SECURITIES PURCHASE AGREEMENT
EXHIBIT
10.1
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of November 2, 2005 among XXX.xxx, Inc., a Delaware corporation
(the
“Company”),
and
each purchaser identified on the signature pages hereto (each, including
its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”)
and
Rule 506 promulgated thereunder, the Company desires to issue and sell to
each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of
which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Debentures and (b) the following terms have the meanings indicated in
this
Section 1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as
such
terms are used in and construed under Rule 144 under the Securities
Act.
With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser
will
be deemed to be an Affiliate of such Purchaser.
“Board”
means
the Board of Directors of the Company.
“Closing”
means
the closing of the purchase and sale of the Debentures pursuant to Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions precedent
to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Debentures has been satisfied or
waived.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $0.0005 per share, and any other
class of securities into which such securities may hereafter have been
reclassified or changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the
holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that
is at
any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
“Company
Counsel”
means
Xxxxxx and Dodge LLP.
“Debentures”
means,
the 18% Secured Debentures due, subject to the terms therein, on August 2,
2006,
issued by the Company to the Purchasers hereunder, in the form of Exhibit
B.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1.
“Evaluation
Date”
shall
have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, officers
or
directors of the Company and its Subsidiaries pursuant to any stock or option
plan duly adopted by the Board, (b) securities upon the exercise or exchange
of
or conversion of any securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this Agreement
(and the securities into which such securities are so exercisable or
exchangeable or convertible), provided that such securities have not been
amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of any
such
securities, (c) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person which
is,
itself or through its subsidiaries, in the determination of the Board, an
operating company in a business synergistic with the business of the Company
and
in which the Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities (other than as permitted in subsection
(f)
below), (d) shares of Common Stock in a firm commitment public offering of
at
least $45 million underwritten by a reputable, nationally recognized investment
bank, (e) shares of Common Stock issued or issuable pursuant to (1) stock
splits, combinations and the like and securities issued pursuant to economic
anti-dilution rights held by Company security holders or (2) equipment lease
financings or bank credit arrangements entered into for primarily non-equity
financing purposes approved by the Board and (f) securities issued by the
Company the proceeds of
2
which
are
used to pay in full all principal, interest and other amounts then due and
owing
under the Debentures.
“FW”
means
Xxxxxxx Xxxxxxxxx LLP with offices located at 000 Xxxxxxxxx Xxxxxx, Xxxxx
0000,
Xxx Xxxx, Xxx Xxxx 00000-0000.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Liens”
means a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.10.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.10.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.09.
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect
as such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Security
Agreement”
means
the Agency, Guaranty and Security Agreement, dated the date hereof, among
the
Company, the Subsidiaries listed on Schedule
I
thereto,
3
the
Purchasers and the Administrative Agent named therein, in the form of
Exhibit
D
attached
hereto.
“Security
Documents”
shall
mean the Security Agreement and any other documents and filing required
thereunder in order to grant the Purchasers a first priority security interest,
subject only to the Permitted Liens (as defined in the Debenture), in the
assets
of the Company as provided in the Security Agreement, including all UCC-1
filing
receipts.
“Short
Sales”
shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act.
“Subordination
Agreement”
means
that certain subordination agreement by and between Purchaser and Laurus
Master
Fund, Ltd. (“Laurus”).
“Subscription
Amount”means,
as
to each Purchaser, the aggregate amount
to be
paid for Debentures purchased hereunder as specified below such Purchaser’s name
on the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States Dollars and in immediately available
funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.10.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.10.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a).
“Trading
Day”
means a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or
quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
the
OTC Bulletin Board or the Pink Sheets.
“Transaction
Documents”
means
this Agreement, the Debentures, the Security Agreement, the Security Documents,
the Subordination Agreement and any other documents or agreements executed
in
connection with the transactions contemplated hereunder.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set
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forth
herein, concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and each Purchaser agrees to
purchase in the aggregate, severally and not jointly, $8,000,000 principal
amount of the Debentures for an aggregate purchase price of $6,000,000. Each
Purchaser shall deliver to the Company via wire transfer or a certified check
immediately available funds equal to their Subscription Amount and the Company
shall deliver to each Purchaser their respective Debenture as determined
pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable
at the Closing. Upon satisfaction of the conditions set forth in Sections
2.2
and 2.3, the Closing shall occur at the offices of FW, or such other location
as
the parties shall mutually agree.
2.2 Deliveries
(a) On
the
Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:
(i)
this
Agreement duly executed by the Company;
(ii) a
legal
opinion of Company Counsel, in the form of Exhibit
F
attached
hereto;
(iii) a
Debenture with a principal amount equal to one hundred thirty three and
one-third percent (133 1/3%) of such Purchaser’s Subscription Amount, registered
in the name of such Purchaser;
(iv) the
Subordination Agreement duly executed by the Company;
(v) the
Security Agreement, duly executed by the Company, along with all the Security
Documents to which the Company is a party duly executed by the
Company;
(vi) written
consent to the transaction contemplated hereunder from Laurus Master Fund,
Ltd.
in form and substance reasonably satisfactory to the Purchasers;
(vii) a
summary
copy of the final, written report of the Company’s financial advisor (Broadview
International, a division of Xxxxxxxx & Company, Inc. (“Broadview”)),
submitted in writing by Broadview to the Board at the Board’s meeting
authorizing the transactions contemplated hereby (subject to any redactions
considered appropriate by the Company or Broadview), if any;
(viii) employment
agreement with Xxxxx Xxxxxxx, to serve as the Company’s chief executive officer,
effective commencing on or immediately following the Closing Date, at an
annual
base salary of no more than $300,000, duly executed by the Company;
(ix) payment
in settlement of all reasonable and documented outstanding attorney’s fees
incurred through the date of Closing on behalf of the Purchasers in connection
with the transactions contemplated hereunder, provided such amount shall
not
exceed $150,000 in the aggregate;
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(x) the
commitment from Deutsche Bank AG London’s (“DB”)
designated representative to the Board to resign his Board position effective
upon payment to DB of the final negotiated payoff amount in satisfaction
of DB’s
senior secured debt investment in the Company; and
(xi) the
authorizing resolutions of the Board (A) approving the transactions contemplated
hereby and (B) appointing a representative of DunKnight Telecom Partners
LLC to
the Board upon resignation of DB’s representative to the Board, as contemplated
by clause (x) immediately above (it being understood and agreed that the
Company
may satisfy this clause (B) through Board approval of this Agreement (and
Section 4.17 hereof)).
(b) On
the
Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:
(i)
this
Agreement duly executed by such Purchaser;
(ii) such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company;
(iii) the
Subordination Agreement; and
(iv) the
Security Agreement, duly executed by the Purchasers, along with all the Security
Documents duly executed by the parties thereto.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained herein;
(ii) all
obligations, covenants and agreements of the Purchasers required to be performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by the Purchasers of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required
6
to
be
performed at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”)
which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a).
The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the issued
and
outstanding shares of capital stock of each Subsidiary are validly issued
and
are fully paid, non-assessable and free of preemptive and similar rights
to
subscribe for or purchase securities.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and
to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational
or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted
or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could
not
have or reasonably be expected to result in (i) a material adverse effect
on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
7
Company
and the consummation by it of the transactions contemplated thereby have
been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board or its stockholders
in
connection therewith. Each Transaction Document has been (or upon delivery
will
have been) duly executed by the Company and, when delivered in accordance
with
the terms hereof and thereof, will constitute the valid and binding obligation
of the Company enforceable against the Company in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors’ rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be
limited by applicable law.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse
of
time or both would become a default) under, result in the creation of any
Lien
upon any of the properties or assets of the Company or any Subsidiary, or
give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt
or
otherwise) or other understanding to which the Company or any Subsidiary
is a
party or by which any property or asset of the Company or any Subsidiary
is
bound or affected, or (iii) conflict with or result in a violation of any
law,
rule, regulation, order, judgment, injunction, decree or other restriction
of
any court or governmental authority to which the Company or a Subsidiary
is
subject (including federal and state securities laws and regulations), or
by
which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not have
or
reasonably be expected to result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with the execution, delivery and performance by the Company of
the
Transaction Documents other than (i) filings required pursuant hereto, (ii)
the
notice and/or application(s) or filings to each applicable Trading Market
for
the issuance and sale of the Debentures in the time and manner required thereby
(if applicable) and (iii) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities
laws.
(f) Issuance
of the Securities.
The
Debentures are duly authorized for issuance. When issued and paid for in
accordance with this Agreement, the Debentures will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company
other than restrictions on transfer provided for in the Transaction Documents.
8
(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
3.1(g).
The
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to the exercise of employee stock options under the Company’s
stock option plans, the issuance of shares of Common Stock to employees pursuant
to the Company’s employee stock purchase plan and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents. No Person has any right
of
first refusal, preemptive right, right of participation, or any similar right
to
participate in the transactions contemplated by the Transaction Documents.
There
are no outstanding options, warrants, script rights to subscribe to, calls
or
commitments of any character whatsoever relating to, or securities, rights
or
obligations convertible into or exercisable or exchangeable for, or giving
any
Person any right to subscribe for or acquire, any shares of Common Stock,
or
contracts, commitments, understandings or arrangements by which the Company
or
any Subsidiary is or may become bound to issue additional shares of Common
Stock
or Common Stock Equivalents. The issuance and sale of the Debentures will
not
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than the Purchasers) and will not result in a right of any
holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under such securities. All of the outstanding shares of capital stock
of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board or others is required for the
issuance and sale of the Debentures. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by
law to file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing and
has
filed any such SEC Reports prior to the expiration of any such extension.
As of
their respective dates, the SEC Reports complied in all material respects
with
the requirements of the Securities Act and the Exchange Act and the rules
and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, but taking into account any amendments filed, 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
the light of the circumstances under which they were made, not misleading.
The
financial statements of the Company included in the SEC Reports comply in
all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time
of
filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a
9
consistent
basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the
notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of
and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there has
been
no event, occurrence or development that has had or that could reasonably
be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the
Company, any Subsidiary or any of their respective properties before or by
any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Debentures or (ii) could, if there
were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. There has not been, and to the knowledge of the Company,
there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company.
The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of
(and
no event has occurred that has not been waived that, with notice or lapse
of
time or both, would result in a default by the Company or any Subsidiary
under),
nor has the Company or any Subsidiary received notice of a claim that
10
it
is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or
by
which it or any of its properties is bound, (ii) is in violation of any order
of
any court, arbitrator or governmental body, or (iii) is or has been in violation
of any statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws applicable
to its
business except in each case as could not have a Material Adverse
Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described
in the
SEC Reports, except where the failure to possess such permits could not have
or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple
to all
real property owned by them that is material to the business of the Company
and
the Subsidiaries and good and marketable title in all personal property owned
by
them that is material to the business of the Company and the Subsidiaries,
in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the
use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes not
in
excess of $10,000 owed to any one taxing jurisdiction or authority or $50,000
in
the aggregate. Any real property and facilities held under lease by the Company
and the Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance.
(o) Patents
and Trademarks.
The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for use
in
connection with their respective businesses as described in the SEC Reports
and
which the failure to so have could have a Material Adverse Effect (collectively,
the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a written notice that
the
Intellectual Property Rights used by the Company or any Subsidiary violates
or
infringes upon the rights of any Person. To the knowledge of the Company,
all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights
of
others. At least a majority of the Company’s current employees and all of its
officers and senior non-officer departmental vice presidents have entered
into
the Company’s standard form of proprietary information and inventions
agreement.
(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries
11
are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to $10,000,000. To the knowledge of the Company,
such
insurance contracts and policies are accurate and complete. Neither the Company
nor any Subsidiary has any reason to believe that it will not be able to
renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports or as contemplated by the Transaction Documents,
none of the officers or directors of the Company and, to the knowledge of
the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or
other
arrangement providing for the furnishing of services to or by, providing
for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of
the
Company, any entity in which any officer, director, or any such employee
has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than (i) for payment of salary or consulting
or
director fees for services rendered, (ii) reimbursement for expenses incurred
on
behalf of the Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the Closing Date (for the sake of
clarity, it is understood that the Company is not currently required to comply
with Section 404 of the Xxxxxxxx-Xxxxx Act of 2002). The
Company and the Subsidiaries maintain a system of internal accounting controls
which are, to the knowledge of the Company, sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and
to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made
known
to the certifying officers by others within those entities, particularly
during
the period in which the Company’s most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company’s certifying
officers have evaluated the effectiveness of the Company’s disclosure controls
and procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the “Evaluation
Date”).
The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of
the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date.
12
Since
the
Evaluation Date, there have been no significant changes in the Company’s
internal control over financial reporting (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the knowledge of
the
Company, in other factors that could significantly affect the Company’s internal
control over financial reporting.
(s) Certain
Fees.
No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.
(t) Private
Placement.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2, no registration under the Securities Act is required
for
the offer and sale of the Debentures by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Debentures hereunder does
not
contravene the rules and regulations of the Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt
of
payment for the Debentures, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject
to the
Investment Company Act.
(v) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(b) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that
the Commission is contemplating terminating such registration. The Company
has
not, in the 12 months preceding the date hereof, received written notice
from
any Trading Market on which the Common Stock is or has been listed or quoted
to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market other than a letter received from the
American Stock Exchange described in a Current Report on Form 8-K filed on
October 14, 2005.
(w) Application
of Takeover Protections.
The
Company and the Board have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination,
poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that
is or
could become applicable to the Purchasers as a result of the Purchasers and
the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Debentures and the Purchasers’ ownership of the
Debentures.
13
(x) Disclosure.
All
disclosure provided to the Purchasers regarding the Company, its business
and
the transactions contemplated hereby, including the Disclosure Schedules
to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct in all material
respects with respect to such representations and warranties and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other
than
those specifically set forth in Section 3.2 hereof.
(y) No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers
or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Debentures to be integrated
with prior offerings by the Company for purposes of the Securities Act or
any
applicable shareholder approval provisions, including, without limitation,
under
the rules and regulations of any Trading Market on which any of the securities
of the Company are listed or designated.
(z) Financial
Condition.
The
unaudited balance sheet and earnings statement of the Company, for the period
ended August 31, 2005, and the bank statement cash balances of the Company
dated
October 26, 2005, copies of which have been previously provided to DunKnight
Telecom Partners LLC, as agent for the Purchasers, at its request, are, to
the
knowledge of the Company, materially accurate as of the dates and periods
so
reported therein. The Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 sets forth as of the dates thereof all outstanding secured
and unsecured Indebtedness of the Company or any Subsidiary, or for which
the
Company or any Subsidiary has commitments. For the purposes of this paragraph
(z), “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred or issued in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same
are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c)
the present value of any lease payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(aa) Tax
Status.Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, to the knowledge of the
Company, the Company and each Subsidiary has filed all necessary federal
and
state tax returns and has paid or accrued all taxes shown as due thereon,
and
the principal financial and executive officers of the Company have no actual
knowledge of any material tax deficiencies which have been asserted or
threatened against the
14
Company
or any Subsidiary, nor of any material liability for any tax to be imposed
on
the properties, assets or operations of the Company as of the date of this
Agreement that is not adequately provided for.
(bb) No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered or
sold
any of the Debentures by any form of general solicitation or general
advertising. The Company has offered the Debentures for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(cc) Foreign
Corrupt Practices.
Neither
the Company nor, to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any
funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds,
(iii)
failed to disclose fully any contribution made by the Company (or made by
any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(dd) Accountants.
The
Company’s accountants are set forth on Schedule
3.1(dd)
of the
Disclosure Schedule. To the knowledge of the Company, such accountants, who
the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2005, are a registered public accounting firm as
required by the Securities Act.
(ee) Seniority.
As of
the Closing Date, other than with respect to specified priority interests
granted to Laurus as set forth in the Subordination Agreement, no indebtedness
or other equity of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital
lease
obligations (which is senior only as to the property covered
thereby).
(ff) No
Disagreements with Accountants and Lawyers.
There
are no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and lawyers
formerly or presently employed by the Company and the Company is current
with
respect to any fees owed to its accountants and lawyers.
(gg) Acknowledgment
Regarding Purchasers’ Purchase of Debentures.
The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity)
15
with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any Purchaser or any of their respective representatives
or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to the Purchasers’ purchase of the Debentures. The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement has been based solely on the independent evaluation
of
the transactions contemplated hereby by the Company and its
representatives.
(hh) Acknowledgement
Regarding Purchasers’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
it is understood and agreed by the Company (i) that none of the Purchasers
have
been asked to agree, nor has any Purchaser agreed, to desist from purchasing
or
selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Debentures
for any
specified term; (ii) that past or future open market or other transactions
by
any Purchaser, including Short Sales, and specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively
impact
the market price of the Company’s publicly-traded securities; (iii) that any
Purchaser, and counter parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, presently may have a “short”
position in the Common Stock, and (iv) that each Purchaser shall not be deemed
to have any affiliation with or control over any arm’s length counter-party in
any “derivative” transaction. The
Company further understands and acknowledges that (a) one or more Purchasers
may
engage in hedging activities at various times during the period that the
Debentures are outstanding and (b) such hedging activities (if any) could
reduce
the value of the existing stockholders' equity interests in the Company at
and
after the time that the hedging activities are being conducted. The
Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(ii) Manipulation
of Price.
The Company has not, and to its knowledge no one acting on its behalf has,
(i)
taken, directly or indirectly, any action designed to cause or to result
in the
stabilization or manipulation of the price of any security of the Company
to
facilitate the sale or resale of any of the Debentures, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of
the
Debentures (other than for the placement agent’s placement of the Debentures),
or (iii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
3.2 Representations
and Warranties of the Purchasers.
Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise
16
to
carry
out its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or similar action on
the
part of such Purchaser. Each Transaction Document to which it is a party
has
been duly executed by such Purchaser, and when delivered by such Purchaser
in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own
Account.
Such
Purchaser understands that the Debentures are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Debentures as principal for its own account and
not
with a view to or for distributing or reselling such Debentures or any part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Debentures in
violation of the Securities Act or any applicable state securities law and
has
no arrangement or understanding with any other persons regarding the
distribution of such Debentures (this representation and warranty not limiting
such Purchaser’s right to sell the Debentures in compliance with applicable
federal and state securities laws) in violation of the Securities Act or
any
applicable state securities law. Such Purchaser is acquiring the Debentures
hereunder in the ordinary course of its business. Such Purchaser does not
have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Debentures.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Debentures, it was, and at the date hereof
it is, an “accredited investor” as defined in Rule 501 under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer under
Section
15 of the Exchange Act. Each Purchaser acknowledges it is illegal to trade
securities of the Company while in possession of material non-public information
relating to the Company.
(d) Experience
of Such Purchaser.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Debentures, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Debentures and, at the present time, is able to afford a complete loss of
such
investment.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Debentures as a result of any advertisement,
article, notice or other communication regarding the Debentures published
in any
newspaper, magazine or similar media or broadcast over
17
television
or radio or presented at any seminar or any other general solicitation or
general advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, such Purchaser has not directly
or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including Short
Sales (but not including the location and/or reservation of borrowable shares
of
Common Stock), in the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
from
the Company or any other Person setting forth the material terms of the
transactions contemplated hereunder until the date hereof (“Discussion
Time”).
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have
no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set
forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Debentures
covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made
to it
in connection with this transaction (including the existence and terms of
this
transaction).
(g) Residence.
Purchaser is a partnership, corporation, limited liability company or other
entity and the office or offices of such Purchaser in which its investment
decision was made is located at the address or addresses of such Purchaser
set
forth on the signature page hereto.
(h) Company
Information.
Purchaser hereby acknowledges that the SEC Reports are publicly available
and
that such Purchaser has access to the SEC Reports, and, prior to the execution
of this Agreement (i) has had sufficient time and opportunity to review the
SEC
Reports and (ii) has had an opportunity to discuss the Company’s business,
management and financial affairs with directors, officers and management
of the
Company. Such Purchaser has also had the opportunity to ask questions of,
and
receive answers from, the Company and its management regarding the terms
and
conditions of this investment.
(i) PATRIOT
Act.
Such
Purchaser further represents and warrants to, and covenants with, the Company
that (i) it is in compliance with Executive Order 13224 and the regulations
administered by the U.S. Department of the Treasury (“Treasury”)
Office
of Foreign Assets Control, (ii) its parents, subsidiaries, affiliated companies,
officers, directors and partners, and to the Purchaser’s knowledge, its
shareholders, owners, employees, and agents, are not on the List of Specially
Designated Nationals and Blocked Persons maintained by Treasury and have
not
been designated by Treasury as a financial institution of primary money
laundering concern, (iii) to the Purchaser’s knowledge after reasonable
investigation, all of the funds to be used to acquire the Debentures are
derived
from legitimate sources and are not the product of illegal activities, and
(iv)
the Purchaser
18
is
in
compliance with all other applicable U.S. anti-money laundering laws and
regulations and has implemented, if applicable, an anti-money laundering
compliance program in accordance with the requirements of the Bank Secrecy
Act,
as amended by the USA PATRIOT Act, Pub. L. 107-56.
The
Company acknowledges and agrees that each Purchaser does not make or has
not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Debentures may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Debentures other than
pursuant to an effective registration statement or Rule 144, to the Company
or
to an affiliate of a Purchaser or in connection with a pledge as contemplated
in
Section 4.1(b), the Company may require the transferor thereof to provide
to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall
be
reasonably satisfactory to the Company, to the effect that such transfer
does
not require registration of such transferred Debentures under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing
to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of a legend on the Debentures in the following form:
THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer
or
grant
19
a
security interest in some or all of the Debentures to a financial institution
that is an “accredited investor” as defined in Rule 501(a) under the Securities
Act and who agrees to be bound by the provisions of this Agreement and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Debentures to the pledgees or secured parties. Such a
pledge
or transfer would not be subject to approval of the Company and no legal
opinion
of legal counsel of the pledgee, secured party or pledgor shall be required
in
connection therewith. Further, no notice shall be required of such pledge.
At
the appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Debentures may
reasonably request in connection with a pledge or transfer of the
Debentures.
(c) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that
the
removal of the restrictive legend from certificates representing Debentures
as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Debentures pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 Furnishing
of Information.
As long
as any Purchaser owns Debentures, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. The Company further covenants that it will
take
such further action as any holder of Debentures may reasonably request, all
to
the extent required from time to time to enable such Person to sell such
Debentures without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144.
4.3 Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Debentures in
a
manner that would require the registration under the Securities Act of the
sale
of the Debentures to the Purchasers or that would be integrated with the
offer
or sale of the Debentures for purposes of the rules and regulations of any
Trading Market.
4.4 Securities
Laws Disclosure; Publicity.
The
Company shall, within the time periods permitted by Current Report on Form
8-K,
issue a press release or releases and Form 8-K, reasonably acceptable to
each
Purchaser disclosing the material terms of the transactions contemplated
hereby.
The Company and each Purchaser shall consult with each other in issuing any
other press releases with respect to the transactions contemplated hereby,
and
neither the Company nor any Purchaser shall issue any such press release
or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law or Trading Market regulation, in which case
the
disclosing party shall promptly provide the other party with prior notice
of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include
the
name of any Purchaser in any filing with the Commission or any regulatory
agency
or Trading Market, without the prior written consent of such Purchaser except
20
to
the
extent such disclosure is required by law or Trading Market regulations,
in
which case the Company shall provide the Purchasers with prior notice of
such
disclosure permitted.
4.5 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that any Purchaser is an “Acquiring Person” under any
shareholder rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger
the
provisions of any such plan or arrangement, by virtue of receiving Debentures
under the Transaction Documents or under any other agreement between the
Company
and the Purchasers. The Company shall conduct its business in a manner so
that
it will not become subject to the Investment Company Act.
4.6 Non-Public
Information.
The
Company covenants and agrees that neither it nor any other Person acting
on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands
and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
4.7 Use
of
Proceeds.
Except
as set forth on Schedule
4.7
attached
hereto, the Company shall use the net proceeds from the sale of the Debentures
hereunder first for the repurchase of certain indebtedness and preferred
stock
as described on Schedule
4.7
and then
for working capital purposes and not for the satisfaction of any portion
of the
Company’s debt (other than the debt owed to Laurus, payment of trade payables in
the ordinary course of the Company’s business and prior practices), to redeem
any Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.8 Reimbursement.
If any
Purchaser becomes involved in any capacity in any Proceeding by or against
any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Purchaser to or with
any
current stockholder), solely as a result of such Purchaser’s acquisition of the
Debentures under this Agreement, the Company will reimburse such Purchaser
for
its reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of
the
Company under this paragraph shall be in addition to any liability which
the
Company may otherwise have, shall extend upon the same terms and conditions
to
any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchasers and any
such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchasers
and
any such Affiliate and any such Person. The Company also agrees that neither
the
Purchasers nor any such Affiliates, partners, directors, agents, employees
or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result
of
acquiring the Debentures under this Agreement.
4.9 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.9, the Company will indemnify and hold
the
Purchasers, their advisor Endeavor Capital Management
21
LLC
and
their directors, officers, shareholders, members, partners, employees and
agents
(each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation (“Losses”)
that
any such Purchaser Party may suffer or incur as a result of or relating to
(a)
any breach of any of the representations, warranties, covenants or agreements
made by the Company in this Agreement or in the other Transaction Documents
or
(b) any action instituted against a Purchaser, or any of them or their
respective Affiliates, by any stockholder of the Company who is not an Affiliate
of such Purchaser, with respect to any of the transactions contemplated by
the
Transaction Documents (unless such Losses arise from a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with
any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud,
gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company
in
writing, and the Company shall have the right to assume the defense thereof
with
counsel of its own choosing. Any Purchaser Party shall have the right to
employ
separate counsel in any such action and participate in the defense thereof,
but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or
(iii)
in such action there is, in the reasonable opinion of such separate counsel,
a
material conflict on any material issue between the position of the Company
and
the position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser
Party
effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the
extent
that a loss, claim, damage or liability is attributable to any Purchaser
Party’s
breach of any of the representations, warranties, covenants or agreements
made
by the Purchasers in this Agreement or in the other Transaction Documents
or any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or
any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance.
4.10 Participation
in Future Financing.
(a) From
the
date hereof until the date a Purchaser no longer holds any Debentures, upon
any
financing by the Company or any of its Subsidiaries of debt securities, Common
Stock or Common Stock Equivalents (a “Subsequent
Financing”),
Purchasers (or their affiliated designees) shall have the right to participate
in such Subsequent Financing in an amount up to the full amount of such
Subsequent Financing (the “Participation
Maximum”).
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing, the Company
shall deliver to each Purchaser a written notice of its intention to effect
a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it
22
wants
to
review the details of such financing (such additional notice, a “Subsequent
Financing Notice”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser, for
a
Subsequent Financing Notice, the Company shall promptly, but no later than
1
Trading Day after such request, deliver a Subsequent Financing Notice to
such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City
time)
on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such
5th
Trading
Day, such Purchaser shall be deemed to have notified the Company that it
does
not elect to participate.
(d) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) are, in the aggregate, less
than
the total amount of the Subsequent Financing, then the Company may effect
the
remaining portion of such Subsequent Financing on the terms and to the Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking
to
purchase more than the aggregate amount of the Participation Maximum, each
such
Purchaser shall have the right to purchase the greater of (a) their Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the difference
between the Participation Maximum and the aggregate amount of participation
by
all other Purchasers. “Pro
Rata Portion”
is the
ratio of (x) the Subscription Amount of Debentures purchased on the Closing
Date
by a Purchaser participating under this Section 4.10 and (y) the sum of the
aggregate Subscription Amounts of Debentures purchased on the Closing Date
by
all Purchasers participating under this Section 4.10.
(f) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above
in
this Section 4.10, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth
in
such Subsequent Financing Notice within 60 Trading Days after the date of
the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.10 shall not apply in respect of an Exempt
Issuance.
23
4.11 Equal
Treatment of Purchasers.
No
consideration shall be offered or paid to any person to amend or consent
to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. Further, the Company shall not make any payment of
principal or interest on the Debentures in amounts which are disproportionate
to
the respective principal amounts outstanding on the Debentures at any applicable
time. For clarification purposes, this provision constitutes a separate right
granted to each Purchaser by the Company and negotiated separately by each
Purchaser, and is intended for the Company to treat the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert
or as
a group with respect to the purchase, disposition or voting of Debentures
or
otherwise.
4.12 Short
Sales and Confidentiality After The Date Hereof.
Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after
the
Discussion Time and ending at the time that the transactions contemplated
by
this Agreement are first publicly announced as described in Section 4.6.
Each
Purchaser, severally and not jointly with the other Purchasers, covenants
that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection
with
this transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in
the
securities of the Company after the time that the transactions contemplated
by
this Agreement are first publicly announced as described herein. Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser's assets and the portfolio managers have no direct knowledge of
the
investment decisions made by the portfolio managers managing other portions
of
such Purchaser's assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made
the
investment decision to purchase the Debentures covered by this
Agreement.
4.13 Additional
Investment Obligation.
On
January 3, 2006, provided that no material Event of Default (other than one
arising from or under Section 7(b) of the Debentures) has occurred prior
to such
date which has not been previously waived or cured, each Purchaser, or its
designees, shall be required to purchase, in the ratio of such Purchaser’s
Subscription Amount on the Closing Date to the aggregate Subscription Amounts
of
all Purchasers on the Closing Date (such amount, the Purchaser’s “Pro
Rata Share”),
additional debentures totaling $5,000,000 in principal amount, for an aggregate
purchase price of $4,000,000 (the “Additional
Investment”).
For
the sake of clarity, the Purchaser shall be required to subscribe for the
entire
Additional Investment to the extent that it has not designated other purchasers
or such designees fail to make their pro rata share of such investment on
January 3, 2006. The form of Debenture used for the foregoing additional
debentures shall be identical to the form of Debenture used at the initial
Closing.
4.14 Chief
Executive Officer.
Subject
to any restrictions imposed by applicable law, for so long as the Purchaser(s)
own all of the issued and outstanding Debentures, the Company shall not appoint
a successor chief executive officer of the Company in replacement of Xxxxx
24
Struwas
without the prior written consent of a majority in interest (which such majority
must include DunKnight Telecom Partners LLC, to the extent then a holder
of
Debentures) of the Purchasers and their permitted assigns, which consent
shall
not be unreasonably withheld, conditioned or delayed. Xx. Xxxxxxx shall also
be
appointed to the Board as a replacement for the existing chief executive
officer
as soon as possible after the Closing.
4.15 Right
to Financial Information.
Each
Purchaser holding Debentures shall receive, within 45 days after the end
of each
month, an internally prepared unaudited balance sheet and income statement
for
the period ending the immediately preceding month, audited financial reports
within 180 days after the end of a fiscal year, quarterly unaudited financial
reports within 45 days after the end of each of the first three quarters
and
business plans and annual budgets promptly following Board approval thereof,
as
well as standard inspection rights on reasonable notice and terms. Such
Purchasers shall execute and deliver to the Company a standard non-disclosure
agreement prior to its first receipt of such information, which such agreement
shall be applicable to all future information received by such Purchaser
pursuant to this Section 4.15. Notwithstanding the foregoing, to the extent
applicable, the Company shall be deemed to have satisfied the foregoing
requirements upon timely filing of same with the Securities and Exchange
Commission.
4.16 Accountants.
All
financial reports of the Company filed with the Securities and Exchange
Commission shall be audited or reviewed, as the case may be, by an accounting
firm selected by the Board.
4.17 Board
of Directors.
(a) For
so long as the Debentures remain outstanding, the holders of a majority in
principal amount of outstanding Debentures shall be entitled to observer
status
in any meeting of the Board (provided that such majority shall designate
in
writing to the Company only one individual representing such Purchaser(s)
for
each Board meeting, who shall have signed an appropriate nondisclosure
agreement). The representative may be excluded from any meeting or portion
of a
meeting in order to preserve the attorney-client privilege. In no event shall
the representative be a person who, in the reasonable judgment of the Company,
is affiliated with a direct competitor of the Company. The Company and the
Purchasers agree that the foregoing observer rights under this Section 4.17(a)
shall only apply during times when the Purchasers do not have a designated
representative serving on the Board pursuant to Section 4.17(b), below, provided
any Debentures then remain outstanding.
(b)
For
so long as the Debentures remain outstanding, and subject to the Company’s
ongoing compliance obligations with Board composition required by applicable
law
and the rules or regulations of the market or exchange on which the Company’s
securities are then traded, the holders of a majority in principal amount
of
outstanding Debentures shall be entitled to nominate one person to the Board
and
the Company shall thereafter use its commercially reasonable best efforts
to
maintain such Board seat and include such designee on all applicable proxies
soliciting the election of such designee, subject to and in accordance with
applicable law and the Company’s governing organizational instruments. Such
Board member shall have all rights and privileges granted to directors
generally, under applicable law and the Company’s organizational instruments,
including, but not limited to, the right to obtain copies of all minutes
from
and notices regarding Board meetings, as well as copies of all correspondence
25
to
members of the Board. In furtherance of this Section 4.17, and in satisfaction
of Section 2.2(a)(xi), the parties hereto agree that the Company shall fill
the
vacancy created by the resignation of DB’s representative to the Board with Xxxx
Xxxxxxxxxxx, who shall be considered the Purchasers’ initial representative to
the Board, to serve in such capacity until the next annual meeting of
stockholders of the Company at which his class is to be elected, or until
his
earlier death, resignation or removal, and otherwise subject to the Board
resolutions authorizing same. Any vacancy in the office of the Purchasers’
director designee may be filled only by a designated representative of the
Purchasers and in each case in accordance with the requirements of this
Agreement. Notwithstanding anything to the contrary in this Agreement, each
of
the Company and the Purchasers covenants that they shall take such actions
as
may reasonably be required in the Board’s determination to maintain such number
of directors as may be required to provide for such number of independent
directors as required by applicable Commission rules and regulations and
the
rules and regulations of any market or exchange on which the Company’s
securities are then traded.
ARTICLE
V.
MISCELLANEOUS
5.1 Intentionally
omitted.
5.2 Fees
and Expenses.
At the
Closing, the Company has agreed to reimburse DunKnight Telecom Partners,
LLC and
Endeavor Capital Management, Inc. (“Lead
Purchaser”)
for
its actual, reasonable, out-of-pocket legal fees and expenses in accordance
with
Section 2.2(a)(viii). Accordingly, in lieu of the foregoing payments, the
aggregate amount that the Lead Purchaser is to pay for the Debentures at
the
Closing shall be reduced by such amount in lieu thereof. The Company shall
deliver, prior to the Closing, a completed and executed copy of the Closing
Statement, attached hereto as Annex
A.
Except
as expressly set forth in the Transaction Documents to the contrary, each
party
shall pay the fees and expenses of its advisers, counsel, accountants and
other
experts, if any, and all other expenses incurred by such party incident to
the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes
and
duties levied in connection with the delivery of any Debentures.
5.3 Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto,
contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
5.4 Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto on a day that is not a Trading Day or
later
than
26
5:30
p.m.
(New York City time) on any Trading Day, (c) the 2nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers.
No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and each
Purchaser or, in the case of a waiver, by the party against whom enforcement
of
any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to
be a
continuing waiver in the future or a waiver of any subsequent default or
a
waiver of any other provision, condition or requirement hereof, nor shall
any
delay or omission of either party to exercise any right hereunder in any
manner
impair the exercise of any such right.
5.6 Headings.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
5.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser. Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Debentures, provided such transferee agrees in writing to be bound, with
respect to the transferred Debentures, by the provisions hereof that apply
to
the “Purchasers”.
5.8 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set
forth
herein.
5.9 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced
in
accordance with the internal laws of the State of New York, without regard
to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each party
hereby
irrevocably submits to the exclusive jurisdiction of the state or federal
courts
sitting in the City of New York, borough of Manhattan for the adjudication
of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives,
and agrees not to assert in any suit, action or proceeding, any claim that
it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is improper or inconvenient
27
venue
for
such proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Agreement and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a
trial
by jury. If either party shall commence an action or proceeding to enforce
any
provisions of the Transaction Documents, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.10 Survival.
The
representations and warranties contained herein shall survive the Closing
and
the delivery, exercise and/or conversion of the Debentures, as applicable
for
the applicable statue of limitations.
5.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which when
taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation
of the
party executing (or on whose behalf such signature is executed) with the
same
force and effect as if such facsimile signature page were an original
thereof.
5.12 Severability.
If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and
the
parties will attempt to agree upon a valid and enforceable provision that
is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction Document
and
the Company does not timely perform its related obligations within the periods
therein provided, then such Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
5.14 Replacement
of Securities.
If any
certificate or instrument evidencing any Debentures is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction
and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement
Debentures.
28
5.15 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction Documents. The
parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be adequate.
5.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Purchaser pursuant
to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
5.17 Applicable
Interest Rates.
To the
extent it may lawfully do so, the Company hereby agrees not to insist upon
or
plead or in any manner whatsoever claim, and will resist any and all efforts
to
be compelled to take the benefit or advantage of, usury laws wherever enacted,
now or at any time hereafter in force, in connection with any claim, action
or
proceeding that may be brought by any Purchaser in order to enforce any right
or
remedy under any Transaction Document. Notwithstanding any provision to the
contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents
for payments in the nature of interest shall not exceed the maximum lawful
rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in
the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the
maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess
of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.
5.18 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under any Transaction Document are several
and not
joint with the obligations of any other Purchaser, and no Purchaser shall
be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in
any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be
29
deemed
to
constitute the Purchasers as a partnership, an association, a joint venture
or
any other kind of entity, or create a presumption that the Purchasers are
in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Purchaser shall
be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser
to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their
review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through FW. FW does not represent all of the
Purchasers but only DunKnight Telecom Partners LLC. The Company has elected
to
provide all Purchasers with the same terms and Transaction Documents for
the
convenience of the Company and not because it was required or requested to
do so
by the Purchasers.
5.19 Liquidated
Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due
and
payable shall have been canceled.
5.20 Construction.
The
parties agree that each of them and/or their respective counsel has reviewed
and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
(Signature
Pages Follow)
30
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories
as of
the date first indicated above.
XXX.XXX,
INC.
|
Address
for Notice:
|
By:
/s/ Xxxxx X. Xxxxxx
Name:
Xxxxx X. Xxxxxx
Title:
President & Chief Executive Officer
|
XXX.XXX, Inc.
000 Xxxx Xxxxx Xxxxx
Xxx Xxxxx, XX 00000
|
With
a copy to (which shall not constitute notice):
Xxxxxxx
Xxxxxx Xxxxxx & Dodge LLP
000
Xxxxxxxxxx Xxxxxx
Xxxxxx,
XX 00000
Attn:
Xxxxxxx Held, Esq.
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER(S) FOLLOWS]
31
[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the
date
first indicated above.
Name
of
Purchaser: DunKnight Telecom Partners LLC
Signature
of Authorized Signatory of Purchaser:
/s/
Xxxx Xxxxxxxxxxx
Name
of
Authorized Signatory: Xxxx Xxxxxxxxxxx
Title
of
Authorized Signatory: President
Email
Address of Purchaser:
Address
for Notice of Purchaser:
Address
for Delivery of Debentures for Purchaser (if not same as above):
Subscription
Amount: $8,000,000 face value
32
Annex
A
CLOSING
STATEMENT
Pursuant
to the attached Securities Purchase Agreement, dated as of the date thereof,
the
Purchasers shall purchase up to $8,000,000 in principal face amount of
Debentures from XXX.xxx, Inc. (the “Company”).
All
funds will be wired directly to the Company. All funds will be disbursed
in
accordance with this Closing Statement.
Disbursement
Date: November
___, 2005
I.
PURCHASE
PRICE
|
|
Gross
Proceeds to be Received
|
$6,000,000.00
|
II. DISBURSEMENTS
|
|
Total
Amount Disbursed:
|
$
|
WIRE
INSTRUCTIONS:
To
be provided by the Company under separate writing.
|
|
33
November
2, 2005
Securities
Purchase Agreement - Company Disclosure Schedules
Reference
is made to that certain Securities Purchase Agreement dated of even date
herewith (the “Agreement”)
by and
between XXX.xxx, Inc. (the “Company”)
and
DunKnight Telecom Partners LLC (“DunKnight”).
By
this reference the following disclosure schedules of the Company are attached
to
and incorporated into the Agreement, and any disclosures set forth herein
referencing any specific section of the Agreement shall apply equally to
any
other section of the Agreement not so referenced for which such disclosure
would
otherwise be applicable. Capitalized terms used herein and not otherwise
defined
herein shall have the meanings ascribed to them in the Agreement. Headings
to
schedule numbers used herein are for identification purposes only and shall
not
be deemed to provide substantive meaning or content of any nature
whatsoever.
Schedules
3.1(a) & (b) - Subsidiaries
Subsidiary
|
State
of
Organization
|
Good
Standing
|
Does
Not
Hold
Assets
|
Regulated
CLEC
|
DSLnet
Communications, LLC
|
DE
|
Yes
|
X
|
|
Vector
Internet Services, Inc.
|
MN
|
Yes
|
||
DSLnet
Atlantic, LLC
|
DE
|
Yes
|
||
DSLnet
Communications VA, Inc.
|
VA
|
Yes
|
X
|
|
Tycho
Networks, Inc.
|
DE
|
Yes
|
X
|
|
DSLnet
Communications Puerto Rico, Inc.
|
DE
|
No
(the State
of
Delaware
has
voided this
entity’s
charter
and
this entity
would
need to
seek
reinstatement
to
come back
into
good
standing)
|
X
(other
than
a
Puerto
Rico
CLEC
License)
|
X
|
Certain
of the foregoing Subsidiaries of the Company are guarantor signatories to,
and
the Company has pledged its equity ownership in such subsidiaries to DBTCA
(as
defined below), as agent, under, that Agency, Guaranty and Security Agreement
dated July 18, 2003 (the “2003
Security Agreement”)
by and
among the Company, VantagePoint Venture Partners Q, III, L.P., VantagePoint
Venture Partners III, L.P., VantagePoint Communications Partners, L.P., and
VantagePoint Venture Partners 1996, L.P. (collectively “VantagePoint”),
Deutsche Bank AG, London (“DB”
and
together with VantagePoint, the “Terminating
Senior Lenders”),
and
Deutsche Bank Trust Company Americas, as agent for the Terminating Senior
Lenders (“DBTCA”).
As
the initial proceeds of the transactions contemplated by the Agreement will,
among other things, be used to fully satisfy the Company’s indebtedness to the
Terminating Senior Lenders secured by the 2003 Security Agreement, the Lien
of
DBTCA, as agent, on the pledged equity securities of such guarantor signatories
to the 2003 Security Agreement will be released and of no further force or
effect upon the Company’s satisfaction of its indebtedness to the Terminating
Senior Lenders, to be effected commensurate with the Closing.
1
Schedule
3.1(d) - No Conflicts
The
Transaction Documents will create a Lien in favor of the Purchaser on the
assets
of the Company and of certain Subsidiaries of the Company, as detailed in
the
Security Agreement.
Certain
contractual obligations of the Company are being terminated under that certain
Implementation Agreement, being entered into by and among the Terminating
Senior
Lenders and the Company in connection with the transactions contemplated
by the
Transaction Documents. Reference is made to the Company’s disclosure concerning
the Liens of the Terminating Senior Lenders, in Schedules 3.1(a) and (b),
above.
In
addition, reference is made to the Laurus consent, in Schedule 3.1(e), below.
Schedule
3.1(e) - No Filing Consents and Approvals
The
Company requires and has obtained the consent of Laurus and the Terminating
Senior Lenders to the transactions contemplated by Transaction
Documents.
Schedule
3.1(g) - Capitalization
As
of the
moment immediately preceding the consummation of the transactions contemplated
by the Transaction Documents, the Company’s capitalization is as follows:
Capitalization
|
Reserved
&
|
Outstanding
|
|
at
10/31/05
|
|
800,000,000
shares of authorized common stock, $.0005 par value per share
|
|
Issued
and outstanding common stock:
|
233,620,817
|
Common
shares reserved for:
|
|
Warrants
to purchase common stock at various exercise prices:
|
192,212,192
|
$4,250,000
debt convertible to purchase common stock at exercise price of
$0.28 per
share:
|
15,178,571
|
Options
outstanding under the Company's stock option plans at various exercise
prices:
|
32,823,146
|
Total
shares of common stock issued, outstanding and reserved
for:
|
473,834,726
|
20,000,000
shares of authorized preferred stock, $.001 par value per
share
|
|
Issued
and outstanding preferred stock (Series Z preferred
stock):
|
14,000
|
Except
as
set forth in the Company’s SEC Reports, and employee stock options granted or
expired in the ordinary course of business, there are no outstanding options,
warrants, or obligations convertible into Common Stock of the Company. In
connection with the Company’s payoff of its indebtedness to the Terminating
Senior Lenders, the Terminating Senior Lenders are canceling all outstanding
warrants held by the Terminating Senior Lenders. The rights of the various
Terminating Senior Lenders under existing stockholders agreements to which
the
2
Terminating
Senior Lenders and the Company are party will also terminate with the Company’s
payoff of its indebtedness to the Terminating Senior Lenders.
Schedule
3.1(i) - Material Changes
The
Company is in receipt of commitment letters from the Terminating Senior Lenders
regarding, among other things, the cancellation and/or redemption of their
senior secured debt, common stock purchase warrants and Series Z Preferred
Stock
of the Company.
Schedule
3.1 (j) - Litigation
There
is
currently pending, in addition to those matters set forth in the SEC Reports,
a
claim brought by a former VISI (as defined in the Security Agreement) sales
representative, who was terminated for performance in 2005 and subsequently
brought a whistleblower claim against the Company and VISI before the U.S.
Department of Labor (the “DOL”),
alleging wrongful termination. The Company denies the allegations, which
it
believes to be without merit, and has filed a reply to that effect with the
DOL
and is currently awaiting further disposition by such authorities. The Company
has defended its position and the position of VISI and intends to continue
to do
so.
Schedule
3.1(l) - Compliance
The
Company has received notice of a claim in the amount of approximately $43K
from
its landlord for its headquarters facilities at 000 Xxxx Xxxxx Xxxxx, Xxx
Xxxxx
Xxxxxxxxxxx for payment of alleged back operating expenses for 2003 and 2004.
The Company has disputed those charges.
On
October 24, 2005, DSLnet Communications, LLC, along with approximately 60%
of
the other competitive local exchange carriers (“CLECs”)
licensed in the State of Connecticut, received from the Connecticut Department
of Public Utility Control (the “CTDPUC”),
a
notice of violation of certain local service provider exit guidelines
promulgated by the CTDPUC (the “Notice”).
In
the wake of the number of bankruptcies and general market conditions affecting
the telecommunications industry, in 2004, the CTDPUC adopted guidelines
requiring CLECs that are providing local service to post a $25,000 surety
bond.
As set forth in the Notice, only approximately 40% of licensed
telecommunications providers in the State of Connecticut have complied with
the
bonding requirements, and the notice of violation is being initiated to notify
carriers of their non-compliance and to ensure their compliance in the future.
DSLnet Communications, LLC is required to respond to the Notice by November
7,
2005.
Schedule
3.1(m) - Regulatory Permits
On
October 13, 2005, the Company received a notice from The American Stock Exchange
(“Amex”)
that
the Company’s common stock may not be suitable for auction market trading as a
result of its low trading prices over the last six months and advising the
Company, in accordance with Section 1003(f)(v) of the Amex Company Guide,
that
Amex deems it appropriate for the Company to effect a reverse split of its
shares to address its trading price within a reasonable amount of time. If
the
Company does not effect a reverse stock split within a reasonable amount
of
time, Amex may determine that the Company does not meet Section 1003(f)(v)
of
the Amex Company Guide and, in such event, the Company would become subject
to
the Amex delisting procedures.
3
Schedule
3.1(n) - Title to Assets
The
Company owns no real property. The Company holds title to its assets subject
to
the Permitted Liens (as defined in the Security Agreement). The Terminating
Senior Lenders currently hold a blanket Lien on all assets of the Company
and on
assets of the guarantor signatories to the 2003 Security Agreement. Upon
the
satisfaction of the Company’s indebtedness to the Terminating Senior Lenders
with proceeds of the transactions contemplated by the Agreement, such Liens
of
the Terminating Senior Lenders will be released and of no further force or
effect.
Schedule
3.1(q) - Transactions with Affiliates and
Employees
In
connection with the Closing, the Board of Directors has authorized a one-time
transaction bonus for Xxxxx X. “Buddy” Pickle, the Company’s chief executive
officer, in the amount of $350K (an amount equal to 1X Xx. Xxxxxx’x annual base
salary), as permitted by Xx. Xxxxxx’x employment agreement with the Company.
Schedule
3.1(s) - Certain Fees
The
Company engaged Broadview International, a division of Xxxxxxxxx & Company,
Inc., as its investment banker and financial advisor for which the Company
will
pay fees to such party in connection with the transactions contemplated by
the
Transaction Documents. The Company also engaged various other professional
advisors, including legal counsel, to whom it will pay fees for services
rendered in connection with the transactions contemplated by the Transaction
Documents.
Schedule
3.1(dd) - Accountants
Xxxxxx,
Xxxxxxx & Xxxxx, LLP, 000 Xxxxxx Xxxxxx, Xxxxxxxx #0, Xxxxxxxxxxx, XX 00000,
is the Company’s independent registered public accounting firm.
Schedule
3.1(ee) - Seniority
As
of the
Closing, and upon the Company’s satisfaction of its indebtedness to the
Terminating Senior Lenders, the Debentures will be senior in right to all
indebtedness other than Permitted Liens, as such term is defined in the
Transaction Documents.
Schedule
4.7 - Use of Proceeds
The
Company shall use the proceeds of the Debenture issuances, net of transaction
fees and expenses and those certain payments contemplated by the Transaction
Documents, to pay off its senior secured debt held by the Terminating Senior
Lenders and to cancel and redeem its Series Z Preferred Stock held by
VantagePoint and its common stock purchase warrants held by the Terminating
Senior Lenders, for an aggregate payment of $5,500,000.
4