hereto by
facsimile transmission of a copy of this Agreement bearing the signature of the
parties so delivering this Agreement.
Section 10.9 SURVIVAL; SEVERABILITY. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder for a period of one year. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.10 FURTHER ASSURANCES. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
Section 10.11 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 10.12 EQUITABLE RELIEF. The Company recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to Investor. The Company therefore agrees that Investor shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
Section 10.13 TITLE AND SUBTITLES. The titles and subtitles used
in this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.
32
Section 10.14 REPORTING ENTITY FOR THE COMMON STOCK. The
reporting entity relied upon for the determination of the trading price of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg L.P. or any successor thereto. The written mutual consent of
Investor and the Company shall be required to employ any other reporting entity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
33
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
C-PHONE CORPORATION
By: /s/ DANIEL P. FLOHR
-------------------------
Name: Daniel P. Flohr
Title: President &
Chief Executive Officer
SOVEREIGN PARTNERS, L.P.
By: Southridge Capital Management LLC
general partner
By: /s/ STEVE HICKS
-------------------------
Name: Steve Hicks
Title:
34