SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
April 14, 2000, by and among Grace Development Inc. d/b/a Avana
Communications, Inc., a Colorado corporation (the "COMPANY"), and
the purchasers set forth on the signature pages hereto (the
"PURCHASERS").
PRELIMINARY STATEMENT
The Company desires to obtain funds by issuing to the
Purchasers the following securities: (i) 12% Senior Secured
Convertible Promissory Notes in the principal amount of up to
$15,275,000 (ii) up to 7,200,000 shares of Common Stock of the
Company (the "SALE SHARES") and (iii) Warrants to purchase an
aggregate of up to 14,300,000 shares (subject to adjustment as
provided in the Warrants) of Common Stock of the Company at an
exercise price of either $1.00 per share or $1.50 per share as
described more fully in this Agreement (the Convertible Notes,
the Sale Shares and the Warrants are collectively referred to
herein as the "SECURITIES"), and the Purchasers desire to
purchase or have the option to purchase such Securities, subject
to the terms and conditions set forth in this Agreement.
ACCORDINGLY, in consideration of the preceding preliminary
statement and the mutual agreements, covenants, representations
and warranties contained in this Agreement, the parties hereto,
intending to be legally bound, now agree as follows:
STATEMENT OF AGREEMENT
ARTICLE 1. CERTAIN DEFINITIONS.
"AFFILIATE" of any specified Person means any other Person
which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with,
such specified Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"),
as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or
otherwise.
"AGREEMENT" means this Securities Purchase Agreement, by and
among the Company and the Purchasers, as such may be amended,
supplemented, restated or otherwise modified from time to time.
"BANKRUPTCY LAW" means Xxxxx 00, Xxxxxx Xxxxxx Code or any
similar federal or state law for the relief of debtors.
"BUSINESS DAY" means any day that is not a Saturday or
Sunday or, as the context requires, (i) a day on which the
applicable stock exchange or market is required or permitted to
be closed, or (ii) a day on which banks are required or permitted
to be closed in New York, New York.
"CLOSING" and "CLOSING DATE" have the meanings given to such
terms in Section 2.1 of this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COLLATERAL" shall have the meaning given to such term in
Section 2 of the Pledge Agreement.
"COMMON STOCK" means the common stock, no par value per
share, of the Company.
"COMPANY" has the meaning given to such term in the preamble
of this Agreement.
"CONVERSION PRICE" means $1.00 per share of Common Stock in
the case of Notes issued at the First, Second or Third Closings
and $1.50 per share of Common Stock for Notes issued at the
Fourth Closing, as adjusted if and as appropriate pursuant to the
provisions of Article 9.
"DISTRIBUTION EVENT" means any insolvency, bankruptcy,
receivership, liquidation, reorganization or similar proceeding
(whether voluntary or involuntary) relating to the Company or its
property, or any proceeding for voluntary liquidation,
dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy.
"DOCUMENTS" means this Agreement, the Notes, the Warrants,
the Registration Rights Agreement, the Guarantee Agreement, the
Pledge Agreement and the Finders Agreement, together with all
amendments and supplements thereto, all substitutions and
replacements therefor, and all renewals, extensions, increases,
restatements, modifications, rearrangements and waivers thereof
from time to time.
"EQUITY INTERESTS" means, with respect to any Person, any
and all shares or other equivalents (however designated) of
capital stock, partnership interests or any other participation,
right or other interests in the nature of an equity interest in
such Person or any option, warrant or other security convertible
into or exchangeable for any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"EVENT OF DEFAULT" has the meaning given to such term in
Section 8.1 of this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and
regulations of the SEC thereunder, all as the same shall be in
effect from time to time.
"HOLDER" and "HOLDERS" both mean, as the context requires,
the holder or holders of the Notes from time to time under the
terms of this Agreement and the other Documents. As of the
Closing Date, the Purchasers are the only Holders.
"INDEBTEDNESS" means (i) all indebtedness for money borrowed
or evidenced by notes, bonds, debentures or similar evidences of
indebtedness, (ii) all indebtedness under leases that are or
should be capitalized under generally accepted accounting
principles, (iii) all contingent obligations including guarantees
of indebtedness of others, and (iv) indebtedness representing the
deferred and unpaid purchase price of goods or services.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without
limitation, any conditional sale or other title retention
agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction and including any lien or
charge arising by statute or other law.
"MAJORITY HOLDERS" means the Holder(s) of a majority in
aggregate principal amount of Notes then outstanding.
"MATERIAL ADVERSE EFFECT" shall mean any material and
adverse effect on: (a) the business, condition (financial or
otherwise), results of operations, assets, liabilities or
prospects of the Company and the Subsidiaries on a consolidated
basis and (b) the ability of the Company and the Subsidiaries to
perform their respective obligations under each of the Documents
to which they are parties.
"NASD" means the National Association of Securities Dealers,
Inc., or any successor thereto.
"NOTE" means the 12% Senior Secured Convertible Promissory
Notes to be made by the Company payable to the Purchasers in the
form attached hereto as EXHIBIT A, such Notes being in the
aggregate original principal amount of up to $15,275,000,
together with all amendments and supplements thereto, all
substitutions and replacements therefor, and all renewals,
extensions, increases, restatements, modifications,
rearrangements and waivers thereof from time to time.
"PERMITTED LIENS" means, without duplication, (i) Liens in
favor of the Holders, (ii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, PROVIDED, HOWEVER,
that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor,
(iii) landlords', carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the
ordinary course of business (whether contractual, statutory or
constitutional in nature) and with respect to amounts which are
not yet delinquent or are being contested in good faith by
appropriate proceedings with appropriate reserves, (iv) pledges
or deposits made in the ordinary course of business in connection
with (a) leases, performance bonds and similar obligations, (b)
workers' compensation, unemployment insurance and other social
security legislation, or (c) securing the performance of surety
bonds and appeal bonds required (1) in the ordinary course of
business or in connection with the enforcement of rights or
claims of the Company or a Subsidiary thereof or (2) in
connection with judgments that do not give rise to an Event of
Default, (iv) easements, rights-of-way, restrictions, minor
defects or irregularities in title and other similar encumbrances
which, in the aggregate, do not materially detract from the value
of the property subject thereto or materially interfere with the
ordinary conduct of the business of the Company or any Subsidiary
in connection therewith, (v) Liens securing capital lease
obligations permitted to be incurred under this Agreement,
PROVIDED, HOWEVER, that such Lien does not extend to any property
other than that subject to the underlying lease, (vi) Liens
pursuant to leases and subleases of real property which do not
interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries and which are made on
customary and usual terms applicable to similar properties and do
not extend to any property of the Company or a Subsidiary other
than the personal property located on such real property, (vii)
Liens resulting from the deposit of funds or government
securities in trust for the purpose of decreasing or defeasing
Indebtedness of the Company and its Subsidiaries as may be
permitted hereunder, (viii) setoff, chargeback and other rights
of depository and collecting banks and other regulated financial
institutions with respect to money or instruments of the Company
or its Subsidiaries on deposit with or in the possession of such
institutions, and (ix) judgment or attachment Liens not giving
rise to an Event of Default.
"PERSON" means any individual, corporation, partnership,
joint venture, association, limited liability company, joint-
stock company, trust, unincorporated organization or government
or any agency or political subdivision thereof.
"PURCHASE PRICE" means the amounts set forth on SCHEDULE
2.1.
"PURCHASERS" has the meaning given to such term in the
preamble of this Agreement.
"REGISTRATION RIGHTS AGREEMENT" means a registration rights
agreement by and among the Company and the Purchasers in the form
attached hereto as EXHIBIT C, as amended, supplemented, restated
or otherwise modified from time to time.
"SALE AND LEASE-BACK TRANSACTION" means any arrangement with
any Person providing for the leasing by the Company or any
Subsidiary of the Company of any real or tangible personal
property, which property has been or is to be sold, conveyed or
transferred by the Company or such Subsidiary to such Person in
contemplation of such leasing.
"SEC" means the Securities and Exchange Commission of the
United States of America or any successor to the rights and
duties thereof.
"SECURITIES" means the Notes, the Sale Shares and the
Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, or any successor U.S. Federal statute, and all rules and
regulations thereunder.
"SUBSIDIARIES" means all entities at least 50% of the
outstanding Equity Interests of which are held by the Company or
another direct or indirect Subsidiary of the Company.
"SUBSIDIARY GUARANTORS" means the Subsidiaries of the
Company parties to the Guarantee Agreement attached hereto as
EXHIBIT D.
"TIA" means the Trust Indenture Act of 1939, as amended, or
any successor U.S. Federal statute, and all rules and regulations
thereunder.
"WARRANT" and "WARRANTS" both mean, as the context requires,
the stock purchase warrants to be issued by the Company to the
Purchasers in the form attached hereto as EXHIBIT B, together
with all amendments and supplements thereto, all substitutions
and replacements therefor, and all renewals, extensions,
increases, restatements, modifications, rearrangements and
waivers thereof from time to time.
ARTICLE 2. ISSUANCE OF SECURITIES.
Section 2.1 SALE AND PURCHASE OF SECURITIES. Upon the terms
and subject to the conditions herein contained, and in reliance
on the covenants and agreements of the Company contained herein,
the Purchasers are purchasing from the Company at the First
Closing, and the Company is selling to the Purchasers, Notes in
the form of EXHIBIT A and Warrants in the form of EXHIBIT B in
exchange for payment by wire transfer by the Purchasers of the
amounts set forth beside each Purchaser's name on SCHEDULE 2.1,
and the Sale Shares in exchange for payment, by wire transfer by
the Purchaser in the amounts set forth beside each Purchaser's
name on SCHEDULE 2.1. Acquisition of the Securities at the
Second, Third or Fourth Closing shall occur only at the election
of the Purchasers to consummate such Closing by written notice to
the Company at least five days prior to the date of such closing
and the Purchasers may acquire such Securities in such
proportions as they may agree. In the event the Company prepays
any of the Notes, the Purchasers may reallocate the principal
amount of Notes and number of shares of Common Stock acquired at
a subsequent Closing in their sole discretion, subject to the
limitations that in no event shall the aggregate principal amount
of outstanding Notes represent in excess of 100% of the purchase
price of outstanding Securities prior to consummation of the
Second Closing, 85.7% of the purchase price of outstanding
Securities prior to consummation of the Third Closing, 79.7% of
the purchase price of outstanding Securities prior to
consummation of the Fourth Closing and 76.4% of the purchase
price of outstanding Securities after consummation of the Fourth
Closing. The number of shares of Common Stock issuable at any
Closing or upon conversion of the Notes or exercise of the
Warrants and the conversion or exercise price thereof shall be
appropriately adjusted for stock splits, stock dividends and
other recapitalizations after the date of this Agreement as
described herein and in the Warrants.
Section 2.2 COLLATERAL AND RANKING. As security for the
repayment of the Notes, the Company shall grant to the Purchasers
liens and security interests on, in and to the collateral (the
"Collateral") as set forth in the Notes. The Notes shall be
senior to any future Subordinated Indebtedness of the Company.
Section 2.3 CLOSINGS.
(a) The first closing contemplated by this Agreement
(the "FIRST CLOSING") shall take place at the New York offices of
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P., at noon New York time
on April 14, 2000 or on such other date or at such other time or
place as the issuance of the Securities and the payment of the
Purchase Price therefor shall actually occur (the "FIRST CLOSING
DATE"). At the First Closing, the Company will deliver to the
Purchasers the Sale Shares, the Notes and the Warrants subscribed
for by the Purchasers, each registered in the name of the
Purchasers, against payment of the Purchase Price therefor. At
the First Closing, the Purchase Price shall be paid by wire
transfer.
(b) The second, third and fourth closings
(respectively, the "SECOND CLOSING," "THIRD CLOSING," and "FOURTH
CLOSING" and, collectively with the First Closing, the "CLOSINGS"
and each a "CLOSING"), shall, at the election of the Purchasers,
occur at noon New York time, on the four month, eight month and
one year anniversaries of the First Closing Date, respectively
(or if any such date is not a Business Day, the first Business
Day occurring after such date) at the New York offices of Akin,
Gump, Strauss, Xxxxx & Xxxx, L.L.P. or on such other date or at
such other time or place as the parties shall mutually agree
(each, a "CLOSING DATE" and, collectively, the "CLOSING DATES").
The election of the Purchasers not to consummate a Closing after
the First Closing shall not in any way alter the rights of the
Purchasers to elect to consummate any subsequent Closing. At each
Closing that occurs in accordance with the terms of this
Agreement, the Company will deliver to the Purchasers the Sale
Shares, the Notes and the Warrants subscribed for by the
Purchasers, each registered in the name of the Purchasers,
against payment of the Purchase Price therefor.
Section 2.4 PLACEMENT FEE. The Company shall pay to One Up
Ventures a placement fee equal to 7.7% of the purchase price of
the Securities issued by the Company pursuant to this Agreement.
Such payment shall be made in the form of shares of Common Stock
pursuant to the provisions of the Finders Agreement attached
hereto as EXHIBIT G (the "FINDERS AGREEMENT") and shall be
subject to the terms of the Finders Agreement. The Company hereby
indemnifies the Purchasers against such fees and all other fees
payable to any broker, agent, finder or investment banker.
Section 2.5 TRANSACTION FEE. At the First Closing, the
Company shall issue to the Purchasers an aggregate of 3,000,000
shares of Common Stock as a transaction fee in the proportions
set forth in SCHEDULE 2.1.
ARTICLE 3. PURCHASERS' REPRESENTATIONS AND WARRANTIES.
The Purchasers hereby represent and warrant to the Company
as follows as of the date hereof and as of each Closing Date:
Section 3.1 ORGANIZATION AND POWERS. Each Purchaser is, if
a partnership or corporation, (i) duly organized, validly
existing and in good standing under the laws of the State of its
formation, and (ii) has the power and authority to execute,
deliver and perform the Documents to which it is a party.
Section 3.2 AUTHORIZATION. The execution, delivery and
performance by the Purchaser of the Documents to which it is a
party (i) have been duly authorized by the Purchaser by all
requisite action necessary to be taken by it, (ii) will not
violate and has not violated in such a way as to have a Material
Adverse Effect (A) any provision of law, statute, rule or
regulation, (B) any applicable judgment, writ, injunction, decree
or other order of any governmental authority, or (C) the articles
of incorporation or bylaws of the Purchaser, or any material
agreement to which the Purchaser is a party, and (iii) will not
be or result in, and has not caused, a conflict with, a breach of
or (with notice or lapse of time or both) a default under any
material agreement to which the Purchaser is a party.
Section 3.3 VALIDITY AND BINDING NATURE. The Documents to
which each Purchaser is a party have been duly executed and
delivered by such Purchaser and each is a legal, valid and
binding obligation of such Purchaser, enforceable against such
Purchaser in accordance with its terms (except as enforcement
thereof may be limited by bankruptcy, reorganization, insolvency,
moratorium or other laws or equitable principles affecting the
enforcement of creditors' rights generally).
Section 3.4 ACQUISITION FOR INVESTMENT. Each Purchaser is
acquiring the Securities (and all securities into which the
Securities are convertible or exercisable) solely for its own
account for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof, and such
Purchaser does not have a present intention or plan to effect any
distribution of the Securities (or such other securities).
Notwithstanding anything in this Section to the contrary, the
disposition of each Purchaser's property shall be at all times
within the control of such Purchaser and subject to the rights of
such Purchaser to dispose of all or any of the Securities (or
such other securities) pursuant to an effective registration
statement under the Securities Act or an exception available
under the Securities Act.
Section 3.5 ACCREDITED INVESTOR; SOPHISTICATION. Each
Purchaser is an "accredited investor" within the meaning of Rule
501 under the Securities Act and is able to bear the economic
risk of this investment in the Securities, at the present time,
is able to afford a complete loss of such investment and has no
present need for liquidity with respect to such investment. Each
Purchaser has such knowledge, sophistication and experience in
business and financial matters that it is capable of evaluating
the merits and risks of the prospective investment in the
Securities.
Section 3.6 NO GENERAL SOLICITATION. To each Purchaser's
knowledge, the Securities were not offered to such Purchaser by
means of general solicitations, publicly disseminated
advertisements or sales literature.
Section 3.7 ADDRESS. The true and correct address of the
Purchasers' principal place of business is as set forth on
SCHEDULE 2.1. If applicable, each Purchaser has supplied its
federal tax identification number to the Company. Each Purchaser
has no present intention of moving its principal place of
business to any other state or jurisdiction.
Section 3.8 NO BROKERS. The Purchasers have not employed
any broker, agent, finder or investment banker in connection with
any transaction contemplated by the Documents.
Section 3.9 ECONOMIC RISK. Each Purchaser is aware that
the business of the Company involves significant and material
economic variables and risks that could adversely affect its
investment in the Securities.
Section 3.10 NO PROSPECTUS OR OFFERING CIRCULAR. Each
Purchaser understands that no prospectus, offering circular or
other offering statement containing information with respect to
the Company and the Securities or with respect to the Company's
business is being issued and each Purchaser has made its own
inquiry and analysis with respect to the Company, the Securities,
the Company's business and other material factors affecting the
investment in the Securities.
Section 3.11 ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION. Each Purchaser acknowledges that it has either
been supplied with or has had access to information to which a
reasonable investor would attach significance in making
investment decisions and each Purchaser has had the opportunity
to ask questions of, and receive answers from, knowledgeable
individuals concerning the Company, its business and the
Securities so that as a reasonable investor, each Purchaser has
been able to make an informed decision to purchase the
Securities. In determining to proceed with this investment, each
Purchaser has relied solely upon the results of its own
independent investigation with respect to the Securities, the
Company and its business and upon the representations and
statements of the Company set forth in the Documents. Such
representations and statements by the Company constitute the sole
and exclusive representations, warranties, covenants and
statements of the Company and its officers, directors,
shareholders and other affiliates to each Purchaser in connection
with this investment, and each Purchaser understands,
acknowledges and agrees that all other representations,
warranties, covenants and statements of any kind or nature,
whether oral or contained in any writing other than this
Agreement are specifically disclaimed by the Company.
Section 3.12 PRIVATE PLACEMENT OF UNREGISTERED SECURITIES.
Each Purchaser understands that the Securities (a) are not being
registered (or, with respect to state securities or "Blue Sky"
laws, otherwise qualified for sale) under the Securities Act or
under the securities or "Blue Sky" laws and regulations of any
state including, without limitation, Section 10-5-5 of the
Georgia Securities Act of 1973, in reliance upon exemptions from
registration, (b) will not be traded in any securities market,
(c) will not be readily marketable and (d) cannot be sold,
transferred or otherwise disposed of unless subsequently
registered under the Securities Act and applicable state
securities or "Blue Sky" laws or pursuant to an exemption from
such registration which is available at the time of desired sale,
and will bear a legend to that effect.
Section 3.13 RESTRICTIONS ON TRANSFER OF SECURITIES. Each
Purchaser acknowledges and agrees that it may not, directly or
indirectly, sell, assign, pledge, give, subject to lien or
security interest or otherwise dispose of or encumber any of the
Securities except in compliance with applicable securities laws
and the terms of the Securities.
Section 3.14 RISK FACTORS. Each Purchaser has considered
the following risks, among others, in making this investment:
(a) There are a number of companies that currently
compete with the Company. Many of these companies have far
greater capital, marketing and other resources than the Company.
Furthermore, there can be no assurance that these or other
companies or firms will not develop new or enhanced products that
are more effective than any that have been or may be developed by
the Company.
(b) The markets for telecommunications equipment and
services are subject to rapid technological change. As more
technologically advanced platforms for such products emerge, the
Company may be required to alter the design, production and
delivery of is products and services in a way in which it is
incapable of doing.
(c) The Company's targeted customers may not accept
the Company as an alternative provider of local
telecommunications products and related services. On the other
hand, general acceptance of such a system may encourage
competition by companies or firms with greater resources to
develop, sell and service their products and service offerings.
ARTICLE 4. COMPANY'S REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to the Purchasers
as follows as of the date hereof and as of each Closing Date:
Section 4.1 ORGANIZATION AND POWERS. Each of the Company
and its subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its state of
organization, (ii) has all requisite corporate power and
authority to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, (iii)
is duly qualified to conduct business in each jurisdiction where
such qualification is necessary, except where the failure to be
so qualified would not have a Material Adverse Effect and (iv)
has the power and authority to execute, deliver and perform the
Documents to which it is a party.
Section 4.2 AUTHORIZATION. The execution, delivery and
performance by the Company of the Documents to which it is a
party (i) have been duly authorized by the Company by all
requisite action necessary to be taken by it, (ii) will not
violate and has not violated in such a way as to have a Material
Adverse Effect (A) any provision of law, statute, rule or
regulation, (B) any applicable judgment, writ, injunction, decree
or other order of any governmental authority, or (C) the articles
of incorporation or bylaws of the Company, or any material
agreement to which the Company is a party, and (iii) will not be
or result in, and has not caused, a conflict with, a breach of or
(with notice or lapse of time or both) a default under any
material agreement to which the Company is a party.
Section 4.3 VALIDITY AND BINDING NATURE. This Agreement has
been duly executed and delivered by the Company and is, and each
of the other Documents, when executed and delivered by the
Company will be, a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms (except as enforcement thereof may be limited by
bankruptcy, reorganization, insolvency, moratorium or other laws
or equitable principles affecting the enforcement of creditors'
rights generally).
Section 4.4 CONSENTS, LICENSES, FILINGS, ETC. Except as
required under the Securities Act and applicable state securities
laws, no action, consent or approval of, license or permit from,
or registration or filing with, or any other action by any
governmental authority or any other Person was or is required in
connection with the execution, delivery and performance by the
Company of the Documents.
Section 4.5 NO BROKERS. Other than One Up Ventures (whose
fee shall be paid by the Company in accordance with the terms of
the Finders Agreement), the Company has not employed any broker,
agent, finder or investment banker in connection with any
transaction contemplated by the Documents.
Section 4.6 CAPITALIZATION. The capitalization of the
Company as of the date of this Agreement, including the
authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant
to the Company's stock option plans, the number of shares
reserved for issuance pursuant to securities (other than the Note
and the Warrant) exercisable for, or convertible into or
exchangeable for any shares of Common Stock and the number of
shares to be initially reserved for issuance upon exercise of the
Note and the Warrant ("NOTE SHARES" and "WARRANT SHARES",
respectively) is set forth on SCHEDULE 4.6 attached hereto. All
of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and non-assessable.
Except as disclosed in SCHEDULE 4.6, no shares of capital stock
of the Company (including the Note Shares and the Warrant Shares)
are subject to preemptive rights or any other similar rights of
the stockholders of the Company. Except as disclosed in SCHEDULE
4.6 or in the SEC Documents (as defined herein), as of the date
of this Agreement, there are no outstanding options, warrants,
scrip, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares
of capital stock of the Company or any of its subsidiaries, or
contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to
issue additional shares of capital stock of the Company or any of
its subsidiaries. The Company has furnished to the undersigned
true and correct copies of the Company's Articles of
Incorporation as currently in effect ("Articles of
Incorporation"), and the Company's Bylaws as currently in effect
(the "Bylaws"). The Company has set forth on SCHEDULE 4.6 or as a
part of the SEC Documents all instruments and agreements (other
than the Articles of Incorporation and Bylaws) governing
securities convertible into or exercisable or exchangeable for
Common Stock (and the Company shall provide to the undersigned
copies thereof upon the request of the undersigned). Except as
disclosed in SCHEDULE 4.6, the SEC Documents or this Agreement,
(x) the Company has no indebtedness for borrowed money and no
agreement providing for indebtedness for borrowed money, (y) the
Company has no share purchase agreements, rights plans or
agreements containing similar provisions and no agreements
containing anti-dilution provisions, and (z) no anti-dilution
provisions which have, individually or in the aggregate, any
dilutive effect on the undersigned's investment are triggered as
a result of any of the transactions contemplated hereby,
including conversion of the Note or exercise of the Warrant. The
Company has no Subsidiaries, except as provided on SCHEDULE 4.6.
All such Subsidiaries included on SCHEDULE 4.6 are 100% owned by
the Company. Except as provided on SCHEDULE 4.6, the Company has
no investments, either debt or equity, in any other entity.
Section 4.7 ISSUANCE OF SHARES. The Sale Shares and the
Common Stock issuable upon conversion of the Notes or exercise of
the Warrants have been duly authorized and when issued in
accordance with the terms of the Documents shall be validly
issued, fully paid and non-assessable.
Section 4.8 SEC DOCUMENTS; FINANCIAL STATEMENTS. The
Company's common stock is registered under Section 12 of the
Exchange Act and has been so registered since September 28, 1999.
Except as disclosed on SCHEDULE 4.8A, since September 28, 1999,
the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange
Act (all of the foregoing filed after such date prior to the date
hereof and all exhibits included therein and financial statements
and schedules thereto and documents (other than exhibits)
incorporated by reference therein, together with the draft Form
10-K for the fiscal year ended December 31, 1999 attached hereto
as SCHEDULE 4.8B (the "DRAFT 10-K") being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to the
Purchaser true and complete copies of the SEC Documents, except
for such exhibits, schedules and incorporated documents. As of
their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents,
at the time they were filed with the SEC, or the Draft 10-K
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.
Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent
basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited statements to the extent they may
not include footnotes or may be condensed or summary statements)
and fairly present in all material respects the consolidated
financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments).
Section 4.9 COMPLIANCE WITH LAWS. The business and
operations of the Company and the Subsidiaries have been and are
being conducted in compliance with all applicable state and local
laws, ordinances, rules, regulations and orders except those
laws, ordinances, rules, regulations and orders the failure with
which to comply would not, in the aggregate, have a Material
Adverse Effect.
Section 4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except
as contemplated by this Agreement or as set forth on SCHEDULE
4.10 or in the SEC Documents, since December 31, 1999 to the date
hereof, there has not been (a) any change having a Material
Adverse Effect; (b) any damage, destruction or loss, whether
covered by insurance or not, having a Material Adverse Effect;
(c) any entry by the Company or any of the Subsidiaries into any
commitment or transaction material to the Company or any of the
Subsidiaries which is not in the ordinary course of business; (d)
any change by the Company or any of the Subsidiaries in
accounting principles or methods except insofar as may be
required by a change in generally accepted accounting principles;
or (e) any declarations, payment or setting aside for payment of
any dividends.
Section 4.11 CERTAIN LIABILITIES. Except as reflected in
the Company's financial statements included in filings with the
Securities and Exchange Commission (the "COMMISSION") and as set
forth on SCHEDULE 4.11, the Company and the Subsidiaries have no
material liabilities, absolute, accrued, contingent or otherwise
and whether due or to become due, and whether known or unknown.
Since December 31, 1999 to the date hereof, the Company and the
Subsidiaries have not incurred any such material liabilities
(whether or not required by generally accepted accounting
principles to be disclosed on a corporate balance sheet or the
notes thereto and whether known or unknown) except liabilities
incurred in the ordinary course of business, liabilities which
are fully covered by insurance and liabilities which are not
reasonably likely to have a Material Adverse Effect.
Section 4.12 CONTRACTS. Listed in the exhibits to SEC
Documents and on SCHEDULE 4.12 or SCHEDULE 4.6 are all material
contracts of the Company and the Subsidiaries. Neither the
Company nor any of the Subsidiaries is in default under any such
contract, understanding, commitment and agreement which default
would have a Material Adverse Effect. Neither the Company nor
any of the Subsidiaries has waived any right under any such
contract, understanding, commitment and agreement so as to cause
a Material Adverse Effect. All such contracts, understandings,
commitments and agreements are valid and enforceable by the
Company and the Subsidiaries subject to any restrictions under
applicable bankruptcy, insolvency, reorganization or other laws
and judicial decisions of general application relating to or
affecting the enforcement of creditors' rights generally or by
general equitable principles. Neither the Company nor any of the
Subsidiaries is a party to or otherwise bound by the provisions
of a collective bargaining agreement.
Section 4.13 LITIGATION. Except as set forth on SCHEDULE
4.13, there are no actions, suits, government investigations, or
legal, administrative, arbitration or other proceedings pending
or, to the best knowledge of the Company, threatened against the
Company or any of the Subsidiaries, nor is the Company or any of
the Subsidiaries or their respective properties subject to any
order, judgment, injunction or decree, except for (i) matters
that involve claims fully covered by insurance or for which the
Company has provided adequate reserves on its balance sheet as of
December 31, 1999, or (ii) matters that, in the aggregate, would
not have any Material Adverse Effect.
Section 4.14 TITLE TO PROPERTY. The Company and the
Subsidiaries have good and, in the case of real property,
marketable title to all of their respective material properties
(except for property sold or otherwise disposed of in the
ordinary course of business) free of any Liens, except for (i)
Liens disclosed in the Company's financial statements included in
filings with the Commission, (ii) statutory liens not yet
delinquent, (iii) Permitted Liens and (iv) Liens that do not have
a Material Adverse Effect.
Section 4.15 TAX RETURNS AND AUDITS. The Company and the
Subsidiaries have duly filed all income, franchise and other
federal, state and local tax returns, notices and reports which
they individually or collectively have been or are required to
file except where the failure to file such returns would not have
a Material Adverse Effect. The provisions for federal, state and
local taxes reflected in the financial statements included in the
SEC Documents, as they relate to the Company, are adequate to
cover the liabilities of the Company for such taxes with respect
to the periods then ended and for all prior periods.
Section 4.16 EMPLOYEE BENEFIT PLANS.
(a) "Employee Plans" shall be defined to include all
employee welfare benefit plans (as defined in Section 3(1) of
ERISA), employee pension benefit plans (as defined in Section
3(2) of ERISA) and all bonus, stock option, stock purchase,
benefit, profit sharing, savings, vacation, retirement,
disability, insurance, incentive, deferred compensation and other
similar fringe or employee benefit plans, programs or
arrangements for the benefit of, or relating to, any employee of
the Company or the Subsidiaries which the Company or the
Subsidiaries contribute to or maintain.
(b) All Employee Plans and their related trusts have
been and are maintained in material compliance with applicable
requirements of ERISA, the Code and all other federal and state
statutes and regulations relating to employee benefit plans.
(c) Neither the Company, nor any Subsidiary, nor the
administrator of any Employee Plan has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to an Employee Plan which
could subject the Company or the administrator of any Employee
Plan to the tax on, or any other penalty or sanction with respect
to, prohibited transactions imposed by Section 502 of ERISA or
Section 4975 of the Code except for any such penalty or sanction
that would not have a Material Adverse Effect.
(d) No Employee Plan which is subject to Section 412
of the Code has had a material "accumulated funding deficiency"
(as such term is defined in Section 412 of the Code), whether or
not waived, as of the last day of the most recent plan year, and
no material unsatisfied liability (other than for premiums) to
the Pension Benefit Guaranty Corporation ("PBGC") has been
incurred with respect to any Employee Plan by the Company or the
Subsidiaries. No Employee Plan to which this Subsection 4.16(d)
applies would have a material accumulated funding deficiency or
would subject the Company or the Subsidiaries to any liability to
the PBGC if such Employee Plan were to be terminated as of the
Closing Date.
(e) Except as a result of the transactions
contemplated herein, neither the Company nor any of the
Subsidiaries knows or has any reasonable grounds to know of any
event threatened or about to occur which would constitute a
"reportable event" (as that term is defined in Section 4043(b) of
ERISA) with respect to any Employee Plan, but excluding any event
for which reporting has been waived by regulation, and, except as
provided on SCHEDULE 4.16, to the knowledge of the Company, no
notice of termination has been filed by the plan administrator of
any Employee Plan pursuant to Section 4041 of ERISA or has been
issued by the PBGC pursuant to Section 4042 of ERISA with respect
to any Employee Plan.
(f) Except as provided on SCHEDULE 4.16, each Employee
Plan intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined to be so qualified by the
appropriate District Director of the Internal Revenue Service.
No such Employee Plan has lost its qualified status and, to the
best knowledge of the Company and the Subsidiaries, there are no
facts which would adversely affect the qualified status of any
Employee Plan.
(g) There is no pending or, to the knowledge of the
Company, threatened legal action, proceeding or investigation
against or involving any Employee Plan, and, to the knowledge of
the Company and the Subsidiaries, there is no basis for any such
legal action, proceeding or investigation. Neither the Company
nor any of the Subsidiaries is in default in performing any of
their contractual obligations with respect to any Employee Plan.
(h) The Company does not maintain a "multiemployer
plan" within the meaning of Section 3(37) of ERISA.
(i) Except as provided on SCHEDULE 4.16, neither the
Company nor any of the Subsidiaries has any material liability
with respect to any "employee benefit plan," as defined in
Section 3(3) of ERISA, currently or formerly maintained by the
Company.
Section 4.17 INTELLECTUAL PROPERTY. Except as set forth on
SCHEDULE 4.17 (which schedule shall include correspondence
involving the dispute on the "WebWizard" name), each of the
Company and its Subsidiaries owns or possesses adequate and
enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures)
and other similar rights and proprietary knowledge (collectively,
"Intangibles") used or necessary for the conduct of its business
as now being conducted and as previously described in the SEC
Documents except where the failure to own or possess such rights
would not have a Material Adverse Effect. Neither the Company
nor any Subsidiary of the Company infringes on or is in conflict
with any right of any other person with respect to any
Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its
subsidiaries, which infringement, conflict or claim, individually
or in the aggregate, if the subject of an unfavorable decisions,
ruling or finding, would have a Material Adverse Effect.
Section 4.18 REGISTRATION RIGHTS. Neither the Company nor
any of the Subsidiaries has agreed to register under the
Securities Act any of its authorized or outstanding securities
except pursuant to this Agreement or as set forth in SCHEDULE
4.18 or in the SEC Documents.
Section 4.19 FULL DISCLOSURE. No representation or
warranty by the Company and the Subsidiaries in the Documents and
no information contained in any of the Schedules and Exhibits
hereto, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements made
and information contained herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE 5. PURCHASERS' CONDITIONS TO CLOSING.
Each Purchaser's obligation to purchase and pay for
Securities at a Closing is subject to the fulfillment to such
Purchaser's satisfaction, on or before the applicable Closing
Date, of each of the following conditions:
Section 5.1 EXPIRATION DATE. The First Closing Date shall
have occurred on or before April 14, 2000.
Section 5.2 SECURITIES. Each Purchaser shall have received
the Securities required to be delivered by the Company to such
Purchaser on such Closing Date pursuant to Article 2 of this
Agreement, each duly executed and delivered by the Company.
Section 5.3 REGISTRATION RIGHTS AGREEMENT. Each Purchaser
shall have received the Registration Rights Agreement, duly
executed and delivered by the Company.
Section 5.4 SUBSIDIARY GUARANTEE. Each Purchaser shall have
received the Guarantee Agreement, a form of which is attached
hereto as EXHIBIT D, duly executed and delivered by the
Subsidiary Guarantors.
Section 5.5 REPRESENTATIONS AND WARRANTIES; COVENANTS;
EVENTS OF DEFAULT. (i) The representations and warranties of the
Company contained in this Agreement and the other Documents shall
be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations
and warranties had been made on the Closing Date, except to the
extent of any changes caused by the transactions herein
contemplated or disclosed in documents filed with the SEC at
least six days prior to such Closing Date or otherwise disclosed
in writing to Purchasers, (ii) the Company shall not be in
material breach of any covenant contained in the Documents, (iii)
no Event of Default shall have occurred and be continuing, and
(iv) the Company shall have delivered to each Purchaser an
officer's certificate to the effect of clauses (i), (ii) and
(iii) and to the effect that all of the conditions to such
Purchaser's obligation to purchase Securities at such Closing
have been fulfilled as of such Closing Date.
Section 5.6 TRANSACTIONS PERMITTED BY APPLICABLE LAWS. The
Closing and the other transactions contemplated by this Agreement
shall not violate any applicable law or governmental regulation
or result in a violation of any order of any court or
governmental body applicable to the Purchasers or the Company or
the Subsidiaries and shall not subject the Purchasers or the
Company to any tax, penalty or liability.
Section 5.7 NO ADVERSE ACTION OR DECISION. There shall be
no action, suit, investigation or proceeding pending, or, to the
best of the Purchasers' knowledge, threatened against or
affecting the Purchasers or the Company or any of their
respective properties that (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise affect the Closing or the other
transactions contemplated by this Agreement, or (ii) questions
the validity or legality of any such transactions or seeks to
recover damages or to obtain other relief in connection with any
such transactions.
Section 5.8 APPROVALS AND CONSENTS. The Company shall have
duly received all authorizations, consents, approvals, licenses,
franchises, permits and certificates by or of, and shall have
made all filings and effected all registrations and
qualifications with, all federal, state and local governmental
authorities and other Persons (including, to the extent
applicable, the Company's shareholders) necessary for the
consummation of such Closing and the other transactions
contemplated by this Agreement, and all such matters shall be in
full force and effect as of such Closing Date and in a form
reasonably satisfactory to Purchasers. The Company shall have
received waivers in a form reasonably acceptable to Purchasers
under any contracts that require payments to third parties as a
result of the consummation of the transactions contemplated
hereby.
Section 5.9 PROCEEDINGS. All corporate and other
proceedings to be taken by the Company and the Subsidiaries in
connection with the transactions contemplated hereby and all
documents incident thereto shall be reasonably satisfactory in
substance and form to the Purchaser.
Section 5.10 LEGAL OPINION. The Purchasers shall have
received on the Closing Date an opinion, dated the Closing Date,
in form and substance satisfactory to the Purchasers and counsel
for the Purchasers, of Hunton & Xxxxxxxx, counsel for the Company
and the Subsidiaries, substantially in the form of EXHIBIT E.
Section 5.11 LIEN DOCUMENTS. At Closing and thereafter as
the Purchasers deem necessary in their sole discretion, the
Company shall execute and deliver, or have executed and
delivered, to the Purchasers (all in form and substance
satisfactory to the Purchasers in their sole discretion):
(a) Pledge Agreement substantially in the form of
EXHIBIT F;
(b) Guarantee Agreement substantially in the form of
EXHIBIT D;
(c) UCC-1 financing statements pursuant to the Uniform
Commercial Code in effect in the jurisdiction(s) in which the
Company operates, which the Purchasers may file in any
jurisdiction where any Collateral is or may be located and in any
other jurisdiction that the Purchasers deem appropriate; PROVIDED
that a carbon, photographic, or other reproduction or other copy
of the Securities Purchase Agreement or of a financing statement
is sufficient as and may be filed in lieu of a financing
statement; and
(d) any other agreements, documents, instruments, and
writings reasonably deemed necessary by the Purchasers or as any
Purchaser may otherwise request from time to time in its
reasonable discretion to evidence, perfect, or protect the
Purchasers' lien on and security interest in the Collateral
required pursuant to the Note and this Agreement.
Section 5.12 SECOND, THIRD AND FOURTH CLOSINGS. In the case
of the Second, Third and Fourth Closings, the Purchasers shall
have delivered notice to the Company of the Purchasers' intent to
consummate such Closing pursuant to SECTION 2.1.
ARTICLE 6. COMPANY'S CONDITIONS TO CLOSING.
The obligation of the Company to issue and sell Securities
to the Purchasers is subject to the fulfillment to the
satisfaction of the Company, on or before each Closing Date, of
each of the following conditions:
Section 6.1 PURCHASE PRICE. The Company shall have received
payment in full of the Purchase Price for the Securities acquired
on such Closing Date.
Section 6.2 REPRESENTATIONS AND WARRANTIES; COVENANTS. (i)
The representations and warranties of the Purchasers contained in
this Agreement shall be true and correct in all material respects
on and as of such Closing Date with the same effect as though
such representations and warranties had been made on such Closing
Date, except to the extent of any changes caused by the
transactions herein contemplated, and (ii) the Purchasers shall
not be in material breach of any covenant contained in the
Documents.
Section 6.3 NO ADVERSE ACTION OR DECISION. There shall be
no action, suit, investigation or proceeding pending, or, to the
best of the Company's knowledge, threatened against or affecting
the Purchasers or the Company or any of their respective
properties before any court, arbitrator or administrative or
governmental body that (i) seeks to restrain, enjoin, prevent the
consummation of or otherwise affect the Closing or the other
transactions contemplated by this Agreement, or (ii) questions
the validity or legality of any such transactions or seeks to
recover damages or to obtain other relief in connection with any
such transactions.
ARTICLE 7. COVENANTS.
The Company hereby covenants and agrees with the Purchasers
and the Majority Holders that, so long as the principal of or
interest on any Note shall be unpaid:
Section 7.1 CERTAIN RESTRICTIONS. While any Notes remain
outstanding, without the prior written consent of the Majority
Holders, the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly:
(a) INDEBTEDNESS. Create or suffer to exist any
direct, indirect, fixed, or that of contingent liability for, or
incur, any Indebtedness with an effective cash interest rate
higher than the Notes or with a maturity date on or before that
of the Notes other than the maturity date of existing
Indebtedness as of the date of this Agreement and other than (i)
operating leases for equipment other than telecommunications
equipment not in excess of $100,000 at any one time outstanding,
(ii) operating leases for telecommunications equipment or other
capital leases entered into in the ordinary course of business
with unaffiliated third parties, (iii) Indebtedness of entities
acquired by the Company existing at the time of acquisition and
(iv) current liabilities incurred in the ordinary course of
business.
(b) LIENS. In any way pledge, hypothecate, or xxxxx x
Xxxx on any of the assets of the Subsidiary Guarantors to any
Person, except the Permitted Liens or transfer any of the assets
of the Subsidiary Guarantors to any other Subsidiary of the
Company except in the ordinary course of business.
(c) SALE OF ASSETS. Sell, lease, or otherwise dispose
of all or any material part of its assets except sales of
inventory or other sales in the ordinary course of business.
(d) LIQUIDATION, MERGER AND CONSOLIDATION. (i) Alter
its corporate, capital or legal structure in a manner in any way
adverse to the Purchasers or dissolve or liquidate, or merge or
consolidate with any Person other than (a) a merger of the
Company and a Person that is organized in a jurisdiction within
the United States in which the Company is the surviving
corporation and such merger will not result in an Event of
Default or otherwise adversely affect the Purchasers or (b) in
connection with a reincorporation of the Company that does not in
any way adversely affect the Purchasers, or (ii) acquire all or
any substantial portion of the property, assets, or stock of, or
interest in, any Person (an "Acquisition") unless the stock of
such Person is pledged to Purchasers hereunder and such Person
guarantees the obligations of the Company under the Notes.
(e) DIVIDENDS, ETC. Declare or pay any dividend on any
class of the capital stock of the Company now or hereafter
outstanding, make any distribution of cash or property to holders
of any shares of such stock, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, any shares of any
class of capital stock of the Company now or hereafter
outstanding.
(f) SALE AND ISSUANCE OF SUBSIDIARY INTERESTS. Issue,
transfer, convey, sell, lease or otherwise dispose of any Equity
Interests of any Subsidiary to any Person other than another
Subsidiary that is a party to the Guarantee Agreement.
(g) SALE AND LEASE-BACK TRANSACTIONS. Enter into any
Sale and Lease-Back transaction unless the consideration received
in such Sale and Lease-Back transaction is at least equal to the
fair market value of the property sold as determined in good
faith by the Company's Board of Directors.
(h) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO
COMPANY OR OTHER SUBSIDIARIES. Permit any of its Subsidiaries to
create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any
other distributions on any of such Subsidiary's capital stock
owned by the Company or any other Subsidiary of the Company, (ii)
repay or prepay any Indebtedness owed by such Subsidiary to the
Company or any other Subsidiary of Company, (iii) make loans or
advances to the Company or any other Subsidiary or (iv) transfer
any of its property or assets to the Company or any other
Subsidiary.
(i) BUSINESS. Engage, directly or through other
Persons, in any business other than the business now carried on,
and other businesses directly related thereto.
(j) LOANS, ADVANCES AND INVESTMENTS. Make any loans or
advances to, make investments in, or purchase stock or other
securities or evidences of Indebtedness of, or interests in, any
Person, except (i) direct obligations of the United States or any
agency thereof, (ii) commercial paper issued by corporations
rated not less than A-1 or P-1 by a nationally recognized rating
agency, (iii) certificates of deposit issued by, and demand
deposit accounts with, any United States commercial bank that are
fully insured by the Federal Deposit Insurance Corporation, (iv)
loans made in the ordinary course of business and (v) in
connection with an Acquisition.
(k) CERTAIN TRANSACTIONS. Enter into, or be a party
to, any transaction with, or pay any management fee or other fees
or compensation to, any Affiliate or stockholder of the Company,
except (i) any tax sharing agreement with any Subsidiary and (ii)
in the ordinary course of and pursuant to the reasonable
requirements of the Company's business and upon fair and
reasonable terms which are fully disclosed to the Purchasers and
are no less favorable to the Company than it would obtain in a
comparable arm's length transaction with a Person not an
Affiliate or stockholder of the Company.
(l) UTILIZE EQUITY LINE. Utilize its equity line
pursuant to which it issues additional capital stock or any
similar financing facility unless Purchasers elect not to
consummate a Closing hereunder.
(m) FURTHER ASSURANCES. Promptly (and in any event
within 10 days after the First Closing) provide such additional
information and execute such additional instruments and documents
as the Purchasers may reasonably request in connection with the
transactions contemplated hereby, including without limitation
documents and instruments perfecting the security interest of the
Purchasers in the Collateral. In addition, the Company shall use
its best efforts to cause Hunton & Xxxxxxxx to deliver any
opinions set forth in EXHIBIT E which Hunton & Xxxxxxxx does not
deliver on the First Closing Date.
Section 7.2 COMPLIANCE WITH LAW; MAINTENANCE OF PROPERTIES.
The Company will do or cause to be done all things necessary (i)
to preserve and keep in full force and effect at all times the
Company's and the Subsidiaries' existence, and all rights,
licenses and franchises that are material to its business, except
that the Company may merge or consolidate any wholly owned
Subsidiaries with another wholly owned Subsidiary that is a party
to the Guarantee Agreement, (ii) to comply with and cause the
Subsidiaries to comply with all applicable laws, and all
applicable rules, regulations and orders issued by any
governmental authority, noncompliance with which could have a
Material Adverse Effect, and (iii) to preserve all material
property, in the Board of Directors' good faith judgment, useful
in the conduct of the Company's and the Subsidiaries' business
and keep the same in reasonably good repair, working order and
condition, normal wear and tear excepted, and from time to time
make, or cause to be made, all needful and proper repairs,
renewals and replacements, betterments and improvements thereto
so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
Section 7.3 PERFORMANCE OF LIABILITIES. The Company will
and will cause the Subsidiaries to (i) duly pay and discharge all
Indebtedness in such manner as shall be necessary in order to
prevent the occurrence of an Event of Default under Section
8.1(d) hereof, and (ii) duly pay and discharge all taxes before
the same shall become in default unless such taxes are being
contested by the Company in good faith, and all lawful claims for
labor, materials and supplies that have become due and payable
which taxes and other claims, if unpaid, might become a Lien upon
any of its properties if the loss of such properties could have a
Material Adverse Effect.
Section 7.4 INSPECTION. The Company will and will cause the
Subsidiaries to permit, upon written request therefor, any duly
authorized representative of the Majority Holders to visit and
inspect any of the properties of the Company or any of its
Subsidiaries, examine its books of record and accounts and take
copies and extracts therefrom, and conduct audits of such books
of record and accounts, all at such times and as often as the
Majority Holders may reasonably request upon 24 hours notice.
Section 7.5 REPORTING REQUIREMENTS. To the extent not
publicly available, the Company shall furnish to the Holders the
following:
(a) DEFAULTS. As soon as possible and in any event
within 3 days after obtaining knowledge of the occurrence of any
Event of Default or a condition or event that, after notice or
lapse of time or both, would constitute an Event of Default, a
statement of an appropriate officer of the Company setting forth
details of such Event of Default and the action that the Company
has taken or proposes to take with respect thereto.
(b) FINANCIAL STATEMENTS. As soon as available, and in
any event (i) within 90 days following the end of each fiscal
year of the Company and the Subsidiaries, a copy of the annual
audit report for such fiscal year for the Company and the
Subsidiaries, including therein the balance sheet of the Company
and each Subsidiary, as of the end of such fiscal year and
related statements of income, shareholders' equity and cash flows
for such fiscal year; (ii) within 45 days following the end of
each quarter of the Company and the Subsidiaries, a copy of the
quarterly financial reports for such quarter for the Company and
the Subsidiaries; (iii) within 15 days following the end of each
month, a monthly financial report of the Company and the
Subsidiaries, including a monthly balance sheet and profit and
loss statement with a comparison to budget; and (iv) within 10
days of their becoming available, all reports or other publicly
available information that the Company shall make available to
its securityholders including, without limitation, all reports,
financial statements and proxy or information statements filed by
the Company with the SEC or any national securities exchange.
(c) INFORMATION PROVIDED TO OTHERS. At the time
provided to the SEC, any shareholder or any other holder of
Indebtedness, all balance sheets, statements of income,
shareholders' equity and cash flows and other financial and
operational reports and statements provided to such other holder
of Indebtedness.
(d) LITIGATION. Notification in writing, promptly upon
the Company's learning thereof, but in no event later than 10
days after learning thereof, of any litigation involving an
amount in controversy exceeding $50,000 whether or not the claim
is considered by the Company to be covered by insurance.
(e) BUDGET. As soon as available and upon request,
and in any event within 30 days prior to the end of each fiscal
year, the Company's budget for the next succeeding fiscal year.
The Company will also promptly provide the Purchasers with any
updates of such budget.
Section 7.6 FIRST REFUSAL ON FUTURE FINANCING. Until such
time as a registration statement has become effective covering at
least 50% of the Registrable Securities (as defined in the
Registration Rights Agreement), the Purchasers shall be given a
reasonable right of first refusal on any future financings of the
Company other than underwritten offerings of Common Stock with an
anticipated public offering price in excess of $3.00 per share in
the case of public offerings on or before December 31, 2000 and
$5.00 per share thereafter (as such per share amounts are
adjusted for stock splits, stock dividends and other
recapitalizations after the date of this Agreement). The
Purchasers shall use reasonable best efforts to respond to any
such rights within 48 hours of notice thereof by the Company, but
in any event Purchasers shall respond within four Business Days.
Section 7.7 OBTAIN NASDAQ LISTING. The Company shall use
its reasonable best efforts to list its Common Stock on NASDAQ
and to maintain such listing.
Section 7.8 BOARD OBSERVER RIGHTS. The Company shall give
notice to the Purchasers of all meetings of the Board of
Directors and Committees thereof and permit a representative of
the Purchasers to attend all such meetings until the later to
occur of (i) such time as no Notes remain outstanding and (ii)
such time as a registration statement has been declared effective
with respect to all of the Registrable Securities (as defined in
the Registration Rights Agreement). The Company shall have the
right to exclude such representative from any portion of a
meeting that deals with issues related to the Purchasers or the
Holders of the Securities. The Company shall reimburse all
reasonable out-of-pocket expenses of such representative in
attending any such meetings. The Purchasers acknowledge and
agree that certain information provided or made available to them
under this Agreement may constitute material non-public
information that may result in restrictions under federal
securities laws on the ability of the Purchasers to sell
Securities of the Company.
Section 7.9 PUBLIC ANNOUNCEMENT. As soon as practicable
after the First Closing, the Company shall make the public
announcement of the consummation of the transactions contemplate
hereby in a manner reasonably acceptable to the Purchasers.
Section 7.10 USE OF PROCEEDS. The Company shall use the
proceeds from the issuance of the Securities hereunder to repay
approximately $1.4 million of existing Indebtedness owing by the
Company to C&S Private Equity Fund, L.P. and for working capital
and other general corporate purposes.
Section 7.11 REGISTRATION RIGHTS. As long as any
Securities are outstanding, the Company will not in the future
grant any registration rights that are not subordinate to those
of the Purchasers under the Registration Rights Agreement. In
addition, the Company will use its best efforts to modify the
provisions of existing registration rights to make them
consistent.
ARTICLE 8. DEFAULT AND REMEDIES.
Section 8.1 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" occurs
if:
(a) the Company defaults in the payment of principal
of or interest on the Notes when the same becomes due and payable
and such default continues for 5 days;
(b) the Company shall fail to observe or perform any
other covenant or agreement contained in any Document and such
default continues for 30 days;
(c) any material representation or warranty made by
the Company in any Document shall prove to have been false or
misleading in any material respect when made and such false or
misleading statement has a Material Adverse Effect;
(d) the Company shall fail to make any payment of
principal of or interest on any Indebtedness other than the Notes
when due after giving effect to any applicable grace periods
(whether due by acceleration or otherwise) and the aggregate
amount of all such past-due Indebtedness (including Indebtedness
accelerated pursuant to the terms thereof) shall be equal to or
greater than $250,000;
(e) the Company (i) shall commence a voluntary case
concerning itself under any Bankruptcy Law now or hereafter in
effect, or any successor thereof; (ii) is the object of an
involuntary case under any Bankruptcy Law; or (iii) commences any
Distribution Event or is the object of an involuntary
Distribution Event; or
(f) Xxxxx X. Xxxxxxxxx ceases to spend substantially
all of his business time and attention in the employment of the
Company as a senior executive officer.
Section 8.2 REMEDIES.
(a) If an Event of Default (other than an Event of
Default under Section 8.1(e)) shall occur and be continuing, the
Majority Holders may declare by notice in writing given to the
Company, the entire unpaid principal amount of the Notes,
together with accrued but unpaid interest thereon, to be
immediately due and payable, in which case the Notes shall become
immediately due and payable, both as to principal and interest,
without presentment, demand, default, notice of default, notice
of intent to accelerate and notice of such acceleration, protest
or notice of any kind, all of which are hereby expressly waived,
anything herein or elsewhere to the contrary notwithstanding.
(b) If an Event of Default under Section 8.1(e) shall
occur and be continuing, the entire unpaid principal amount of
the Notes, together with accrued but unpaid interest thereon,
shall automatically become immediately due and payable, both as
to principal and interest, without presentment, demand, default,
notice of default, notice of intent to accelerate and notice of
such acceleration, protest or notice of any kind, all of which
are hereby expressly waived, anything herein or elsewhere to the
contrary notwithstanding.
(c) If any Event of Default shall have occurred and is
continuing, the Holders may, subject to the consent of the
Majority Holders, proceed to protect and enforce their rights
either by suit in equity or by action at law, or both.
ARTICLE 9. CONVERSION.
Section 9.1 RIGHT TO CONVERT. Any Holder of Notes may
exercise the conversion rights set forth in this Section 9 (i) at
any time after five days following the issuance of such Note or
(ii) if the Company exercises its rights under the prepayment
provisions of Section 2.2 of the Notes, within 10 Business Days
of the Company's notice to the holder of the Company's election
to exercise its prepayment rights. If a Holder of Notes chooses
to exercise its conversion rights pursuant to the preceding
sentence (unless the Note is repaid within five days after
issuance), such Holder may convert all or any portion of the
principal amount thereof and any interest accrued thereon into
the number of shares of Common Stock, obtained by dividing the
principal and accrued interest to be so converted by the
Conversion Price determined from time, to time pursuant to
Section 9.5.
Section 9.2 MECHANICS OF CONVERSION. Before, a holder of
any Note converts any of the principal amount thereof or accrued
interest thereon into shares of Common Stock, such Holder shall
surrender the Note, duly endorsed, at the principal office of the
Company and shall give written notice to the Company at such
office of its election to convert all or any portion of the
principal thereof or accrued interest thereon into shares of
Common Stock. The notice shall state the principal amount thereof
and accrued interest thereon to be converted and the name of the
Holder or the name(s) of the nominee(s) of such Holder in which
any certificates for shares of Common Stock are to be issued. The
Company shall, as soon as practicable but in no event later than
five Business Days thereafter, issue and deliver at such office
to such Holder or such nominee(s), a certificate or certificates
for the number of full shares of Common Stock to which such
holder or such nominee(s) is entitled. Any conversion shall be
deemed to occur immediately prior to the close of business on the
date of surrender of the Note, and the person or persons entitled
to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on such date.
Section 9.3 NO FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip shall be issued upon conversion of this
Note. Instead of issuing any fractional shares of Common Stock
that would otherwise be issuable upon conversion of the Note (or
any portion hereof), the Company shall round down to the nearest
whole number of shares of Common Stock and pay to such holder
cash in an amount equal to the amount of such fractional
interest, multiplied by the Conversion Price.
Section 9.4 RESERVATION OF SHARES. The Company covenants
that it will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but
unissued shares of Common Stock, for the purpose of effecting the
conversion of any Note, the full number of shares of Common Stock
deliverable upon the conversion of the Notes.
Section 9.5 ANTIDILUTION PROVISIONS. During the conversion
period or until fully converted, the Conversion Price and the
number of shares of Common Stock issuable pursuant to this Note
(the "Note Shares") shall be subject to adjustment from time to
time as provided in this Section 9. In the event that any
adjustment of the Conversion Price as required herein results in
a fraction of a cent, such Conversion Price shall be rounded up
or down to the nearest cent.
a. ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF
SHARES UPON ISSUANCE OF COMMON STOCK. Except as otherwise
provided in Section 9.3 and 9.4 hereof, if and whenever after the
First Closing Date, the Company issues or sells, or in accordance
with Section 9.5(b) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of
issuance (a "Dilutive Issuance"), then effective immediately upon
the Dilutive Issuance, the Conversion Price will be adjusted in
accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Conversion Price
E = the then current Conversion Price;
M = the then current Market Price; provided,
however, that in the case of stock issued in
stock for stock acquisitions with
unaffiliated third parties, "M" will be
deemed to be the lesser of (i) (a) $0.70 per
share in the case of issuances after the
First Closing and (b) $1.00 per share in the
case of issuances on or after the Second
Closing to the extent the Second Closing
occurs (as such per share amounts are
adjusted for stock splits, stock dividends
and other recapitalizations after the date of
this Agreement); and (ii) the then current
Market Price
O = the number of shares of Common Stock
outstanding immediately prior to the Dilutive
Issuance;
P = the aggregate consideration, calculated
as set forth in Section 9.5(b) hereof,
received by the Company upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common
Stock Deemed Outstanding (as herein defined)
immediately after the Dilutive Issuance.
b. EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Conversion Price under
Section 9.5(a) hereof, the following will be applicable:
1. ISSUANCE OF RIGHTS OR OPTIONS. If the
Company in any manner issues or grants any warrants, rights or
options, whether or not immediately exercisable, to subscribe for
or to purchase Common Stock or other securities exercisable,
convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred
to as "Options"), and the price per share for which Common Stock
is issuable upon the exercise of such Options is less than the
Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable
upon the exercise of all such Below Market Options (assuming full
exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such
Below Market Options, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share.
For purposes of the preceding sentence, the price per share for
which Common Stock is issuable upon the exercise of such Below
Market Options is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for
the issuance or granting of such Below Market Options, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Below Market
Options, plus, in the case of Convertible Securities issuable
upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable, upon the exercise of all such Below Market
Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon the
exercise of such Below Market Options or upon the exercise,
conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
2. ISSUANCE OF CONVERTIBLE SECURITIES.
a. If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 9.5(b)(2)(b) if applicable) is
less than the Market Price on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the price per share for
which Common Stock is issuable upon such exercise, conversion or
exchange is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Conversion Price will
be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
b. If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio, then the price per share for which
Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section
9.5(b)(2)(a) shall be deemed to be the lowest price per share
which would be applicable assuming that all holding period and
other conditions to any discounts contained in such Convertible
Security have been satisfied.
3. CHANGE IN OPTION PRICE OR CONVERSION RATE.
Except for the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee or
director benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock
or options is approved by a majority of the non-employee members
of the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for
such purpose, if there is a change at any time in (i) the amount
of additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise,
conversion or exchange or any Convertible Securities; or (iii)
the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock (other than under or by reason
of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such change will be
readjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities
still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold,
4. TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of
shares of Common Stock issuable upon exercise of any Options or
upon exercise, conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise
such option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Conversion Price
then in effect will be readjusted to the Conversion Price which
would have been in effect at the time of such expiration or
termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof),
never been issued.
5. CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued,
granted or sold for cash, the consideration received therefor for
purposes of the Notes will be the amount received by the Company
therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance,
grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair market
value of such consideration except where such consideration
consists of freely-tradable securities, in which case the amount
of consideration received by the Company will be the Market Price
thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with
any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed
to be the fair market value of such portion of the net assets and
business of the non-surviving corporation as is attributable to
such Common Stock, Options or Convertible Securities, as the case
may be. The fair market value of any consideration other than
cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
6. EXCEPTIONS TO ADJUSTMENT OF CONVERSION PRICE.
No adjustment to the Conversion Price will be made (i) upon the
exercise of any warrants, options or convertible securities
issued and outstanding on the First Closing Date in accordance
with the terms of such securities as of such date; (ii) upon the
issuance of the Sale Shares, the Notes or the Warrants in
accordance with terms of this Agreement; or (iii) upon the
exercise of the Warrants or conversion of the Notes,
c. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company, at any time after the First Closing Date, subdivides (by
any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) its shares of
Common Stock into a greater number of shares, then, after the
date of record for effecting such subdivision, the Conversion
Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the
First Closing Date, combines (by reverse stock split
recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the
Conversion Price in effect immediately prior to such combination
will be proportionately increased.
d. MAJOR TRANSACTIONS. If after the First Closing
Date the Company shall consolidate or merge with any other
corporation or entity (other than a merger in which the Company
is the surviving or continuing entity) or there shall occur any
share exchange pursuant to which all of the outstanding shares of
Common Stock are converted into other securities or property or
any reclassification or change of the outstanding shares of
Common Stock (each of the foregoing being a "Major Transaction"),
then each holder of a Note may thereafter, at its option, be
entitled, at its election, either to (i) in the event that the
Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity
interest, in each of the foregoing cases which is publicly
traded, retain its Note and such Note shall continue to apply to
such Common Stock or shall apply, as nearly as practicable, to
such other common stock or equity interest as the case may be, or
(ii) regardless of whether clause (i) applies, receive
consideration, in exchange for such Note, equal to the number of
shares of stock or securities or property of the Company, or of
the entity resulting from such Major Transaction (the "Major
Transaction Consideration"), to which a holder of the number of
shares of Common Stock delivered upon the conversion of such Note
would have been entitled upon such Major Transaction had such
holder converted the Note (without regard to any limitations on
conversion or elsewhere contained) on the trading date
immediately preceding the consummation of such Major Transaction
and had such Common Stock been issued and outstanding and had
such Holder been the holder of record of such Common Stock at the
time of the consummation of such Major Transaction; and the
Company shall make lawful provision for the foregoing as a part
of such Major Transaction and shall cause the issuer of any
security in such transaction which constitutes Registrable
Securities under that the Registration Rights Agreement to assume
all of the Company's obligations under the Registration Rights
Agreement. No later than five Business Days prior to the
consummation of the Major Transaction, but not prior to the
public announcement at of such Major Transaction, the Company
shall deliver written notice ("Notice of Major Transaction") to
each holder of a Note of such Notice of Major Transaction. Such
Notice of Major Transaction shall indicate the amount and type of
the Major Transaction Consideration which such holder of a Note
would receive under this Section.
e. DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of
capital stock of a subsidiary) (a "Distribution"), at any time
after the First Closing Date, then the Holder shall be entitled
upon conversion of this Note for the purchase of any or all of
the shares of Common Stock subject hereto, to receive the amount
of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders
entitled to such Distribution.
f. NOTICES OF ADJUST. Upon the occurrence of any
event which requires any adjustment of the Conversion Price,
then, and in each such case, the Company shall give notice
thereof to the Holder, which notice shall state the Conversion
Price resulting from such adjustment and the increase or decrease
in the number of Shares purchasable at such price upon
conversion, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
Such calculation shall be certified by the chief financial
officer of the Company.
g. MINIMUM ADJUSTMENT OF CONVERSION PRICE. No
adjustment of the Conversion Price shall be made in an amount of
less than 1% of the Conversion Price in effect at the time such
adjustment is otherwise required to be made, but any such lesser
adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together
with any adjustments so carried forward, shall amount to not less
than 1% of such Conversion Price.
h. NO FRACTIONAL SHARES. No fractional shares of
Common Stock are to be issued upon the conversion of a Note, but
the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount
equal to the same fraction of the Market Price of a share of
Common Stock; provided that in the event that sufficient funds
are not legally available for the payment of such cash adjustment
any fractional shares of Common Stock shall be rounded up to the
next whole number.
i. OTHER NOTICES. In case at any time: (i) the
Company shall declare any dividend upon the Common Stock payable
in shares of stock of any class or make any other distribution to
the holders of the Common Stock; (ii) the Company shall offer for
subscription pro rata to the holders of the Common Stock any
additional shares of stock of any class or other rights; (iii)
there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all
of its assets to, another corporation or entity, or (iv) there
shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company; then, in each such case, the Company
shall give to the Holder (A) notice of the date on which the
books of the Company shall close or a record shall be taken for
determining the holders of Common Stock entitled to receive any
such dividend, distribution, or subscription rights or for
determining the holders of Common Stock entitled to vote in
respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-
up and (B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then
known, a reasonable approximation thereof by the Company) when
the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to
exchange their Common Stock for stock or other securities or
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-
up, as the case may be. Such notice, shall be given at least 30
days prior to the record date or the date on which the Company's
books are closed in respect thereto, but in no event earlier than
public announcement of such proposed transaction or event.
Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
j. CERTAIN DEFINITIONS.
1. "COMMON STOCK DEEMED OUTSTANDING" means the
number of shares of Common Stock actually outstanding (not
including shares of Common Stock held in the treasury of the
Company), plus (x) in case of any adjustment required by Section
9.5(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise
of the Options for which the adjustment is required (including
any Common Stock issuable upon the conversion of Convertible
Securities issuable upon the exercise of such Options), and (y)
in the case of any adjustment required by Section 9.5(a)
resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of the Convertible Securities
for which the adjustment is required, as of the date of issuance
of such Convertible Securities, if any.
2. "MARKET PRICE" means, as of any date, (i) the
average of the Closing Bid Prices for the shares of Common Stock
as reported to The Nasdaq National Market for the 15 trading days
immediately preceding such date, or (ii) if The Nasdaq National
Market is not the principal trading market for the Common Stock,
the average of the last reported bid prices on the principal
trading market for the Common Stock during the same period, or,
if there is no bid price for such period, the last reported sales
price for such period, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the
Market Price shall be the average fair market value as reasonably
determined by an investment banking firm selected by the Company
and reasonably acceptable to the Holders of a majority in
interest of the Note, with the costs of the appraisal to be borne
by the Company. The manner of determining the Market Price of
the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a
determination as to market value, must be made hereunder.
ARTICLE 10. MISCELLANEOUS.
Section 10.1 PAYMENTS. The Company agrees that, as long as
the Purchasers shall hold the Notes, all payments to be made on
or in connection with the Notes shall be made to the Purchasers
at the addresses set forth in this Agreement or such other places
as the Purchasers may designate in writing. All payments referred
to under this Agreement and the other Documents shall be in
immediately available funds in lawful money of the United States
of America. The Holders agree that prior to any delivery upon the
sale or other disposition of all or any part of the Notes, the
Holders will promptly make or cause to be made a notation on the
Notes reflecting all payments thereon.
Section 10.2 AMENDMENTS. This Agreement and the other
Documents may be amended, modified, superseded or canceled, and
any of the terms, covenants, representations, warranties or
conditions hereof and thereof may be waived, only by a written
instrument executed by the Company and the Majority Holders at
such time. If any such proposed amendment, modification or other
action would require the consent of holders of more than a
majority in aggregate principal amount of securities then
outstanding if such action were proposed with respect to
securities issued pursuant to an indenture qualified under the
TIA (such percentage required under the TIA for such action being
referred to herein as the "APPLICABLE SUPERMAJORITY PERCENTAGE"),
then such proposed amendment, modification or other action with
respect to this Agreement and the other Documents shall require
the consent of the Holders of the Applicable Supermajority
Percentage of the Notes (or, if the Notes have been paid in full,
the Warrants). If any such proposed amendment, modification or
other action would require the consent of each affected holder if
such action were proposed with respect to securities issued
pursuant to an indenture qualified under the TIA, then such
proposed amendment, modification or other action with respect to
this Agreement and the other Documents shall require the consent
of each affected Holder.
Section 10.3 NO WAIVER. The failure of any party at any
time or times to require performance of any provisions hereof
shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of any
breach of any term, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of
any such condition or breach or a waiver of any other condition
or of any breach of any other term, covenant, representation or
warranty.
Section 10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All claims and causes of action with respect to the
representations, warranties, covenants, indemnities and
agreements contained herein or made in writing by the Company in
connection herewith shall survive the execution and delivery of
this Agreement, the sale and purchase of the Securities and any
disposition thereof.
Section 10.5 SUCCESSORS AND ASSIGNS. All covenants and
agreements in this Agreement made by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the
Company, each Purchaser and each Holder and their respective
successors and permitted assigns. The terms and provisions of
this Agreement are intended solely for the benefit of each party
hereto and its respective successors and permitted assigns, and
it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person. The Holders may not
sell, assign (by operation of law or otherwise), transfer,
pledge, grant a security interest in, or otherwise dispose of
this Agreement or any other Document or any portion hereof or
thereof or any rights or obligations hereunder or thereunder
unless the Company shall have received a written opinion of
counsel reasonably acceptable to the Company, addressed to the
Company, to the effect that any such proposed transfer or other
disposition complies with all applicable Federal and state
securities laws, or other comfort reasonably acceptable to the
Company to the same effect; provided, however, that any Purchaser
may transfer any Securities acquired hereunder to another
Purchaser or to an Affiliate controlled by any Purchaser without
any such opinion or comfort.
Section 10.6 NOTICES. All communications provided for
hereunder and under the Notes shall be sent by first class mail
and (i) if to a Purchaser, addressed to it at the address shown
on SCHEDULE 2.1 the signature pages hereof, or to such other
address as such Purchaser may have designated to the Company in
writing, (ii) if to any subsequent Holder, addressed to such
Holder at the address of such Holder in the record books of the
Company, and (iii) if to the Company, addressed to it at 0000
Xxxxxxxxx Xxxxx, Xxxxxxx, Xxxxxxx 00000, Attention: President, or
to such other address as the Company may have designated in
writing to the Holder.
Section 10.7 DESCRIPTIVE HEADINGS. The descriptive headings
of the articles, sections, subsections and paragraphs of the
Documents are inserted for convenience only and do not constitute
a part of the Documents.
Section 10.8 CHOICE OF LAW. This Agreement and the validity
and enforceability hereof shall be governed by and construed and
interpreted in accordance with the laws of the State of New York
without giving effect to conflict of laws rules or choice of laws
rules thereof except Section 5-1401 of the New York General
Obligations Law.
Section 10.9 PRO RATA SHARING. All payments (including, but
not limited to, payments by offset) made under this Agreement or
the Notes shall be made to the Holders PRO RATA in accordance
with the principal amount of Notes that such Holder owns. If any
Holder shall receive any payment in violation of this Section,
such Holder shall pay such excess funds over to other Holders or
purchase Notes or interests therein from other Holders in order
to cause such excess payment to be shared by the Holders on a PRO
RATA basis.
Section 10.10 LIMITATION ON INTEREST. Notwithstanding any
other provision of this Agreement or any other Document, interest
on the indebtedness contemplated by the Documents is expressly
limited so that in no contingency or event whatsoever, whether by
acceleration of the maturity of such indebtedness or otherwise,
shall the interest contracted for, charged or received by any
Purchaser or any Holder exceed the maximum amount permissible
under applicable law. If from any circumstances whatsoever
fulfillment of any provisions of this Agreement or of any other
document evidencing, securing or pertaining to the indebtedness
contemplated hereby, at the time performance of such provision
shall be due, shall involve transcending the limit of validity
prescribed by law, then, ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity, and if
from any such circumstances any Purchaser or any Holder shall
ever receive anything of value as interest or deemed interest by
applicable law under this Agreement or any other document
evidencing, securing or pertaining to the indebtedness
contemplated hereby or otherwise an amount that would exceed the
highest lawful rate, such amount that would be excessive interest
shall be applied to the reduction of the principal amount owing
under this Agreement or on account of any other indebtedness of
the Company to such Purchaser or such Holder, and not to the
payment of interest, or if such excessive interest exceeds the
unpaid balance of principal of the Notes and such other
indebtedness, such excess shall be refunded to the Company. In
determining whether or not the interest paid or payable with
respect to any indebtedness of the Company to such Purchaser or
such Holder, under any specific contingency, exceeds the highest
lawful rate, the Company and such Purchaser or such Holder shall,
to the maximum extent permitted by applicable law, (a)
characterize any non-principal payment as an expense, fee or
premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof, (c) amortize, prorate,
allocate and spread the total amount of interest throughout the
term of such indebtedness so that the actual rate of interest on
account of such indebtedness does not exceed the maximum amount
permitted by applicable law, and/or (d) allocate interest between
portions of such indebtedness, to the end that no such portion
shall bear interest at a rate greater than that permitted by
applicable law. The terms and provisions of this paragraph shall
control and supersede every other conflicting provision of this
Agreement and the other Documents.
Section 10.11 ENTIRE AGREEMENT. This Agreement and the
other Documents embody the entire agreement of the parties
relating to the subject matter hereof and supersede all prior
proposals, negotiations, agreements and understandings relating
to such subject matter.
Section 10.12 COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which when
taken together shall constitute but one and the same agreement.
Section 10.13 EXPENSES. The Company agrees, whether or not
the transactions contemplated hereby are consummated, to pay, and
hold the Purchasers and Holders of the Securities harmless from
liability for the payment of,
(i) the reasonable fees and expenses of counsel
to the Purchaser (which fees and expenses shall be
reasonably documented), arising in connection with the
negotiation and execution of this Agreement and the
Documents and consummation of the transactions contemplated
hereby (which fees and expenses shall not exceed $50,000 in
the aggregate and shall be paid by wire transfer to such
counsel at the Closing),
(ii) the fees and expenses incurred in connection
with any requested waiver of the right of any Holder of
Securities or the consent of any Holder of Securities to
contemplated acts of the Company not otherwise permissible
by the terms of this Agreement or the Documents,
(iii) stamp and other taxes, including income
taxes, which may be payable with respect to the execution
and delivery of this Agreement or the issuance, delivery or
acquisition of the Securities or upon the conversion of the
Securities except that the Company shall not be responsible
for any such taxes incurred as a result of issuing the
Securities to a Person other than the Purchasers, and
(iv) the fees and expenses incurred in respect of
the enforcement of the rights granted under this Agreement
and the Documents.
Section 10.14 SPECIFIC PERFORMANCE. The Purchasers shall
have the rights to specific performance with respect to the
Company's obligations hereunder.
[Signature page follows.]
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year specified at the
beginning hereof.
GRACE DEVELOPMENT INC.
By: /S/ XXXXX X. XXXXXXXXX
__________________________
Name: Xxxxx X. Xxxxxxxxx
________________________
Title: President
_______________________
GREENLIGHT CAPITAL, L.P.
By: Greenlight Capital, L.L.C.,
its general partner
By: /S/ XXXXXXX X. XXXXXX
______________________
Name: Xxxxxxx X. Xxxxxx
____________________
Title: Managing Member
___________________
GREENLIGHT CAPITAL QUALIFIED,
L.P.
By: Greenlight Capital, L.L.C.,
its general partner
By: /S/ XXXXXXX X. XXXXXX
______________________
Name: Xxxxxxx X. Xxxxxx
____________________
Title: Managing Member
___________________
GREENLIGHT CAPITAL OFFSHORE,
LTD.
By: /S/ XXXXXXX X. XXXXXX
__________________________
Name: Xxxxxxx X. Xxxxxx
________________________
Title: Co-President Advisor
_______________________
EXHIBITS AND SCHEDULES
Exhibit A Form of Note
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Guarantee Agreement
Exhibit E Form of Legal Opinion
Exhibit F Form of Pledge Agreement
Exhibit G Finders Agreement
Schedules
SCHEDULE 2.1
INITIAL PURCHASERS, AMOUNTS AND SECURITIES
First Closing Principal No. of Shares No. of Shares of Common Total
Amount of of Common Stock issuable upon Consideration
Notes Stock issued exercise of Warrant at
as a exercise price of $1.00
Transaction per share in the case of
Fee at the the First, Second and
First Closing Third Closings and $1.50
and at $1.00 per share in the case of
per share at the Fourth Closing
Second and (subject to adjustment as
Third described in the Warrant)
Closings and
$1.50 per
share at
Fourth
Closing
Greenlight Capital, $1,500,000 692,308 1,500,000 $1,500,000
L.P.
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx
00000
Greenlight Capital 2,500,000 1,153,846 2,500,000 2,500,000
Qualified, L.P.
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx
00000
Greenlight Capital 2,500,000 1,153,846 2,500,000 2,500,000
Off-shore, Ltd.
x/x XXXXX XXX
Xxxxxxx
Xxxxx Building
Wickhams Cay 1
P. X. Xx x000
Xxxx Xxxx, Xxxxxxx
Xxxxxxx Xxxxxx
Xxxxxxx
__________ _________ _________
TOTAL $6,500,000 3,000,000 6,500,000 $6,500,000
shares shares
Second Closing* $2,925,000 1,575,000 2,925,000 $4,500,000
(in the aggregate) shares shares
Third Closing* $2,925,000 1,575,000 2,925,000 $4,500,000
(in the aggregate) shares shares
Fourth Closing* $2,925,000 1,050,000 1,950,000 $4,500,000
(in the aggregate) shares shares
*Subject to
reallocation as
described in Section
2.1.
SCHEDULE 4.6
CAPITALIZATION
