EXHIBIT 10.23
WARRANT
GOLDMAN SACHS & CO
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES
WERE ISSUED DIRECTLY OR INDIRECTLY."
CTC COMMUNICATIONS CORP.
WARRANT TO PURCHASE 662,600 SHARES
OF COMMON STOCK
CTC COMMUNICATIONS CORP., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Goldman Sachs & Co., a New York limited
partnership, or its registered transferees, successors or assigns (each, a
"holder"), is the registered holder of warrants (the "Warrants") to subscribe
for and purchase Six Hundred Sixty Two Thousand and Six Hundred (662,600)
shares of the fully paid and nonassessable Common Stock (as adjusted pursuant
to Section 4 hereof, the "Warrant Shares") of the Company, at a purchase price
per share equal to Six Dollars and Seventy-Five Cents ($6.75) (such price, as
adjusted pursuant to Section 4 hereof, the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Common Stock" shall mean the Company's presently
authorized Common Stock, par value $0.01 per share, and any stock into or for
which such Common Stock may hereafter be converted or exchanged, (b) the term
"Date of Grant" shall mean September 1, 1998, and (c) the term "Other
Warrants" shall mean any warrant issued upon transfer or partial exercise of
this Warrant. The term "Warrant" as used herein shall be deemed to include
Other Warrants unless the context hereof or thereof clearly requires
otherwise.
This Warrant and the warrant of even date herewith, issued to Fleet National
Bank ("Fleet") for 311,812 shares of Common Stock (the "Fleet Warrant"), are
being issued pursuant to that certain Loan and Security Agreement (the "Loan
Agreement") of even date herewith by and among the Company, Goldman Sachs
Credit Partners L.P., and Fleet. As used herein, (a) the term "Series
Warrants" shall mean this Warrant and the Fleet Warrant collectively, and (b)
the term "Series Warrant Shares" shall mean the aggregate of the shares of
Common Stock issuable upon the exercise of this Warrant and the Fleet Warrant
(which amount initially totals 974,412 shares).
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from the Date of Grant
through and including the close of business on September 1, 2003 (the
"Expiration Date"); provided, however, that in the event that any portion of
this Warrant is unexercised as of the Expiration Date, the terms of Section
2(b) below shall apply.
2. Exercise
a. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this Warrant
may be exercised by the holder hereof, in whole or in part and from time to
time, by the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A duly executed) at the principal office of the
Company, except as otherwise provided for herein, and by the payment to the
Company of an amount equal to the then applicable Warrant Price multiplied by
the number of Warrant Shares then being purchased. The person or persons in
whose name(s) any certificate(s) representing shares of Common Stock shall be
issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised if exercised prior to the close of
business on such date; otherwise, the date of record shall be the next
business day. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty (30) days after such exercise and, unless this Warrant has been fully
exercised (including without limitation, exercise pursuant to Section 2(b)
below), a new Warrant representing the portion of the Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder hereof as soon as possible and in any event
within such thirty (30)-day period.
(b) Automatic Exercise. In the event that any portion of this Warrant
remains unexercised as of the Expiration Date and the fair market value
(determined in accordance with Section 4(h) below) of one share of Common
Stock as of the Expiration Date is greater than the applicable Warrant Price
as of the Expiration Date, then this Warrant shall be deemed to have been
exercised automatically immediately prior to the close of business on the
Expiration Date (or, in the event that the Expiration Date is not a business
day, the immediately preceding business day) (the "Automatic Exercise Date"),
and the person entitled to receive the shares of Common Stock issuable upon
such exercise shall be treated for all purposes as the holder of record of
such Warrant Shares as of the close of business on such Automatic Exercise
Date. This Warrant shall be deemed to be surrendered to the Company on the
Automatic Exercise Date by virtue of this Section 2(b) and without any action
by the holder of this Warrant or any other person, and payment to the Company
of the then applicable Warrant Price multiplied by the number of Warrant
Shares then being purchased shall be deemed to be made pursuant to the terms
of Section 2(c) below (without payment by the holder of any exercise price or
any cash or other consideration). As promptly as practicable on or after the
Automatic Exercise Date and in any event within thirty (30) days thereafter,
the Company at its expense shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
Warrant Shares issuable upon such exercise.
c. Right to Convert Warrant into Common Stock; Net Issuance.
(1) Right to Convert.
In addition to and without limiting the rights of the holder hereof under the
terms of this Warrant, the holder shall have the right to convert this Warrant
or any portion thereof (the "Conversion Right") into shares of Common Stock as
provided in this Section 2(c) at any time or from time to time during the term
of this Warrant. Upon exercise of the Conversion Right with respect to all or
a specified portion of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the holder (without payment by the
holder of any exercise price or any cash or other consideration) that number
of shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing (i) the value of this Warrant (or the specified portion
hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which
value shall be equal to (A) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified
portion hereof) on the Conversion Date less (B) the aggregate Warrant Price of
the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the fair market value of one (1) share of Common
Stock on the Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X = A - B/Y
Where: X = the number of shares of Common Stock that
may be issued to the holder
Y = the fair market value (FMV) of one (1)
share of Common Stock
A = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
B = the aggregate Warrant Price (i.e.,
Converted Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion Right,
and, if the number of shares to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date. For purposes of Section 9 of this
Warrant, shares issued pursuant to the Conversion Right shall be treated as if
they were issued upon the exercise of this Warrant.
(2) Method of Exercise.
The Conversion Right may be exercised by the holder by the surrender of this
Warrant at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in Section 2(c)(1) hereof as the
Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new
warrant evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the holder within thirty (30) days following the Conversion Date.
(3) Determination of Fair Market Value.
For purposes of this Section 2(c), "fair market value" of a share of Common
Stock shall have the meaning set forth in Section 4(h) below.
3. Stock Fully Paid; Reservation of Shares.
All Warrant Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance pursuant to the terms and
conditions herein, be fully paid and nonassessable, and free from all taxes,
liens, charges, and pre-emptive rights with respect to the issue thereof. The
Company shall pay all transfer taxes, if any, attributable to the issuance of
the Warrant Shares upon the exercise of this Warrant. During the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of the
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
a. Adjustment for Initial Errors.
The Company hereby acknowledges that the number of Warrant Shares constituting
the initial number of securities purchasable upon the exercise of this Warrant
(the "Exercise Quantity") was calculated based upon the Company's
representation that the number of outstanding shares of Common Stock of the
Company, calculated on a fully diluted basis using the treasury stock method
as contemplated by the Accounting Principles Board Opinion No. 15 (as referred
to in Statement of Financial Accounting Standards No. 128) (such shares as
calculated on any date, the "Fully Diluted Shares"), as of the Date of Grant
using an ending market price of $6.75 per share of Common Stock and before
giving effect to the issuance of any of the Series Warrants or Series Warrant
Shares, totaled 12,017,745 shares. The calculation used by the Company in
determining such amount is set forth in Exhibit B hereto. If for any reason
it shall hereafter be determined that the actual number of Fully Diluted
Shares as of the Date of Grant differed from such amount, then the Company or
the holder (whichever shall discover such error) shall notify the other of
such determination and the Company shall forthwith reissue all of the
outstanding Warrants with an appropriate proportional adjustment in said
number to be effective from the Date of Grant, provided that such adjustment
shall be made only if it results in an increase in the number of Warrant
Shares hereunder.
b. Merger, Sale, Reclassification.
In case of any (i) consolidation or merger (including a merger in which the
Company is the surviving entity), (ii) sale or other disposition of all or
substantially all of the Company's assets or distribution of property to
stockholders (other than distributions payable out of earnings or retained
earnings), or (iii) reclassification, change or conversion of securities of
the class issuable upon exercise of this Warrant (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), then the Company shall take
all necessary actions to ensure that thereafter the holder of this Warrant
shall have the right to receive, at a total purchase price not to exceed that
payable upon the exercise of the unexercised portion of this Warrant, and in
lieu of the shares of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such consolidation, merger, sale or other
disposition, reclassification, change or conversion by a holder of the number
of shares of Common Stock then purchasable under this Warrant. Such new
Warrant shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4. The
provisions of this Section 4(b) shall similarly apply to successive
reclassifications, changes and conversions.
c. Subdivision or Combination of Shares.
If the Company at any time while this Warrant remains outstanding and
unexpired shall subdivide or combine its outstanding shares of Common Stock,
the Warrant Price shall be proportionately decreased in the case of a
subdivision or increased in the case of a combination, effective at the close
of business on the date the subdivision or combination becomes effective.
d. Stock Dividends and Other Distributions.
If the Company at any time while this Warrant is outstanding and unexpired
shall (i) pay a dividend with respect to Common Stock payable in Common Stock,
or (ii) make any other distribution with respect to Common Stock (except any
distribution specifically provided for in Section 4(b), Section 4(c), or
Section 4(e) hereof) of Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of Fully
Diluted Shares outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of Fully Diluted
Shares outstanding immediately after such dividend or distribution.
e. Special Distributions.
In case the Company shall make any distribution (other than dividends and
distributions referred to in Section 4(c) or Section 4(d) above and other than
cash dividends) to all holders of shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of evidences of indebtedness, assets or
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any
class of equity securities of the Company, the Warrant Price to be in effect
on and after the date of such distribution shall be adjusted by multiplying
the Warrant Price in effect immediately prior to such record date by a
fraction (i) the numerator of which shall be the fair market value per share
of Common Stock on such record date (determined in accordance with Section
4(h) below), less the fair market value (as determined by the Board of
Directors of the Company in good faith as set forth in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary) of the
portion of the assets or evidences of indebtedness so to be distributed or of
such subscription rights, options, warrants, or exchangeable or convertible
securities applicable to one (1) share of the Common Stock outstanding as of
such record date, provided, that in the event the Board of Directors is unable
to make such a determination or holders of at least fifty-one percent (51%) of
the Series Warrant Shares issuable under outstanding Series Warrants disagree
in writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below, and (ii) the
denominator of which shall be such fair market value per share of Common Stock
as determined in the manner set forth under Section 4(h) below. Such
adjustment shall be made successively whenever a distribution is made. If the
holder hereof has exercised all or any portion of this Warrant after the
record date for a distribution covered by this paragraph, but prior to the
date such distribution is made by the Company, then the Company shall make a
distribution to the holder, concurrent with the distribution to stockholders,
of such consideration that the holder would have been entitled to receive in
connection with such distribution with respect to the shares issued on such
exercise, had the holder exercised all or such portion of this Warrant
immediately prior to such record date.
f. Other Issuances of Securities.
(1) In case the Company or any subsidiary thereof shall, at any
time after the Date of Grant, issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock (excluding (i)
shares, rights, options, warrants, or convertible or exchangeable securities
outstanding on the Date of Grant, or issued in any of the transactions
described in Sections 4(c), 4(d), and 4(e) above, (ii) shares issued upon the
exercise of such rights, options or warrants or upon conversion or exchange of
such convertible or exchangeable securities, (iii) the Series Warrants and any
shares issued upon exercise thereof, (iv) up to Three Million Fifty-Eight
Thousand Five Hundred Twenty-Six (3,058,526) shares of Common Stock issued or
issuable to directors, officers, employees or consultants of the Company or
any subsidiary in connection with their service as directors, officers,
employees or consultants pursuant to any stock grant, stock option, warrant or
other right (the "Employee Shares")), at a price per share of Common Stock
(determined in the case of such rights, options, warrants, or convertible or
exchangeable securities by dividing (x) the total amount received and/or
receivable by the Company in consideration of the sale and issuance of such
rights, options, warrants, or convertible or exchangeable securities, plus the
total minimum consideration payable to the Company upon exercise, conversion,
or exchange thereof by (y) the total maximum number of shares of Common Stock
covered by such rights, options, warrants, or convertible or exchangeable
securities) less than the fair market value per share of Common Stock
(determined in accordance with Section 4(h) below) on the date the Company
fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be
adjusted so that it shall equal the price determined by multiplying the
Warrant Price in effect immediately prior thereto by a fraction (i) the
numerator of which shall be the sum of (A) the number of Fully Diluted Shares
outstanding immediately prior to such sale and issuance plus (B) the number of
shares of Common Stock which the aggregate consideration received (determined
as provided above and below) for such sale or issuance would purchase at such
fair market value per share, and (ii) the denominator of which shall be the
total number of Fully Diluted Shares outstanding immediately after such sale
and issuance. Such adjustment shall be made successively whenever such an
issuance is made.
(2) For the purposes of an adjustment under Section 4(f)(1), the
maximum number of shares of Common Stock which the holder of any such rights,
options, warrants or convertible or exchangeable securities shall be entitled
to subscribe for or purchase shall be deemed to be issued and outstanding as
of the date of such sale and issuance; furthermore, the consideration received
by the Company therefor shall be deemed to be equal to the price per share of
Common Stock (determined in the case of such rights, options, warrants, or
convertible or exchangeable securities by dividing (x) the total amount
received and/or receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants, or convertible or exchangeable
securities, plus the total minimum consideration payable to the Company upon
exercise, conversion, or exchange thereof by (y) the total maximum number of
shares of Common Stock covered by such rights, options, warrants, or
convertible or exchangeable securities) multiplied by the number of shares
deemed issued and outstanding in the previous sentence. In case the Company
shall issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, for a consideration consisting, in whole
or in part, of consideration other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of Section 4(f)(1), the
Board of Directors of the Company shall determine, in good faith, the fair
market value of said property, and such determination shall be described in a
duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary, provided, that in the event the Board of Directors is
unable to make such a determination or, in the case of, and solely to the
extent that, any issuance constitutes an Affiliated Transaction as defined in
Section 4(f)(3) below, holders of at least fifty-one percent (51%) of the
Series Warrant Shares issuable under outstanding Series Warrants disagree in
writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below. In case the
Company shall issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, together with one (1) or more other
securities as a part of a unit at a price per unit, then in determining the
price per share of Common Stock and the consideration received by the Company
for purposes of the first sentence of Section 4(f)(1), the Board of Directors
of the Company shall determine, in good faith, which determination shall be
described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary, the fair market value of the rights,
options, warrants, or convertible or exchangeable securities then being sold
as part of such unit, provided, that in the event the Board of Directors is
unable to make such a determination or, in the case of, and solely to the
extent that, any issuance constitutes an Affiliated Transaction as defined in
Section 4(f)(3) below, holders of at least fifty-one percent (51%) of the
Series Warrant Shares issuable under outstanding Series Warrants disagree in
writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below.
(3) For purposes of this Section 4(f), an "Affiliated
Transaction" shall mean any issuance of shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock, to (i) any officer
or director of the Company or any member of the immediate family of such a
person or (ii) any 10% or greater beneficial stockholder of the Company or any
person who, to the Company's knowledge, is a member of the immediate family of
such a stockholder (if such stockholder is a natural person), or to any
partnership, corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association or joint venture which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, (i) any officer or director of the Company or any member of the
immediate family of such a person or (ii) any 10% or greater beneficial
stockholder of the Company or any person who, to the Company's knowledge, is a
member of the immediate family of such a stockholder (if such stockholder is a
natural person). For purposes of the preceding sentence, the term "control"
shall mean the power, directly or indirectly, to (i) vote 51% or more of the
voting securities of an entity, or (ii) direct or cause the direction of the
management or policies of an entity as the trustee, general partner or
managing member of such entity. Notwithstanding the foregoing, no transaction
or part thereof shall be considered an "Affiliated Transaction" if the
securities or rights issued to any person described in the first sentence of
this Section 4(f)(3) constitutes less than three percent (3%) of the aggregate
securities and rights issued in such transaction.
g. Adjustment of Number of Shares.
Upon each adjustment in the Warrant Price, the number of Warrant Shares
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of Warrant Shares purchasable
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
adjustment and the denominator of which shall be the Warrant Price immediately
thereafter.
h. Determination of Fair Market Value.
For purposes of those provisions of this Warrant requiring a determination in
accordance with this Section 4(h), "fair market value" as of a particular date
(the "Determination Date") shall mean (i) for any security if such security is
traded on a national securities exchange (an "Exchange"), the weighted average
(based on daily trading volume) of the mid-point between the daily high and
low trading prices of the security on each of the last five (5) trading days
prior to the Determination Date reported on such Exchange, (ii) for any
security that is not traded on an Exchange but trades in the over-the-counter
market and such security is quoted on the Nasdaq Stock Market ("NASDAQ"), (A)
the weighted average (based on daily trading volume) of the mid-point between
the daily high and low trading prices reported on NASDAQ on each of the last
five (5) trading days (or if the relevant price or quotation did not exist on
any of such days, the relevant price or quotation on the next preceding
business day on which there was such a price or quotation) prior to the
Determination Date, or (iii) for any security or any other asset, if no price
can be determined on the basis of the above methods of valuation, then the
judgment of valuation shall be determined in good faith by the Board of
Directors of the Company, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. If the Board of Directors of the Company is unable to determine
any Valuation (as defined below), or if (except in the case of a fair market
value determination to the extent in connection with a non-Affiliated
Transaction under Section 4(f)(2) above), the holders of at least fifty-one
percent (51%) of all of the Series Warrant Shares issuable under outstanding
Series Warrants (collectively, the "Requesting Holders") disagree with the
Board's determination of any Valuation by written notice delivered to the
Company within five (5) business days after the determination thereof by the
Board of Directors of the Company is communicated to holders of the Warrants
affected thereby, which notice specifies a majority-in-interest of the
Requesting Holders' determination of such Valuation, then, unless the Company
accepts the Valuation so proposed and the Company and a majority-in-interest
of the Requesting Holders agree upon a valuation within five (5) business days
thereafter, the Company and (in the event of a disagreement by the Requesting
Holders) a majority-in-interest of the Requesting Holders shall select a
mutually acceptable investment banking firm of national reputation which has
not had a material relationship with the Company or any officer of the Company
within the preceding two (2) years, which shall determine such Valuation.
Such investment banking firm's determination of such Valuation shall be final,
binding and conclusive on the Company and the holders of all of the Warrants
issued hereunder and then outstanding, to the extent of the issuance or
distribution to which such Valuation applies. If the Board of Directors of
the Company was unable to determine such Valuation, all costs and fees of such
investment banking firm shall be borne by the Company. If the Requesting
Holders disagreed with the Board's determination of such Valuation, the party
whose determination of such Valuation differed from the Valuation determined
by such investment banking firm by the greatest amount shall bear all costs
and fees of such investment banking firm. For purposes of this Section 4(h),
the term "Valuation" shall mean the determination, to be made initially by the
Board of Directors of the Company, of the fair market value of any asset
pursuant to clause (iii) above.
5. Notice of Adjustments.
Whenever the Warrant Price or the number of Warrant Shares purchasable
hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Warrant Shares purchasable hereunder after
giving effect to such adjustment, which shall be mailed (without regard to
Section 13 hereof, by first class mail, postage prepaid) to the holder of this
Warrant.
6. Fractional Shares.
No fractional shares of Common Stock will be issued in connection with any
exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor based on the fair market value (as determined in
accordance with Section 4(h) above) of a share of Common Stock on the date of
exercise.
7. Compliance with Securities Act; Disposition of Warrant or Warrant Shares.
a. Compliance with Securities Act.
The holder of this Warrant, by acceptance hereof, agrees that this Warrant and
the shares of Common Stock to be issued upon exercise hereof, are being
acquired for investment and that such holder will not offer, sell or otherwise
dispose of this Warrant, or any shares of Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). Upon
exercise of this Warrant, the holder hereof shall confirm in writing, by
executing the form attached as Schedule 1 to Exhibit A hereto, that the shares
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale. This Warrant and all shares of Common
Stock issued upon exercise of this Warrant (unless registered under the Act)
shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the holder
specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for resale in connection with any
"distribution" thereof for purposes of the Act.
(2) The holder understands that this Warrant and the Warrant
Shares have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of the holder's investment intent as expressed herein. In
this connection, the holder understands that, in the view of the Securities
and Exchange Commission (the "SEC"), the statutory basis for such exemption
may be unavailable if the holder's representation was predicated solely upon a
present intention to hold the Warrant and the Warrant Shares for the minimum
capital gains period specified under applicable tax laws, for a deferred sale,
for or until an increase or decrease in the market price of the Warrant and
the Warrant Shares, or for a period of one (1) year or any other fixed period
in the future.
(3) The holder further understands that this Warrant and the
Warrant Shares must be held indefinitely unless subsequently registered under
the Act and any applicable state securities laws, or unless exemptions from
registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale
of "restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934, as amended) and the amount of securities being sold during any three-
month period not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it wishes to
sell this Warrant and the Warrant Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements
of Rule 144 and 144A, and that, in such event, the holder may be precluded
from selling this Warrant and the Warrant Shares under Rule 144 and 144A even
if the one (1)-year minimum holding period had been satisfied.
(6) The holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the
Act, compliance with Regulation A, or some other registration exemption will
be required; and that, notwithstanding the fact that Rule 144 and 144A is not
exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 and 144A will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own risk.
b. Disposition of Warrant or Warrant Shares. This Warrant and the
Warrant Shares may be detached and transferred, in whole or in part,
separately from the Loan Agreement. With respect to any offer, sale or other
disposition of this Warrant, or any Warrant Shares acquired pursuant to the
exercise of this Warrant prior to the sale or disposition of such Warrant or
Warrant Shares, the holder hereof and each subsequent holder of this Warrant
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such holder's counsel,
if reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with applicable law. Promptly
upon receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Warrant
Shares, all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this Section 7(b) that
the opinion of counsel for the holder is not reasonably satisfactory to the
Company, the Company shall so notify the holder promptly after such
determination has been made. The foregoing notwithstanding, this Warrant or
such Warrant Shares may, as to such federal laws, be offered, sold or
otherwise disposed of in accordance with Rule 144 and 144A under the Act,
provided that the Company shall have been furnished with such information as
the Company may reasonably request to provide a reasonable assurance,
including, where reasonably required, an opinion of counsel, that the
provisions of Rule 144 and 144A have been satisfied. Each certificate
representing this Warrant or the Warrant Shares thus transferred (except a
transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent or, if acting as its own
transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions.
8. Rights as Stockholders; Information.
Except as provided in Section 10.2 below, no holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of the directors or upon any matter submitted to stockholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company
will transmit to the holder of this Warrant such information, documents and
reports as are generally distributed to the holders of any class or series of
the securities of the Company concurrently with the distribution thereof to
the stockholders.
9. Registration Rights.
9.1 Demand Registration Rights.
a. Shelf Registration.
The Company covenants and agrees that at any time after receipt of a
written request (a "Shelf Registration Request") from the holder(s) of the
Series Warrants and/or the Series Warrant Shares (collectively, the
"Securityholders") constituting at least thirty percent (30%) of the Series
Warrant Shares (determined on an as-exercised basis) not already sold pursuant
to Section 9 of any Series Warrant or Rule 144 under the Act, to have the
Company register the Series Warrant Shares for sale on a continuous basis
pursuant to Rule 415 under the Act, then the Company shall: (i) promptly
deliver written notice (the "Shelf Registration Notice") to all other
Securityholders of the Company's receipt of the Shelf Registration Request;
(ii) file with the SEC a registration statement on Form S-3 or any successor
form or registration to such form, or, if the Company is ineligible for Form
S-3, Form S-1 or any successor form of registration to such form, for an
offering to be made on a continuous basis pursuant to Rule 415 (the "Shelf
Registration Statement"), covering all of the outstanding Series Warrant
Shares (determined on an as-exercised basis) (the "Registrable Securities"),
within forty-five (45) days of delivery of the Shelf Registration Request,
(iii) shall use its best efforts to cause such registration statement to be
declared effective within one hundred and twenty (120) days of delivery of the
Shelf Registration Notice and (iv) shall use its best efforts, including but
not limited to the filing of any and all supplements and amendments to the
Shelf Registration Statement required under applicable rules, regulations or
instructions or reasonably requested by the holders of a majority of the
shares then registered under the Shelf Registration Statement, to keep the
Shelf Registration Statement continuously effective under the Act for 12
months or such shorter period as may be requested by Securityholders
representing a majority of the shares included in such registration. The
Company shall be obligated to effect only one registration under Section
9.1(a) of the Series Warrants. Notwithstanding the foregoing, the Company
shall not be obligated to effect any registration pursuant to Section 9.1(a)
of any Series Warrant if it has already effected two registrations under
Section 9.1(b) of the Series Warrants.
b. Other Demand Registrations.
The Company covenants and agrees that at any time after receipt of a written
request (a "Demand Registration Request") from Securityholders holding at
least thirty percent (30%) of the Registrable Securities not already sold
pursuant to Section 9 of any Series Warrant or Rule 144 under the Act, stating
that such Securityholders desire and intend to have the Company register all
or a portion of the Registrable Securities held by them on Form S-3, or any
successor form of registration to such form, or, if the Company is ineligible
therefore, Form S-1, or any successor form of registration to such form, the
Company shall give notice (the "Registration Notice") to all of the
Securityholders within thirty (30) days of the Company's receipt of such
registration request, the Company shall cause to be included in such
registration all Registrable Securities requested to be included therein by
any such Securityholder within fifteen (15) days after such Registration
Notice is effective (subject to the provisions of the final sentence of this
Section 9.1(b)). After such fifteen (15)-day period, the Company shall file
as promptly as practicable a registration statement and use its reasonable
best efforts to cause such registration statement to become effective under
the Act and remain effective for six (6) months or such shorter period as may
be required if all such Registrable Securities covered by such registration
statement are sold prior to the expiration of such six (6)-month period;
provided, however, that the Company shall not be obligated to effect any such
registration pursuant to this Section 9.1(b) after the Company has effected
(i) two (2) registrations pursuant to Section 9.1(b) of the Series Warrants or
(ii) one (1) registration pursuant to Section 9.1(a) of any Series Warrant and
one (1) registration pursuant to Section 9.1(b) of any Series Warrant. For
purposes of this Section 9, a registration shall not be deemed to have been
effected unless a requested registration statement has been declared effective
and, subject to Section 9.3(b) hereof, remained effective for a period of six
(6) months (or such shorter period as is permitted in the second sentence of
this Section 9.1(b)). The foregoing notwithstanding, in the event of an
underwritten offering pursuant to this Section 9.1(b), if the managing
underwriter of such offering shall advise the Securityholders in writing that,
in its opinion, the distribution of a specified portion of the securities
requested to be included in the registration would materially adversely affect
the distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution,
then the securities to be included in the registration shall be reduced in the
following order: (i) first, securities proposed to be included by the Company
and securities that are not Registrable Securities shall be excluded as
determined by the Company and (ii) second, Registrable Securities will be
excluded pro rata among all of the Registrable Securities requested to be
included therein. For purposes of this Section 9.1(b), the Securityholders
who have requested registration of Common Stock to be acquired upon the
exercise of Warrants not theretofore exercised shall furnish the Company with
an undertaking that they or the underwriters or other persons to whom such
Warrants will be transferred have undertaken to exercise such Warrants and to
sell, transfer or otherwise dispose of the Shares received upon exercise of
such Warrants in such registration.
9.2 Incidental Registration
a. Subject to Section 9.2(b) below, the Company covenants and agrees
that in the event the Company proposes after the Date of Grant to file a
registration statement under the Act with respect to any of its equity
securities (other than pursuant to registration statements on Form S-4 or
Form S-8 or any successor or similar forms and other than registrations
pursuant to Section 9.1), whether or not for its own account, then the Company
shall give written notice of such proposed filing to all Securityholders
promptly (and in any event at least twenty (20) days before the anticipated
filing date). Such notice shall offer to such Securityholders, together with
others who have similar rights, the opportunity to include in such
registration statement such number of Registrable Securities as they may
request (other than Registrable Securities already registered pursuant to a
Shelf Registration Statement). The Company shall direct and use its
reasonable best efforts to cause the managing underwriter of a proposed
underwritten offering (unless the offering is an underwritten offering of a
class of the Company's equity securities other than Common Stock and the
managing underwriter has advised the Company in writing that, in its opinion,
the inclusion in such offering of Common Stock would materially adversely
affect the distribution of such offering) to permit the holders of Registrable
Securities requested to be included in the registration to include such
Registrable Securities in the proposed offering and the Company shall use its
reasonable best efforts to include such Registrable Securities in such
proposed offering on the same terms and conditions as any similar securities
of the Company included therein. If the offering of which the Company gives
notice is a public offering involving an underwriter, the right of a
Securityholder to registration pursuant to this Section 9.2 shall be
conditioned upon (i) such Securityholder's participation in such underwriting
and the inclusion of the Registrable Securities to be sold by such
Securityholder in the underwriting and (ii) such Securityholder executing the
underwriting agreement entered into by the Company which includes customary
terms and conditions relating to sales by shareholders. The foregoing
notwithstanding, in the case of an underwritten offering, if the managing
underwriter of such offering shall advise the Company in writing that, in its
opinion, the distribution of all or a specified portion of the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect
the distribution of such securities, then the securities to be included in a
registration which is a primary underwritten offering on behalf of the Company
shall be reduced in the following order: (i) first, Registrable Securities
and such other securities requested to be included by holders of such other
securities shall be excluded pro rata and (ii) second the securities the
Company proposes to include therein shall be excluded.
b. In the event that a holder or holders of the Company's securities
(other than a Securityholder or Securityholders) requests, pursuant to rights
granted to such holder or holders, that the Company file a registration
statement for the public offering of securities and the Company and the other
holders of the Company's securities (including the Securityholders) who have
rights to be included in such registration, request to be included in such
registration and the managing underwriter of such offering shall advise the
Company and the holders requesting inclusion in the offering that, in its
opinion, the distribution of a specified portion of the securities requested
to be included in the registration would materially adversely affect the
distribution of such securities then, the securities to be included in the
registration shall be reduced in the following order: (i) first, any
securities requested to be included therein by the holders of such other
securities in such a manner as determined by the Company, (ii) second
Registrable Securities shall be excluded pro rata, (iii) securities proposed
to be included by the Company shall be excluded and, (iv) fourth, securities
requested to be included therein by the holder or holders making the initial
request for the registration.
9.3 Company's Obligations
a. In connection with the registration of Registrable Securities on
behalf of the holders thereof (such Securityholders being referred to herein
as "Sellers") in accordance with Section 9.1 or Section 9.2 above, and in
addition to its other obligations under this Section 9, the Company agrees to:
(i) with respect to any registration pursuant to
Section 9.1(a) or Section 9.1(b), prepare and file with the SEC a registration
statement on the form specified in such section, with respect to the
Registrable Securities to be registered pursuant to such section, and to use
its best efforts to cause such registration statement to become and remain
effective as provided in such section;
(ii) enter into a cross-indemnity agreement, in
customary form, with each underwriter, if any, and each Seller;
(iii) subject to the provisions of Section 9.1
and Section 9.2 regarding reductions in Registrable Securities to be included
in a registration, include in the registration statement filed with the SEC,
the Registrable Securities for which requests for registration have been made
(or, in the case of a registration under Section 9.1(a), all such Registrable
Securities), promptly after filing of such a registration statement or
prospectus or any amendments or supplements thereto, furnish to each Seller
copies of all such documents filed including, if requested, documents
incorporated by reference in the registration statement, and notify each
Seller of any stop order issued or threatened by the SEC and use its best
efforts to prevent the entry of such stop order or to remove it if entered;
(iv) subject to Section 9.3(b), prepare and file
with the SEC such amendments of and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective (A) with respect to a registration
statement under Section 9.1(b) or Section 9.2, for a period of six (6) months
or such shorter period as may be required if all such Registrable Securities
covered by such registration statement are sold prior to the expiration of
such period or (B) with respect to a Shelf Registration Statement, until all
the Registrable Securities covered by such registration statement are sold,
and to otherwise comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Sellers set forth in such registration statement;
(v) furnish to each Seller and each underwriter,
if any, without charge, such number of copies of the registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities proposed to be sold by such Seller;
(vi) use its reasonable best efforts to register
or qualify such Registrable Securities under such other securities or Blue Sky
laws of such jurisdictions as any Seller or any such underwriter reasonably
requests in writing and keep such registrations or qualifications in effect
for so long as such registration statement remains in effect and do any and
all acts and things which may be reasonably necessary or advisable to enable
such Seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Seller; provided, however, that the
Company shall not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Subsection 9.3(a)(vi), or (B) consent to general service of process in any
such jurisdiction;
(vii) notify each Seller, at any time when the
Company becomes aware that a prospectus relating to such Seller's Registrable
Securities is required to be delivered under the Act, of the occurrence of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein not misleading, and
as soon as practicable prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading;
(viii) cause all such Registrable Securities to
be listed on any Exchange or NASDAQ on which similar securities issued by the
Company are then listed;
(ix) provide a transfer agent, registrar and
CUSIP number for all such Registrable Securities not later than the effective
date of such registration statement;
(x) enter into such customary agreements
(including an underwriting agreement in customary form) and take all such
other customary actions that a majority in interest of the Sellers or the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(xi) with respect to any underwritten offering,
use its reasonable best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as a
majority in interest of the Sellers or any underwriter may reasonably request;
(xii) with respect to an underwritten offering,
use its reasonable best efforts to obtain an opinion of counsel to the
Company, addressed to the Sellers and any underwriter, in customary form and
including such matters as are customarily covered by such opinions in
underwritten registered offerings of equity securities as a majority in
interest of the Sellers or any underwriter may reasonably request, such
opinion to be in form and substance reasonably satisfactory to a majority in
interest of the Sellers; and
(xiii) otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC, and make available to
its securityholders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months subsequent to the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
b. Any other provisions of this Section 9 notwithstanding, upon receipt
by the Securityholders of a written notice signed by the chief executive
officer or chief financial officer of the Company to the effect set forth
below, the Company shall not be obligated during a reasonable period of time
(not to exceed ninety (90) days) thereafter (i) to effect any registrations
pursuant to this Section 9 or (ii) with respect to an effective Shelf
Registration Statement, may suspend the effectiveness of such registration
statement, at any time at which, in the Company's reasonable judgment,
(i) there is a development involving the Company or any of its affiliates
which is material but which has not yet been publicly disclosed or (ii) sales
pursuant to the registration statement would materially and adversely affect
an underwritten public offering for the account of the Company or any other
financing project or a proposed or pending merger or other acquisition or
business combination or disposition of the Company's assets, to which the
Company or any of its affiliates is, or is expected to be, a party. In the
event a registration is postponed in accordance with this Section 9.3(b), (x)
the Company must (unless otherwise instructed by those holders who requested
such registration) file the requested registration within nine (9) months from
the date the Company first received the request of the holders, (y) the
Company may not suspend the effectiveness of a Shelf Registration Statement
pursuant to this Section 9.3(b) more than ninety days in the aggregate during
in any eighteen (18)-month period, and (z) there shall be added to any period
during which the Company is obligated to keep a registration effective the
number of days for which the effectiveness thereof was suspended pursuant to
this Section 9.3(b).
c. The holder agrees, if so reasonably required by the managing
underwriter in a registration pursuant to this Section 9, not to effect any
public sale or distribution of Registrable Securities or sales of such
Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities
Act, during the seven (7) days prior to and 180 days after any firm commitment
underwritten registration pursuant to Section 9 has become effective (except
as part of such underwritten registration) or, if the managing underwriter
advises the Company that, in its opinion, no such public sale or distribution
should be effected for a period of not more than 180 days after such
underwritten registration in order to complete the sale and distribution of
securities included in such registration and the Company gives notice to such
effect to the Holders of such advice, the holder shall not effect any public
sale or distribution of Registrable Securities or sales of such Registrable
Securities pursuant to Rule 144 or Rule 144A under the Securities Act during
such period after such underwritten registration, except as part of such
underwritten registration, whether or not such holder participates in such
registration.
d. The Company may require that each Seller, as a condition to
registering his, her or its Registrable Securities pursuant hereto, furnish
the Company with such information regarding such Seller and the distribution
of the Registrable Securities proposed to be sold by such Seller as the
Company may from time to time reasonably request in writing.
e. Each Seller agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 9.3(a)(vii)
above, such Seller shall forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Seller's receipt of copies of the supplemented or
amended prospectus contemplated by Section 9.3(a)(vii) above and, if so
directed by the Company, such Seller will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies in such
Seller's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 9.3(a)(iv) above shall
be extended by the number of days during the period from and including the
date of giving of such notice to and including the date when each Seller shall
have received the copies of the supplemented or amended prospectus
contemplated by Section 9.3(a)(vii) above.
f. The Company shall not file or permit the filing of any registration
or comparable statement which refers to any Seller by name or otherwise as the
Seller of any securities of the Company unless such reference to such Seller
is agreed to by the Seller or is specifically required by the Act or any
similar federal statute then in force.
9.4 All expenses incident to the Company's performance of or compliance with
this Warrant, including without limitation all registration and filing fees,
fees and expenses relating to filings with any Exchange, fees and expenses of
compliance with securities or Blue Sky laws in jurisdictions reasonably
requested by any Seller or underwriter pursuant to Section 9.3(a)(vi)
(including reasonable fees and disbursements of counsel in connection with
Blue Sky qualifications of the Registrable Securities), all word processing,
duplicating and printing expenses, messenger and delivery expenses, fees and
disbursements of counsel for the Company and one (1) counsel for the Sellers
(selected by those Sellers owning a majority of the Registrable Securities),
independent public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance), all the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the expense of any liability insurance (if
the Company determines to obtain such insurance) and the fees and expenses
incurred in connection with the listing of the securities to be registered on
any Exchange and/or NASDAQ on which such securities issued by the Company are
then listed, the reasonable fees and expenses of any special experts
(including attorneys) retained by the Company (if it so desires) in connection
with such registration and fees and expenses of other persons retained by the
Company (all such expenses being herein called "Registration Expenses"), shall
be borne by the Company. In no event shall the Company be obligated for any
discounts, commissions or fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals attributable to the
securities being registered (which discounts, commissions or fees with respect
to any Seller's respective shares shall be paid by such Seller) and legal
expenses of any person other than the Company and the Sellers.
9.5 Participation
a. In connection with the preparation and filing of each registration
statement under the Act pursuant to this Section 9 in connection with an
underwritten offering, the Company shall give the underwriters under such
registration statement and such underwriters' counsel and their respective
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such underwriters' counsel, to conduct a reasonable
investigation within the meaning of the Act.
b. In connection with the preparation and filing of each registration
statement under the Act pursuant to this Section 9 not involving an
underwritten offering, the Company shall give the Sellers under such
registration statement and such Sellers' counsel and their respective
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such Sellers' counsel, to conduct a reasonable investigation
within the meaning of the Act. Each Seller agrees to keep confidential and
not use, and to ensure that its representatives keep confidential and not use,
any non-public information of the Company made available in such
investigation.
9.6 Indemnification
a. In the event of any registration of any securities of the Company
under the Act, the Company shall, and hereby does, indemnify and hold harmless
in the case of any registration statement filed pursuant to Section 9.1 or
Section 9.2 above, the Seller of any Registrable Securities covered by such
registration statement, its directors, officers, employees and agents, each
other person who participates as an underwriter in the offering or sale of
such Registrable Securities and each other person, if any, who controls such
Seller or any such underwriter within the meaning of the Act against any
losses, claims, damages, or liabilities (or actions or proceedings whether
commenced or threatened in respect thereof), joint or several, to which such
Seller or any such director or officer or employee or agent or underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company shall reimburse such Seller
and each such director, officer, employee, agent, underwriter and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action, or proceeding; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding, whether commenced or threatened in respect thereof),
or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment, or supplement in reliance upon and in conformity with
written information furnished to the Company by such Seller for the express
purpose of use in the preparation thereof and, provided, further, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding, whether commenced or
threatened, in respect thereof), or expense arises out of such person's
failure to send or give a copy of the final prospectus, as the same may be
then supplemented or amended, within the time required by the Act to the
person asserting an untrue statement or alleged untrue statement or omission
or alleged omission if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such Seller or any such director,
officer, employee, agent, underwriter or controlling person and shall survive
the transfer of such Registrable Securities by such Seller.
b. In the event that the Company includes any Registrable Securities of
a prospective Seller in any registration statement filed pursuant to Section
9.1 or Section 9.2 above, such prospective Seller shall, and hereby does,
indemnify and hold harmless the Company, its directors, officers, employees
and agents, each other person who participates as an underwriter in the
offering or sale of such Registrable Securities and each other person, if any,
who controls the Company or any such underwriter within the meaning of the Act
against any losses, claims, damages, or liabilities (or actions or proceedings
whether commenced or threatened in respect thereof), joint or several, to
which the Company or any such director or officer or employee or underwriter
or controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and such prospective Seller shall reimburse
the Company and any such director, officer, employee, agent, underwriter or
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action, or proceeding if, and only if, such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating that it is for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment, or supplement. In no event
shall the liability of any Seller hereunder be greater in amount than the
dollar amount of the proceeds received by such Seller upon the sale of the
Registrable Securities giving rise to such indemnification obligation. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer, employee, agent, underwriter or controlling person and shall survive
the transfer of such Registrable Securities by such Seller.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities
industry professionals participating in the distribution to the same extent as
provided above with respect to information so furnished in writing by such
persons specifically for inclusion in any prospectus or registration
statement.
d. Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in this
Section 9.6, such indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 9.6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof. If, in the indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnified party may assume the defense
of such claim, jointly with any other indemnified party that reasonably
determines such conflict of interest to exist, and the indemnifying party
shall be liable to such indemnified parties for the reasonable legal fees and
expenses of one counsel for all such indemnified parties and for other
expenses reasonably incurred in connection with the defense thereof incurred
by the indemnified party. No indemnifying party shall, without the consent of
the indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability, or a covenant not to sue, in respect of such claim
or litigation. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying
party.
e. Indemnification and contribution similar to that specified in this
Section 9.6 (with appropriate modifications) shall be given by the Company and
each Seller with respect to any required registration or other qualification
of Registrable Securities under any Federal or state law or regulation of any
governmental authority, other than the Act.
f. The indemnification required by this Section 9.6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or
liability is incurred.
g. If the indemnification provided for in this Section 9.6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities, or expenses referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of losses, claims, damages, liabilities, or expenses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions which resulted in such
losses, claims, damages, liabilities, or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, and expenses referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding. In no event shall
the liability of any Seller hereunder be greater in amount than the dollar
amount of the proceeds received by such Seller upon the sale of the
Registrable Securities giving rise to such contribution obligation. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 9.6(g) were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to in this Section 9.6(g). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
9.7 Assignment of Rights; Termination.
The rights granted under this Section 9 may be assigned to any transferee of
at least 50,000 Series Warrants, Series Warrant Shares or any combination
thereof, and upon (a) prior written notice to the Company of the assignment,
and (b) the transferee's agreement to be bound by the relevant terms and
conditions of this Section 9 and the Warrant. The rights of the holder and
any transferee under this Section 9 will terminate on the five (5) year
anniversary of the Expiration Date.
10. Additional Rights.
10.1 Notice of Sale.
In the event that the Company undertakes to effect a Sale, the Company will
use its best efforts to provide to the holder at least thirty (30) days notice
of the terms and conditions of the proposed transaction. The Company will
cooperate with the holder in consummating the sale of this Warrant in
connection with any such transaction.
10.2 Board Representation.
a. Election of Initial Holder Designee. Promptly
following Goldman Sachs & Co.'s ("Goldman") designation of a Holder Designee
under Section 10.2(e)(i) below, the Board of Directors of the Company (the
"Board") shall increase the number of directors constituting the Board by one
(1) and shall elect the Holder Designee (as defined below) to the Board to
fill the vacancy created by such increase.
b. Future Elections of Holder Designee. Provided that
Goldman has designated an initial Holder Designee under Section 10.2(e)(i)
below and continuously designates Holder Designees as required under Section
10.2(e)(ii) and Section 10.2(e)(iii) below, in connection with any annual
meeting or other meeting of stockholders of the Company at which directors are
to be elected (an "Annual Meeting"), the Company, its management or the Board
nominates, recommends, or solicits proxies to be voted for the election to the
Board of a particular group of individuals ("Management Nominees"), the
Management Nominees shall include the Holder Designee. The Company, its
management and the Board shall each use all reasonable efforts to cause the
Holder Designee to be elected to the Board at each Annual Meeting, whether or
not there are Management Nominees for such Annual Meeting, and to maintain the
Holder Designee in such position.
c. Vacancy. If a vacancy on the Board shall occur as a
result of the death, resignation or removal of a director elected to the Board
by reason of having been a Holder Designee and such vacancy is to be filled by
the vote of the remaining members of the Board, such remaining members of the
Board shall vote for the election of the Holder Designee to fill such vacancy
to the extent permitted under the Company's Charter, by-laws and applicable
law.
d. Observer Rights. During any time that a Holder
Designee is not a member of the Board, whether during the time before Goldman
has initially nominated a director under Section 10.2(e), or due to the
failure of a Holder Designee to be elected by the stockholders of the Company,
the failure of Goldman to timely nominate a Holder Designee under Section
10.2(e) or otherwise, the Company shall invite a representative of Goldman to
attend, in a non-voting observer capacity, all meetings of the Board and all
meetings of the Committees of the Board. The Company shall provide to such
representative copies of all notices, minutes, consents, and other materials
that it provides to its directors at the same time as such materials are
provided to the directors; provided, however, that such representative shall
agree to hold in confidence and trust and to act in a fiduciary manner with
respect to all information so provided; and, provided further, that the
Company may withhold any information and exclude such representative from any
meeting or portion thereof if the Company reasonably believes, based upon the
advice of its counsel, that such exclusion is reasonably necessary to preserve
an attorney-client privilege of the Company that is material to the Company.
e. Holder Designee. For the purposes of this Section
10.2, "Holder Designee" shall mean an individual so designated by Goldman (and
no other party or transferee of Goldman), which designation shall be made as
follows: (i) Goldman, within sixty (60) days following the execution and
delivery of this Warrant, shall, at Goldman's election, notify the Company in
writing of the name of the Holder Designee to be elected to the Board, (ii)
sixty (60) days prior to each Annual Meeting (unless the Holder Designee then
a Director is otherwise serving a term not expiring at such meeting), Goldman
shall notify the Company in writing of the name of the Holder Designee to be
elected to the Board at such meeting, and (iii) if a vacancy on the Board
shall occur as a result of the death, resignation or removal of a director
elected to the Board by reason of having been a Holder Designee, Goldman
shall, within thirty (30) days after receiving written notice from the Company
of such vacancy (twenty (20) days in the case of the resignation or removal of
a Holder Designee who continues on as an employee of Goldman), notify the
Company in writing of the name of the Holder Designee to be elected to the
Board to fill such vacancy.
f. Termination of Rights. The rights of Goldman under
this Section 10.2 shall terminate upon the earlier of (i) September 1, 2001 or
(ii) the date that Goldman or its affiliates no longer beneficially own, in
the aggregate, at least 50% of the Warrant, the Warrant Shares or any
combination thereof. For the purpose of this Section 10.2(f), the term
"affiliates" shall include any individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association or joint venture which directly or indirectly, is in control of,
is controlled by, or is under common control with, Goldman. for purposes of
the preceding sentence, the term "control" shall mean the power, directly or
indirectly, to (i) vote 51% or more of the voting securities of an entity, or
(ii) direct or cause the direction of the management or policies of an entity
as the trustee, general partner or managing member of such entity.
11. Representations and Warranties.
The Company represents and warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
b. The Warrant Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the holders thereof are as set forth in the
Articles of Organization of the Company, as amended to the Date of Grant (as
so amended, the "Charter"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the issuance
of the Warrant Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or
filing with or the taking of any action in respect of or by, any Federal,
state or local government authority or agency or other person, except for the
filing of notices pursuant to federal and state securities laws, which filings
will be effected by the time required thereby;
e. There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of
the Company to perform its obligations under this Warrant;
f. The authorized capital stock of the Company and the capital stock
issued and outstanding, or reserved for issuance, are as set forth on Schedule
5.8 to the Loan Agreement. All of the outstanding shares of the Company have
been validly issued and are fully paid, nonassessable shares and have not been
issued in violation of any applicable preemptive rights;
g. Except as set forth on Schedule 5.8 to the Loan Agreement, there are
no subscriptions, rights, options, warrants, or calls relating to any shares
of the Company's capital stock, including any right of conversion or exchange
under any outstanding security or other instrument; and
12. Modification and Waiver.
This Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
13. Notices.
Unless otherwise specifically provided herein, all communications under this
Warrant shall be in writing and shall be deemed to have been duly given (i) on
the date of service if served personally on the party to whom notice is to be
given, (ii) on the day of transmission if sent by facsimile transmission to a
telephone number provided by a party for such purposes, and telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(iii) on the day after delivery to Federal Express or similar overnight
courier, or (iv) on the fifth day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid, and properly addressed, return receipt requested, to each
such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this
Warrant. Any party hereto may change its address for purposes of this Section
13 by giving the other party written notice of the new address in the manner
set forth herein.
14 Binding Effect on Successors.
This Warrant shall be binding upon any corporation succeeding the Company by
merger, consolidation or acquisition of all or substantially all of the
Company's assets, and all of the obligations of the Company relating to the
Common Stock issuable upon the exercise or conversion of this Warrant shall
survive the exercise, conversion and termination of this Warrant and all of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof. The Company will, at the time of
the exercise or conversion of this Warrant, in whole or in part, upon request
of the holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the holder hereof in respect of any rights to which
the holder hereof shall continue to be entitled after such exercise or
conversion in accordance with this Warrant; provided, that the failure of the
holder hereof to make any such request shall not affect the continuing
obligation of the Company to the holder hereof in respect of such rights.
15. Lost Warrants or Stock Certificates.
The Company covenants to the holder hereof that, upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate and, in the case of any
loss, theft or destruction, upon receipt of an executed lost securities bond
or indemnity reasonably satisfactory to the Company, or in the case of any
such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
16. Descriptive Headings.
The descriptive headings of the several paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant.
17. Governing Law.
This Warrant shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of New York.
18. Survival of Representations, Warranties and Agreements. Each
of the respective representations and warranties of the Company and the holder
hereof contained herein shall survive the Date of Grant, the exercise or
conversion of this Warrant (or any part hereof) and the termination or
expiration of any rights hereunder. Each of the respective agreements of each
of the Company and the holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
Without limiting the generality of the foregoing sentence, the registration
rights contained in Section 9 above and the board representation rights
contained in Section 10.2 above shall survive the exercise or conversion of
this Warrant (or any part hereof) and the termination or expiration of any
other rights hereunder.
19. Remedies.
In case any one (1) or more of the covenants and agreements contained in this
Warrant shall have been breached, the holders hereof (in the case of a breach
by the Company), or the Company (in the case of a breach by a holder), may
proceed to protect and enforce their or its rights either by suit in equity
and/or by action at law, including, but not limited to, an action for damages
as a result of any such breach and/or an action for specific performance of
any such covenant or agreement contained in this Warrant.
20. Acceptance.
Receipt of this Warrant by the holder hereof shall constitute acceptance of
and agreement to the foregoing terms and conditions.
21. No Impairment of Rights.
The Company will not, by amendment of its Charter or through any other means,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against material impairment.
22. Amendment. This Warrant may be amended by written agreement of the
Company and holders of 65% of the Series Warrant Shares, collectively on an
as-exercised basis, and such amendment shall be binding on all holders of this
Warrant or Warrant Shares.
[Signature page follows.]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on its
behalf by one of its officers thereunto duly authorized.
CTC COMMUNICATIONS CORP.
By:
Name:
Title:
Address: 360 Second Avenue
Waltham, Massachusetts 02154
Dated: as of September 1, 1998
EXHIBIT A
NOTICE OF EXERCISE
To: CTC COMMUNICATIONS CORP.
1. The undersigned hereby elects to purchase _____ shares of
Common Stock of CTC COMMUNICATIONS CORP. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:
(Name)
(Address)
The undersigned represents that the aforesaid shares are being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned
has no present intention of distributing or reselling such shares. In support
thereof, the undersigned has executed an Investment Representation Statement
attached hereto as Schedule 1.
(Signature)
(Date)
Schedule 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: CTC COMMUNICATIONS CORP.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Registrable Securities"), the undersigned (the "Purchaser") represents to the
Company as follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Registrable
Securities. The Purchaser is purchasing the Registrable Securities for its
own account for investment purposes only and not with a view to, or for the
resale in connection with, any "distribution" thereof for purposes of the
Registrable Securities Act of 1933, as amended (the "Act").
(b) The Purchaser understands that the Registrable Securities
have not been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Registrable
Securities and Exchange Commission ("SEC"), the statutory basis for such
exemption may be unavailable if the Purchaser's representation was predicated
solely upon a present intention to hold these Registrable Securities for the
minimum capital gains period specified under applicable tax laws, for a
deferred sale, for or until an increase or decrease in the market price of the
Registrable Securities, or for a period of one year or any other fixed period
in the future.
(c) The Purchaser further understands that the Registrable
Securities must be held indefinitely unless subsequently registered under the
Act or unless an exemption from registration is otherwise available. In
addition, the Purchaser understands that the certificate evidencing the
Registrable Securities will be imprinted with the legend referred to in the
Warrant under which the Registrable Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and
144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: The availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Registrable Securities
Exchange Act of 1934, as amended) and the amount of securities being sold
during any three-month period not exceeding the specified limitations stated
therein.
(e) The Purchaser further understands that at the time it wishes
to sell the Registrable Securities there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, the
Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the Purchaser may be precluded
from selling the Registrable Securities under Rule 144 and 144A even if the
one-year minimum holding period had been satisfied.
(f) The Purchaser further understands that in the event all of
the requirements of Rule 144 and 144A are not satisfied, registration under
the Act, compliance with Regulation A, or some other registration exemption
will be required; and that, notwithstanding the fact that Rule 144 is not
exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial
burden or proof in establishing that an exemption from registration is
available for such offers or sales, and that such persons and their respective
brokers who participate in such transactions do so at their own risk.
Purchaser:___________________
EXHIBIT B
Analysis Based on Closing Stock Price on 8/4/98 of: $6.75
Shares Outstanding - public 6,175,798
Shares Outstanding - Bob Fabricatore 2,715,974
Shares Outstanding - all other officers 1,096,725
Total Primary Shares Outstanding 9,988,497
Outstanding Options:
Options in the Money 1,462,507
Proceeds from Options $5,494,058
Average exercise price $3.76
Shares to be purchased 813,935
Incremental Shares 648,572
Total Shares outstanding pre Spectrum 10,637,070
Spectrum Convertible Preferred Stock 1,333,333
Spectrum warrants in the money 0
Spectrum shares from 9% dividend accreted to 8/31/98 47,342
Total shares due to Spectrum 1,380,675
Total Shares outstanding Pre Series Warrants (on a Fully Diluted Basis)
12,017,745
Series Warrants % of Fully Diluted Shares 7.50%
New Fully Diluted Shares Outstanding 12,992,157
Incremental Series Warrant Shares 974,412
Goldman's participation (68%) 662,600
Fleet's participation (32%) 311,812