EXHIBIT 10.1
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT") is made as
of October 1, 1997, by and among THE XXXXXX GROUP, LLC, a Texas limited
liability company ("XXXXXX" and, together with any transferee of the Note, the
"PURCHASER"), and EQUALNET HOLDING CORP., a Texas corporation (the "COMPANY"),
EQUALNET CORPORATION, a Delaware corporation ("EC"), TELESOURCE, INC., a Texas
corporation ("TI"), and EQUALNET WHOLESALE SERVICES, INC., a Delaware
corporation ("EWS", together with the Company, EC, and TI, the "SELLERS").
RECITALS
Purchaser desires to purchase from the Sellers, and the Sellers desire
to issue and sell to Purchaser, subject to the terms and conditions set forth
herein, (i) a 12% convertible secured note due April 1, 1998, payable by the
Sellers, as co-obligors, in the original principal amount of $1,000,000 and (ii)
warrants to purchase up to an aggregate of 200,000 shares of Common Stock (as
hereinafter defined) of the Company, subject to adjustment as provided herein
and in the Warrant Agreement (as hereinafter defined).
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
In addition to the capitalized terms defined elsewhere in this
Agreement, the following capitalized terms shall have the following respective
meanings when used in this Agreement:
"AFFILIATE" as applied to any specified Person means any other
Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such specified Person. The term
"control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
20% or more of the voting power (or in the case of a Person which is
not a corporation, 20% or more of the ownership interest, beneficial or
otherwise) of such Person or the power otherwise to direct or cause the
direction of the management and policies of that Person, whether
through voting, by contract or otherwise. For purposes of this
paragraph, "voting power" of any Person means the total number of votes
which may be cast by the holders of the total number of outstanding
shares of stock of any class or classes of such Person in any election
of directors (or Persons performing similar functions) of such Person.
For purposes of this Agreement, all executive officers and directors of
a Person shall be deemed to be Affiliates of such Person.
"ANNUAL PLAN" shall have the meaning assigned to such term in
Section 4.2.9 hereof.
"BUSINESS DAY" means any day other than a Saturday, a Sunday,
or a day on which commercial banks in New York City, New York or
Houston, Texas are required or authorized to be closed.
"CAPITAL EXPENDITURES" shall mean expenditures in respect of
fixed or capital assets by a Person, including the capital portion of
lease payments made in respect of Capitalized Lease Obligations, but
EXCLUDING expenditures for the restoration, repair or replacement of
any fixed or capital asset which was destroyed or damaged, in whole or
in part, to the extent financed by the proceeds of an insurance policy
maintained by such Person. Expenditures in respect of replacements and
maintenance consistent with the business practices of such Person in
respect of plant facilities, machinery, fixtures and other like capital
assets utilized in the ordinary course of business are not Capital
Expenditures to the extent such expenditures are not capitalized in
preparing a balance sheet of such Person in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means all payment obligations
arising under any lease of property which, in accordance with GAAP,
would be capitalized on the Company's or any Subsidiary's balance sheet
or for which the amount of the asset and liability thereunder as if so
capitalized should, in accordance with GAAP, be disclosed in a note to
such balance sheet.
"CASH FLOW" means, for any period, the total of:
(a) Net Income for each period; PLUS
(b) all amounts deducted in computing such Net Income
in respect of (i) depreciation and amortization; (ii) interest
on Indebtedness (including payments in the nature of interest
under Capitalized Lease Obligations and interest costs that
were capitalized); and (iii) the provision for taxes for such
period based on income or profits to the extent such income or
profits were included in calculating Net Income.
"CHANGE OF CONTROL" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Securities Exchange Act); (ii) the Company consolidates
with or merges into another Person or any Person consolidates with, or
merges into, the Company, in any such event pursuant to a transaction
in which the outstanding voting stock of the Company is changed into or
exchanged for cash, securities, or other property, other than any such
transaction where the holders of the voting stock of the Company
immediately prior to such transaction own, directly or indirectly, not
less than a majority of the voting stock of the surviving or resulting
Person immediately after such transaction; (iii) the adoption of a plan
relating to the liquidation or dissolution of the Company, or (iv) the
consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above) becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act),
directly or indirectly, of more than 30% of the voting stock of the
Company. For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring
voting stock of the Company will be deemed to be a transfer of such
portion of such voting stock as corresponds to the portion of the
equity of such entity that has been so transferred.
"CHARTER" means, for any Person, such Person's certificate or
articles of incorporation or other organizational documents.
"CLAIMS" shall have the meaning assigned to such term in
Section 6.3 hereof.
"CLOSING" means the closing of the sale and purchase of the
Note and the Warrants pursuant to this Agreement.
"CLOSING DATE"shall have the meaning assigned to such term in
Section 2.2 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and all rules and regulations promulgated
thereunder, and any successor statute.
"COMERICA LOC" means the $100,000 Letter of Credit issued by
Comerica Bank-Texas on behalf of EC for the benefit of Xxxxxxxx
Partners, Ltd., dated August 5, 1997, and having an expiry of February
17, 1998, as the same may be amended, supplemented, extended, reissued,
or otherwise modified from time to time.
"COMMISSION" shall have the meaning assigned to such term in
Section 4.1.11(e) hereof.
"COMMON STOCK" means the Company's common stock, par value
$0.01 per share.
"CONSOLIDATED" refers to the consolidation of financial
statements in accordance with GAAP.
"CONVERSION DATE" shall have the meaning assigned to such term
in Section 5.1.3 hereof.
"CONVERSION PRICE" shall have the meaning assigned to such
term in Section 5.1.2 hereof.
"DEFAULT RATE" shall have the meaning assigned to such term in
Section 6.1 hereof.
"DEMAND SECURITIES" shall have the meaning assigned to such
term in Section 4.1.11(a) hereof.
"DOLLARS" and "$" shall mean lawful money of the United States
of America.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants franchises, licenses,
agreements, or governmental restrictions relating to environmental
matters, including, without limitation, those relating to fines,
orders, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the release of
Hazardous Materials and to the generation, use, storage,
transportation, handling or disposal of Hazardous Materials, in any
manner applicable to the Company or any of its Subsidiaries or any of
their respective properties.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the
Company would be deemed to be a "single employer" within the meaning of
Section 4001 of ERISA.
"ERISA TERMINATION EVENT" means (i) a "Reportable Event"
described in Section 4043 of ERISA and the regulations issued
thereunder (other than a "Reportable Event" not subject to the
provision for 30-day notice to the PBGC under such regulations), or
(ii) the withdrawal of the Company or any of its ERISA Affiliates from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice
of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan.
"EVENT OF DEFAULT" shall have the meaning as set forth in
Section 6.1 hereof.
"EXCLUDED STOCK" shall have the meaning assigned to such term
in Section 5.1.5(ii) hereof.
"FINANCIAL STATEMENTS" shall mean the Consolidated Financial
Statement or Statements of the Company and its Subsidiaries described
or referred to in Sections 4.2.1 and 4.2.2 hereof.
"XXXXX AGREEMENT" means that certain Note and Warrant Purchase
Agreement dated as of February 11, 1997, by and among the Xxxxx Group,
Inc., the Company, EC, TI, and EWS, and the notes and warrants executed
and delivered in connection therewith.
"GAAP" means generally accepted accounting principles
(including principles of consolidation) in the United States of
America, in effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means any foreign or domestic
federal, state, county, municipal, or other governmental or regulatory
authority, agency, board, body, commission, instrumentality, court, or
any political subdivision thereof.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, or other
direction or requirement (including but not limited to any of the
foregoing which relate to Environmental Laws, energy regulations and
occupational, safety and health standards or controls) of any
Governmental Authority.
"HAZARDOUS MATERIALS" means (a) any chemical, material or
substance defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "toxic pollutants,"
"contaminants," "pollutants," "toxic substances" or words of similar
import under any Environmental Laws, (b) any oil, petroleum or
petroleum derived substance, (c) any flammable substances or
explosives, (d) any radioactive materials, (e) any other materials or
pollutants which cause properties to be in violation of any
Environmental Laws, (f) asbestos in any form which is or could become
friable, radon gas, urea formaldehyde foam insulation, or transformers
or other electrical equipment which contain any oil or dielectric fluid
containing polychlorinated biphenyls, and (g) any other chemical,
material or substance, exposure to which is prohibited, limited, or
regulated by any Governmental Authority.
"HIGHEST LAWFUL RATE" shall have the meaning assigned to such
term in Section 8.14 hereof.
"INDEBTEDNESS" means, with respect to any Person, the
principal of, premium, if any, and interest on: (a) indebtedness for
money borrowed from others whether or not evidenced by notes, bonds,
debentures or otherwise; (b) indebtedness of another Person guaranteed,
directly or indirectly, in any manner by such Person, including,
without limitation, through an agreement, contingent or otherwise, (i)
to purchase or pay any such indebtedness, (ii) to advance or supply
funds for the purchase or payment of such indebtedness, (iii) to
purchase and pay for property if not delivered or pay for services if
not performed, primarily for the purpose of enabling such other Person
to make payment of such indebtedness or to assure the owners of the
indebtedness against loss, or (iv) to maintain working capital, equity
capital or other financial condition of such other Person so as to
enable it to pay such indebtedness; (c) all indebtedness secured by any
Lien upon property owned by such Person, even though such Person has
not in any manner become liable for the payment of such indebtedness;
(d) all indebtedness of such Person created or arising under any
conditional sale, lease (intended primarily as a financing device) or
other title retention or security agreement with respect to property
acquired by such Person even though the rights and remedies of the
seller, lessor or lender under such agreement or lease in the event of
default may be limited to repossession or sale of such property; (e)
all obligations of such Person issued or assumed for the deferred
purchase price of property or services, including all trade credit; (f)
Capitalized Lease Obligations and the present value of all future lease
payments under a lease other than Capitalized Lease Obligations; (g)
all unfunded postretirement and postemployment benefits including,
without limitation, unfunded pension liabilities; (h) mandatory
redemption or mandatory dividend rights on common or preferred stock
(or other equity) (other than rights (if any) of the Xxxxx Group (or
its assignee) to cause the Company to repurchase Common Stock; (i)
obligations of discontinued businesses that are subsumed within the
single-sum amount of the net assets of the discontinued operations
being held for sale; and (j) all obligations of such Person under or
with respect to letters of credit if in the aggregate or individually
such letters of credit equal or exceed $100,000.
"INITIAL CONVERSION PRICE" shall have the meaning assigned to
such term in Section 5.1.2 hereof.
"INITIATING HOLDERS" shall have the meaning assigned to such
term in Section 4.1.11(a) hereof.
"INTELLECTUAL PROPERTY" shall have the meaning assigned to
such term in Section 3.1.21(a) hereof.
"INTEREST EXPENSE" shall mean, for any period, the sum of (a)
the cash interest payments by an obligor made or accrued in accordance
with GAAP during such period in connection with all of its
interest-bearing Indebtedness and (b) the interest component of any
Capitalized Lease Obligations.
"INTERMEDIARY" shall have the meaning assigned to such term in
Section 3.1.17 hereof.
"INVESTMENT" means any stock, partnership, or joint venture
interest or other security, any loan, advance, contribution to capital,
any acquisitions of real or personal property (other than real and
personal property acquired in the ordinary course of business), and any
purchase or commitment or option to purchase stock or other securities
of or any interest in another Person or any integral part of any
business or the assets comprising such business or part thereof if the
aggregate consideration for such purchase, commitment or option was in
excess of $10,000, and whether existing on the date of this Agreement
or hereafter made.
"LEASE AGREEMENT" means the Lease Agreement dated June 28,
1994, between Xxxxxxxx Partners, Ltd. and EC (as successor-in-interest
to EqualNet Communications, Inc.), as amended by the First Amendment to
Lease Agreement, dated effective as of August 15, 1994, as amended by
the Second Amendment to Lease Agreement, dated effective as of
September 8, 1994, as amended by the Third Amendment to Lease
Agreement, dated effective as of April 10, 1995, as amended by the
Fourth Amendment to Lease Agreement, dated effective as of August 14,
1997, as the same may be further amended, supplemented, or otherwise
modified from time to time.
"LEASEHOLD DEED OF TRUST" means the Leasehold Deed of Trust
and Security Agreement to be executed by EC, as grantor, to Xxxxxxx X.
Xxxxxx, as trustee, for the benefit of Purchaser, substantially in the
form of Exhibit E hereto, as the same may be amended, supplemented, or
otherwise modified from time to time.
"LIEN" means, with respect to any Person, any mortgage, deed
of trust, lien, security interest, pledge, lease, conditional sale
contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.
"MARGIN STOCK" shall have the meaning assigned to such term in
Section 3.1.6 hereof.
"MATERIAL ADVERSE EFFECT" means any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
or operations of the Company and its Subsidiaries on a Consolidated
basis, or (ii) the ability of the Company and its Subsidiaries on a
Consolidated basis to carry out their business as at the date of this
Agreement or meet its obligations under the Operative Documents on a
timely basis.
"MULTIEMPLOYER PLAN" means a Plan defined as such in Section
3(37) of ERISA to which contributions have been made by the Company or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"NOTE" means the 12% convertible secured note payable by the
Sellers, as co-obligors, in the original principal amount of
$1,000,000, substantially in the form of Exhibit A hereto, as the same
may be amended, supplemented, or otherwise modified from time to time,
and any notes issued in exchange for such Note.
"OPERATIVE DOCUMENTS" means this Agreement, the Leasehold Deed
of Trust, the Note, the Security Agreement, the Warrant Agreement, and
the Warrant Certificates.
"PERMITS" means all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and
other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities
necessary for the conduct of the business of the Company and its
Subsidiaries immediately prior to the Closing and as proposed to be
conducted by the Company and its Subsidiaries after the Closing.
"PERMITTED LIENS" shall have the meaning assigned to such term
in Section 4.3.2 hereof.
"PERSON" means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization, any other form of legal entity, or a Governmental
Authority.
"PIGGY-BACK SECURITIES" shall have the meaning assigned to
such term in Section 4.1.11(b) hereof.
"PIGGY-BACK TERMINATION DATE " shall have the meaning assigned
to such term in Section 4.1.11(b) hereof.
"PLAN" means any multi-employer plan or single employer plan,
as defined in Section 4001 and subject to Title IV of ERISA, which is
maintained, or at any time during the five calendar years preceding the
date of this Agreement was maintained, for employees of the Company or
a Subsidiary of the Company or an ERISA Affiliate.
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"PROPRIETARY INFORMATION AGREEMENT" shall have the meaning
assigned to such term in Section 3.1.21(b) hereof.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.1 hereof.
"REGISTRABLE SECURITIES" shall have the meaning assigned to
such term in Section 4.1.11(b) hereof.
"RESPONSIBLE OFFICER" means with respect to any Person (other
than a Person that is an individual), the chairman of the board, the
president, any executive or senior vice president, the vice president
of finance, the chief executive officer, the chief operating officer or
the treasurer of such Person.
"RFC AGREEMENT" means the Receivables Sale Agreement dated as
of June 18, 1997, by and between EC and Receivables Funding
Corporation.
"SECURITIES ACT" shall have the meaning set forth in Section
3.2.1 hereof.
"SECURITY AGREEMENT" means the Security Agreement to be
executed by each of the Sellers, as debtor, and Purchaser, as secured
party, substantially in the form of Exhibit D hereto, as the same may
be amended, supplemented, or otherwise modified from time to time.
"SENIOR OBLIGATIONS" means Indebtedness arising under (a) the
Xxxxx Agreement in an amount not to exceed $3,000,000 (plus interest),
(b) the RFC Agreement (and the obligations arising thereunder) in an
amount not to exceed the Purchase Commitment (as defined in the RFC
Agreement on the date hereof), and (c) the Comerica LOC in an amount
not to exceed $100,000 (plus related costs and expenses arising in
connection therewith).
"SUBSIDIARY" means, as to any Person, any corporation,
company, association, partnership, limited liability company or other
business entity of which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and
any partnership, limited liability company or joint venture if more
than a 50% interest in the profits of capital thereof is owned by such
Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries.
"TECHNICAL EMPLOYEES" shall have the meaning assigned to such
term in Section 3.1.21(b) hereof.
"TERMINATION DATE" shall have the meaning assigned to such
term in Section 4.1.11(a) hereof.
"WARRANT AGREEMENT" means the Warrant Agreement to be executed
by the Company, substantially in the form of Exhibit B hereto, as the
same may be amended, supplemented, or otherwise modified from time to
time.
"WARRANT CERTIFICATE" means the certificate evidencing
Warrants, substantially in the form of Exhibit A to the Warrant
Agreement, as the same may be amended, supplemented, or otherwise
modified from time to time.
"WARRANT HOLDER" means any holder of the Warrants.
"WARRANT SHARES" means the shares of common stock issued or
issuable upon the exercise of the Warrants.
"WARRANTS" means warrants to purchase shares of common stock
of the Company issued to Purchaser pursuant to this Agreement and the
Warrant Agreement and evidenced by the Warrant Certificate.
"WEB AGREEMENT" means that certain Web Site Services and Long
Distance Agreement between International Center for Entrepreneurial
Development, Inc. and EC dated August 1, 1997.
ARTICLE II
PURCHASE AND SALE OF THE NOTE; CLOSING
2.1 SALE AND PURCHASE OF NOTE AND WARRANTS. Subject to the satisfaction
of the terms and conditions herein set forth and in reliance upon the respective
representations and warranties of the parties set forth herein or in any
document delivered pursuant hereto, at the Closing, the Sellers agree to sell to
Purchaser, and Purchaser agrees to purchase from the Sellers, the Note and the
Warrants free and clear of any Liens whatsoever. The aggregate purchase price
for the Note and the Warrants is $1,000,000 (the "PURCHASE Price").
2.2 CLOSING. The Closing of the purchase and sale of the Note and
Warrants will be held at the offices of Xxxxxx & Xxxxxx L.L.P., 1001 Xxxxxx,
0000 Xxxxx Xxxx Xxxxx, Xxxxxxx, Xxxxx 00000, on October 1, 1997 (the "CLOSING"),
at 10:00 a.m., Houston time, or at such other time, date and place as the
parties may agree (the "CLOSING DATE"). On the Closing Date, the Sellers will
deliver to Purchaser the Note and the Warrant Certificate, each duly executed
and registered in the name of Purchaser, and Purchaser will pay the Purchase
Price by wire transfer of funds to an account designated by the Sellers, which
account shall be (a) designated by the Sellers not less than three Business Days
prior to the Closing Date and (b) at a commercial bank or other financial
institution located in New York, New York.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. In order to induce
Purchaser to enter into this Agreement, each Seller (on its own behalf and on
behalf of its Subsidiaries) represents and warrants to Purchaser (which
representations and warranties will survive the delivery of the Note) that:
3.1.1 CORPORATE EXISTENCE. Each Seller and each of its
Subsidiaries is duly organized, legally existing, and in good standing
under the laws of the jurisdictions in which it is incorporated and is
duly qualified as a foreign corporation (or other legal entity) in all
jurisdictions in which the nature of its business activities or its
ownership or leasing of property makes such qualification necessary,
except where the failure to so qualify will not have a Material Adverse
Effect.
3.1.2 CORPORATE POWER AND AUTHORIZATION. Each Seller has the
requisite corporate power and authority to create and issue the Note
and the Warrants (as applicable), to execute, deliver, and perform its
obligations under this Agreement and the other Operative Documents, and
to consummate the transactions contemplated hereby and thereby. All
action on each Seller's part requisite for the due creation and
issuance of the Note and the Warrants (as applicable) and for the due
execution, delivery, and performance of this Agreement and the other
Operative Documents to which it is a party has been duly and
effectively taken.
3.1.3 BINDING OBLIGATIONS. This Agreement is and, upon the
execution, issuance, and delivery by the Sellers, the Note, the
Warrants, and each of the other Operative Documents will be,
enforceable in accordance with its terms (except that enforcement may
be subject to (i) any applicable bankruptcy, insolvency or similar laws
generally affecting the enforcement of creditors' rights and (ii)
general principles in equity regardless of whether such enforcement is
sought in a proceeding in equity or at law).
3.1.4 NO VIOLATION. Neither the execution and delivery of this
Agreement or any of the other Operative Documents to which it is a
party, the consummation of the transactions provided for herein and
therein or contemplated hereby or thereby nor the fulfillment by the
Sellers of the terms hereof or thereof will (a) violate any provision
of the Charter or the by-laws of any Seller, (b) result in a default,
give rise to any right of termination, cancellation, acceleration or
imposition of any Lien upon the Note, or require any consent or
approval (other than any consent or approval that has previously been
obtained) under any of the terms, conditions or provisions of any of
the Permits or any note, bond, mortgage, indenture, loan, distribution
agreement, license, agreement, lease, or instrument or obligation to
which any Seller is a party or by which any Seller may be bound (except
where the failure to obtain such consent or approval will not have a
Material Adverse Effect), or (c) violate any law, judgment, order,
writ, injunction, decree, statute, rule, or regulation of any
Governmental Authority applicable to any Seller or the Note (except
where such violation will not have a Material Adverse Effect).
3.1.5 CONSENTS. All consents, approvals, qualifications,
orders, or authorizations of, or filings with, any Governmental
Authority, and all consents under any material contracts, agreements,
or instruments by which any Seller is bound or to which it is subject,
and required in connection with each Seller's valid execution,
delivery, or performance of this Agreement and the other Operative
Documents to which it is a party and the offer, sale, and delivery of
the Note and the consummation of any other transaction contemplated on
the part of the Sellers have been obtained or made.
3.1.6 USE OF PROCEEDS. The proceeds from the sale of the Note
and the Warrants will be used for working capital and other general
corporate purposes. No part of the proceeds from the sale of the Note
will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System (12 CFR 207), or for
the purpose of buying or carrying or trading in any securities under
such circumstances as to involve any Seller in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or
dealer in a violation of Regulation T of said Board (12 CFR 220). As
used herein, the terms "margin stock" and "purpose of buying or
carrying" shall have the meanings assigned to them in said Regulation
G.
3.1.7 FINANCIAL INFORMATION
(a) The Consolidated balance sheet of the Company and its
Subsidiaries as at June 30, 1996, and the related Consolidated
statements of operations, shareholders' equity and cash flows for the
12-month period then ended, including in each case the related
schedules and notes, reported on by Ernst & Young LLP, are complete and
correct and fairly present in all material respects the Consolidated
financial position of the Company and its Subsidiaries as at the date
thereof and the Consolidated results of operations and changes in cash
flows for such period, in accordance with GAAP.
(b) The unaudited Consolidated balance sheet of the Company
and its Subsidiaries as at March 31, 1997, and the related unaudited
Consolidated statements of operations, shareholders' equity and cash
flows for the nine-month period then ended, as included in the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997, true copies of which have been previously delivered to
Purchaser, are complete and correct and fairly present in all material
respects the Consolidated financial position of the Company and its
Subsidiaries as at the date thereof and the Consolidated results of
operations and changes in cash flows for such period in conformity with
GAAP, subject only to normal year-end audit adjustments.
(c) Since March 31, 1997, there has been no Material Adverse
Effect.
3.1.8 LIABILITIES. Except for liabilities incurred in the
ordinary course of business, none of the Sellers has any material
(individually or in the aggregate) liabilities, direct or contingent
(including but not limited to liability with respect to any Plan)
except as disclosed or referred to in SCHEDULE 3.1.8 or in the
financial statements referred to in Section 3.1.7. The Sellers have no
Indebtedness other than Indebtedness disclosed in SCHEDULE 3.1.8.
3.1.9 LITIGATION. Except as discussed in SCHEDULE 3.1.9 or as
described in any report filed by the Company with the Commission and
delivered to Purchaser, there is no action, suit, or proceeding, or any
governmental investigation or any arbitration, in each case pending or,
to the knowledge of the Sellers, threatened against any Seller or any
material property of any thereof before any court or arbitrator or any
governmental or administrative body, agency or official (i) which
challenges the validity of this Agreement, the Note, or any of the
Operative Documents or the attachment, perfection, or priority of any
Operative Document or the Liens to be created thereunder; or (ii)
which, if adversely determined, would have a Material Adverse Effect.
3.1.10 COMPLIANCE WITH ERISA. Each Plan is in substantial
compliance with ERISA, no Plan has an accumulated or waived funding
deficiency within the meaning of Section 412 or Section 418(B) of the
Code, no proceedings have been instituted to terminate any Plan, and
except as disclosed in SCHEDULE 3.1.10, none of the Sellers nor any
ERISA Affiliate has incurred any material liability to or on account of
a Plan under ERISA, and except as disclosed in SCHEDULE 3.1.10, no
condition exists which presents a material risk to any Seller of
incurring such a liability.
3.1.11 TAXES; GOVERNMENTAL CHARGES. Each of the Sellers has
filed all tax returns and reports required to be filed and has paid all
taxes, assessments, fees, and other governmental charges levied upon
any of them or upon any of their respective properties or income which
are due and payable, including interest and penalties, or has provided
adequate reserves for the payment thereof, except where the failure to
so file, pay, or reserve would not have a Material Adverse Effect.
3.1.12 DEFAULTS. Except as disclosed in SCHEDULE 3.1.12, none
of the Sellers is in default, nor has any event or circumstance
occurred which, but for the passage of time or the giving of notice, or
both, would constitute a default (in any respect which may have a
Material Adverse Effect) under any loan or credit agreement, indenture,
mortgage, deed of trust, security agreement, or other instrument or
agreement evidencing or pertaining to any Indebtedness of any Seller or
any Subsidiary, or under any material agreement or instrument to which
any Seller or any Subsidiary is a party or by which any Seller or any
Subsidiary is bound. No default hereunder has occurred and is
continuing.
3.1.13 COMPLIANCE WITH THE LAW. None of the Sellers (a) is in
violation of any Governmental Requirement or (b) has failed to obtain
any license, permit, franchise, or other governmental authorization
necessary to the ownership of any of their respective properties or the
conduct of their respective business, which violation or failure would
have (in the event that such a violation or failure were asserted by
any Person through appropriate action) a Material Adverse Effect.
3.1.14 INTENTIONALLY OMITTED.
3.1.15 INVESTMENT COMPANY ACT. None of the Sellers is an
"investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
3.1.16 PUBLIC UTILITY HOLDING COMPANY ACT. None of the Sellers
is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
3.1.17 FEES AND COMMISSIONS. None of the Sellers nor, to the
knowledge of any of the Sellers, their Affiliates has retained a
finder, broker, agent, financial advisor, or other intermediary
(collectively, an "INTERMEDIARY") in connection with the transactions
contemplated by this Agreement and the other Operative Documents, and
the Sellers agree, jointly and severally, to pay and to indemnify and
hold harmless Purchaser from and against liability for any compensation
to any Intermediary and the fees and expenses of defending against such
liability or alleged liability.
3.1.18 DISCLOSURE. The Company's filings made pursuant to the
Securities Exchange Act of 1934, as amended and listed on SCHEDULE
3.1.18 hereto as of their respective dates, do not contain any untrue
statement of a material fact and do not omit to state any material fact
necessary in order to make the statements contained therein or herein
not misleading in the light of the circumstances under which they were
made.
3.1.19 STRUCTURE; CAPITALIZATION.
(a) SCHEDULE 3.1.19 contains (except has noted therein) a
complete and correct list of the Company's Subsidiaries, showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in SCHEDULE 3.1.19 as being
owned by the Company and its Subsidiaries have been validly issued, are
fully paid and nonassessable, and are owned by the Company or such
other Subsidiaries free and clear of any Lien (except as otherwise
disclosed in SCHEDULE 3.1.19.
(c) No Subsidiary of the Company is a party to, or otherwise
subject to any legal restriction of any agreement (other than this
Agreement and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the
Company or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
(d) As of the Closing Date and after giving effect to the
transactions contemplated in this Agreement (i) the Company's
authorized capital stock will consist of 21,000,000 shares, of which
20,000,000 are designated Common Stock; (ii) 6,173,750 shares of Common
Stock, issued and outstanding and 2,317,900 shares are or will be
reserved for issuance in connection with the Company's outstanding
warrants and stock options (200,000 of which will be reserved for
issuance in connection with the Warrants), all of which, when issued in
accordance with the terms of such warrants and stock options, will be
validly issued, fully paid, and non-assessable; (iii) no shares of
Common Stock are owned or held by or for the account of the Company or
any of its Subsidiaries (except as disclosed in the financial
statements described in Section 3.1.7); (iv) except as disclosed on
SCHEDULE 3.1.19, neither the Company nor any of its Subsidiaries has
outstanding any stock or other securities convertible into or
exchangeable for any shares of capital stock, any rights to subscribe
for or to purchase or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or
any calls, commitments or claims of any other character relating to the
issuance of, any capital stock, or any stock or securities convertible
into or exchangeable for any capital stock which have not been waived
(other than as contemplated by this Agreement); and (v) except as
disclosed in SCHEDULE 3.1.19, neither the Company nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of capital stock.
3.1.20 ENVIRONMENTAL MATTERS
(a) Neither any property of any Seller nor the operations
conducted thereon violate any order of any court or Governmental
Authority or Environmental Laws which violations could reasonably be
expected to result in liability in excess of $250,000 or which could
reasonably be expected to result in remedial obligations in excess of
$250,000, assuming disclosure to the applicable Governmental Authority
of all relevant facts, conditions and circumstances, if any, pertaining
to the relevant property.
(b) Without limitation of clause (a) above, no property of any
Seller nor the operations currently conducted thereon or by any prior
owner or operator of such property or operation, are in violation of or
subject to any existing, pending or, to the knowledge of any Seller,
threatened action, suit, investigation, inquiry or proceeding by or
before any court or Governmental Authority or to any remedial
obligations under Environmental Laws which could reasonably be expected
to result in liability in excess of $250,000, or which could reasonably
be expected to result in remedial obligations in excess of $250,000
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to the
relevant property.
(c) All notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed in connection with the
operation or use of any and all property of each Seller and its
Subsidiaries, including but not limited to past or present treatment,
storage, disposal or release of Hazardous Materials into the
environment, have been duly obtained or filed, except where the failure
to so obtain or file would not have a Material Adverse Effect.
3.1.21 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
(a) The Sellers (i) own or have the right to use, free and
clear of all liens, claims, and restrictions, all patents, trademarks,
service marks, trade names, and copyrights, and all applications,
licenses, and rights with respect to the foregoing, and all trade
secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs, and technical data and information
(collectively, "INTELLECTUAL PROPERTY") used and sufficient for use in
the conduct of its business as now conducted and/or as presently
proposed to be conducted (including, without limitation, the
development, manufacture, operation, and sale of all products and
services sold or proposed to be sold by the Sellers during the next 24
months following the date of this Agreement) without infringing upon or
violating any right, lien, or claim of others, including, without
limitation, former employees and former employers of its past and
present employees, and (ii) except described in SCHEDULE 3.1.21, is not
obligated or under any liability whatsoever to make any payments by way
of royalties, fees, or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service xxxx, trade name,
copyright, or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(b) Any and all Intellectual Property of any kind, relating to
the business of the Sellers, currently being developed, or developed in
the future, by any employee of the Sellers while in the employ of the
Sellers shall be the property solely of the Sellers. The Sellers have
taken security measures to protect the secrecy, confidentiality, and
value of all Intellectual Property, which measures are reasonable and
customary in the industry in which the Sellers operate. The Sellers'
employees and other persons who, either alone or in concert with
others, developed, invented, discovered, derived, programmed, or
designed the Intellectual Property (the "TECHNICAL EMPLOYEES"), or who
have knowledge of or access to information about the Intellectual
Property, have entered into a written agreement with the Sellers, in
form and substance satisfactory to the Company's management (the
"PROPRIETARY INFORMATION AGREEMENT") regarding ownership and treatment
of the Intellectual Property.
(c) Except as described in SCHEDULE 3.1.21,, none of the
Sellers has received any communications alleging that such Seller has
violated, or by conducting its business as proposed would violate, any
of the patents, trademarks, service marks, trade names, copyrights, or
trade secrets or other proprietary rights of any other Person or
entity. None of the Sellers' employees is obligated under any contract
(including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order of any court or
administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Sellers or that
would conflict with the Sellers' business as presently conducted and as
proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Sellers' business by the
employees of the Sellers, nor the conduct of the Sellers' business as
proposed to be conducted, will conflict with or result in a breach of
the terms, conditions, or provisions of, or constitute a default under,
any contract, covenant, or instrument under which any of such employees
is now obligated. It is not, and will not become, necessary to utilize
any inventions of any of the Sellers' employees (or people the Sellers
currently intends to hire) made prior to their employment by the
Sellers other than those that have been assigned to the Sellers
pursuant to the Proprietary Information Agreement signed by such
employee.
3.1.22 INSURANCE COVERAGE. The properties of the Sellers are
insured for the benefit of such Seller in amounts deemed adequate by
the Company's management against risks usually insured against by
Persons operating businesses similar to those of the Sellers in the
localities where such properties are located.
3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce the Sellers
to enter into this Agreement, Purchaser represents and warrants to the Sellers
that:
3.2.1 PURCHASE FOR INVESTMENT.
(a) Purchaser is acquiring the Note and Warrants for its own
account and not with a view to the public resale or distribution of all
or any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act of 1933, as
amended (the "SECURITIES ACT").
(b) Purchaser acknowledges that the Note, the shares of Common
Stock issuable upon conversion of the Note, the Warrants, and the
Warrant Shares have not been registered under the Securities Act.
(c) Purchaser is an "accredited investor" within the meaning
of Rule 501 under Regulation D promulgated under the Securities Act, is
experienced in evaluating investments in companies such as the Company,
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its investment and
has the ability to bear the entire economic risk of its investment.
Purchaser has made its own evaluation of its investment in the Note and
the Warrants, based upon such information as is available to it and
without reliance upon the Company or any other person or entity, and
Purchaser agrees that neither the Company nor any other person or
entity has any obligation to furnish any additional information to
Purchaser except as expressly set forth herein.
(d) Purchaser acknowledges that the Note, the shares of Common
Stock issuable upon conversion of the Note, the Warrants, and the
Warrant Shares may not be sold, transferred, pledged, hypothecated, or
otherwise disposed of without registration under the Securities Act or
an exemption therefrom, and that in the absence of an effective
registration statement covering the Note, the shares of Common Stock
issuable upon conversion of the Note, the Warrants, or the Warrant
Shares or an available exemption from registration under the Securities
Act, the Note, the shares of Common Stock issuable upon conversion of
the Note, the Warrants, and the Warrant Shares must be held
indefinitely.
(e) Purchaser agrees that the Note, the shares of Common Stock
issuable upon conversion of the Note, the Warrants, and the Warrant
Shares shall bear legends in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH
SUCH SALE."
3.2.2 AUTHORIZATION; NO CONFLICT. Purchaser has all requisite
power and authority to enter into this Agreement and to carry out and
perform its obligations under the terms of this Agreement. This
Agreement is a legal, valid, and binding obligation of Purchaser. The
execution, delivery, and performance of this Agreement by Purchaser and
the consummation by Purchaser of the transactions contemplated hereby
will not conflict with or result in a default under the terms of any
material contract, agreement, obligation, commitment, or organizational
document applicable to Purchaser.
ARTICLE IV
COVENANTS
The Sellers covenant and agree (each on its own behalf and on behalf of
each of its Subsidiaries, as applicable) as set forth below, and acknowledges
that Purchaser is entering into this Agreement on the expectation that the
Sellers and their Subsidiaries honor such covenants and agreements.
4.1 AFFIRMATIVE COVENANTS. So long as any principal or other amounts
due and owing remain outstanding under the Note, the Sellers will at all times
comply with the following covenants:
4.1.1 COMPLIANCE WITH LAWS. Each Seller will, and will cause
its Subsidiaries to, comply in all material respects with all
applicable Governmental Requirements.
4.1.2 INSURANCE. Each Seller will, and will cause its
Subsidiaries to, maintain with financially sound and reputable
insurers, insurance with respect to its properties and business against
such liabilities, casualties, risks and contingencies and in such types
and amounts as is customary in the case of Persons engaged in the same
or similar businesses and similarly situated. Upon request of
Purchaser, each Seller will furnish or cause to be furnished to
Purchaser from time to time a summary of the insurance coverage of such
Seller in form and substance satisfactory to Purchaser and if requested
will furnish Purchaser copies of the applicable policies.
4.1.3 PAYMENT OF TAXES AND CLAIMS. Each Seller agrees to pay
or cause to be paid all taxes, assessments, and other governmental
charges levied upon any of its assets or those of its Subsidiaries or
in respect of its or their respective franchises, businesses, income or
profits, all trade accounts payable in accordance with the Company's
usual and customary business terms, and all claims for work, labor, or
materials, which if unpaid might become a lien or charge upon any asset
of such Seller or any of its Subsidiaries, before the same become
delinquent, except that (unless and until foreclosure, sale or other
similar proceedings shall have been commenced) no such charge need be
paid if being contested in good faith and by appropriate measures
promptly initiated and diligently conducted if (a) such reserve or
other appropriate provision, if any, as shall be required by GAAP shall
have been made therefor, and (b) such contest does not have a Material
Adverse Effect on the ability of such Seller or any of its Subsidiaries
to pay any Indebtedness and no material assets are in imminent danger
of forfeiture.
4.1.4 PERFORMANCE OF OBLIGATIONS.
(a) Each Seller will, and will cause its Subsidiaries to, use
its commercially reasonable efforts to pay, discharge, or otherwise
satisfy at or before maturity or before they become delinquent, as the
case may be, all of its obligations of whatever nature, except when the
amount or validity thereof is currently being contested in good faith
by appropriate proceedings and reserves, if any, as shall be required
by GAAP with respect thereto have been provided on the books of such
Seller or its Subsidiaries, as the case may be, and except where the
failure to so pay, discharge or satisfy such obligations would not have
a Material Adverse Effect.
(b) The Sellers will pay the Note according to the reading,
tenor, and effect thereof.
4.1.5 CORPORATE EXISTENCE; PROPERTY. Each Seller (i) will do
or cause to be done all things reasonably necessary to preserve and
keep in full force and effect the corporate existence and material
rights of such Seller and all of its Subsidiaries, (ii) will cause its
properties and the properties of its Subsidiaries used and useful in
the conduct of their respective businesses to be maintained and kept in
good condition, repair and working order and will use its commercially
reasonable efforts to cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto, and (iii) will, and
will cause each of its Subsidiaries to, qualify and remain qualified to
conduct business in each jurisdiction where the nature of the business
or the ownership of property by such Seller or such Subsidiary may
require such qualification and where the failure to so qualify would
have a Material Adverse Effect.
4.1.6 USE OF PROCEEDS. The Seller shall use the proceeds from
the sale of the Note and the Warrants for the purposes and in the
manner described in Section 3.1.6.
4.1.7 ENVIRONMENTAL MATTERS. Each Seller and its Subsidiaries
shall comply with all applicable Environmental Laws the failure to
comply with which would have a Material Adverse Effect. If any Seller
or its Subsidiaries shall receive written notice that there exists a
violation of Environmental Law with respect to its operations or any
real property owned, formerly owned, used, or leased thereby, which
violation could have a Material Adverse Effect, such Seller shall
immediately notify Purchaser in writing. Furthermore, if any Seller or
its Subsidiaries shall receive written notice that there exists a
violation of Environmental Law with respect to its operations or any
real property owned, formerly owned, used or leased thereby, which
violation could have a Material Adverse Effect, such Seller shall
within the time period permitted by the applicable Governmental
Authority (unless otherwise contested by such Seller in good faith)
remove or remedy such violation in accordance with all applicable
Environmental Laws unless the Board of Directors of such Seller
determines that it would be in the best interest of such Seller to
delay the remedy of such violation, so long as no Material Adverse
Effect is suffered by such Seller during such delay.
4.1.8 FEES AND EXPENSES.
(a) The Sellers will bear all of their expenses in connection
with this Agreement and the other Operative Documents and the
transactions contemplated hereby and thereby, and will also reimburse
Purchaser for or pay any expenses Purchaser incurs (including, without
limitation, the fees incurred by Purchaser in connection with due
diligence and the reasonable legal fees) in connection with the
negotiation of and closing under this Agreement and any other Operative
Documents and the transactions contemplated hereby and thereby (up to a
maximum of $25,000), including, without limitation, all expenses
incurred in connection with (i) the preparation of, negotiation of,
closing under, amendment of, waiver under, or enforcement of, or the
preservation of any rights under, this Agreement or any other Operative
Documents, (ii) any stamp and other taxes (other than income taxes)
payable with respect to this Agreement or the other Operative
Documents, and (iii) any filing with any Governmental Authority with
respect to Purchaser's purchase of the Note and the Warrants.
(b) The Sellers will also bear the legal fees and
disbursements of counsel (up to a maximum of $25,000) to Purchaser in
connection with any mutually agreed upon amendments to this Agreement
or any of the other Operative Documents, or any amendments proposed by
the Sellers whether or not effected, or in connection with the
consummation of any future transaction related thereto.
4.1.9 BOOKS AND RECORDS; INSPECTION OF PROPERTY. Each Seller
will keep, and will cause each of its Subsidiaries to keep, proper
books of record and accounts in which full, true and correct entries in
conformity with GAAP shall be made of all dealings and transactions in
relation to its business and activities. Each Seller covenants that it
will permit any Person representing Purchaser and designated in writing
by such Investors, at the Investors' expense, to visit and inspect any
of the properties of such Seller and its Subsidiaries, to examine the
corporate, financial, and operating records of such Seller and its
Subsidiaries and make copies thereof or extracts therefrom and to
discuss the affairs, finances, and accounts of any of such corporations
with the directors, officers and independent accountants of such Seller
and its Subsidiaries, all at such reasonable times and as often as
Purchaser may reasonably request.
4.1.10 STOCK TO BE RESERVED. The Company covenants that all
shares of Common Stock that may be issued upon the exercise of the
Warrants will, upon issuance and upon full payment therefor in
accordance with the terms thereof, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, and charges with respect
to the issuance thereof. The Company further covenants that during the
period within which the Warrants may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of
Common Stock to permit the exercise of the Warrants.
4.1.11 REGISTRATION RIGHTS.
(A) DEMAND REGISTRATION RIGHTS. The Company covenants and
agrees with the Purchaser and any subsequent holders of the Note, the
Warrants and/or Warrant Shares that, at any time after the earliest of
(i) the Conversion Date, (ii) the date on which the Warrants (or any
portion thereof) are exercised, or (iii) the maturity date of the Note,
within 60 days after receipt of a written request from the Purchaser
(the "INITIATING HOLDERS"), the Company shall file a registration
statement (and use its commercially reasonable efforts to cause such
registration statement to become effective under the Securities Act)
with respect to the offering and sale or other disposition of any
number of shares of Common Stock issued upon conversion of the Note or
Warrant Shares or both (all such securities, the "DEMAND SECURITIES");
PROVIDED that the Company may defer its obligations under this Section
4.1.11(a) for a period of no more than 90 days if the Company's Board
of Directors adopts a resolution that filing such a registration
statement would require a public disclosure by the Company which
disclosure would have material adverse consequences for the Company,
such as a disclosure regarding a pending material acquisition by the
Company; PROVIDED FURTHER that once such information has been publicly
disclosed, then the Company shall promptly proceed to fulfill its
obligations under this Section 4.1.11(a). The Company shall
continuously maintain the effectiveness of such registration statement
for the lesser of (i) 180 days after the effective date of the
registration statement or (ii) the consummation of the distribution by
the holders of the Demand Securities covered by such registration
statement (the "TERMINATION DATE"); PROVIDED, HOWEVER, that if at the
Termination Date, the Demand Securities are covered by a registration
statement which also covers other securities and which is required to
remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to the
Demand Securities for so long as such registration statement (or any
subsequent registration statement) remains or is required to remain in
effect for any of such other securities. The Company shall not be
required to comply with more than two requests for registration
pursuant to this Section 4.1.11(a). In addition, the Company shall be
required to effect up to three Short-form Registrations at the request
of Purchaser. All expenses of such registration shall be borne by the
Company, except that underwriting commissions and expenses attributable
to the Demand Securities and fees and disbursements of counsel and
other advisors (if any) to the Initiating Holders will be borne by such
holders requesting that such securities be offered.
If the Initiating Holders intend to distribute the Demand
Securities covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to
this Section 4.1.11(a). The right of any other holder to registration
pursuant to this Section 4.1.11(a) shall be conditioned upon such
holder's participation in such underwriting and the inclusion of such
holder's Demand Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and
such holder with respect to such participation and inclusion) to the
extent provided herein. A holder may elect to include in such
underwriting all or a part of the Demand Securities he holds. If other
holders of registration rights request inclusion in any registration
statement pursuant to this Section 4.1.11(a), such holders may be
included in the underwriting conditioned on their acceptance of the
further applicable provisions of this Section 4.1.11(a). The Company
shall (together with other holders proposed to distribute their
securities through such underwriting) enter into an underwriting
agreement in customary form with a representative of the underwriter or
underwriters selected for such underwriting by a majority in interest
of the Initiating Holders. If the representative advises the Initiating
Holders in writing that marketing factors require a limitation on the
number of shares to be underwritten, then securities held by holders
other than the Initiating Holders shall be excluded from such
registration to the extent so required by such limitation.
(B) PIGGY-BACK REGISTRATION RIGHTS. The Company covenants and
agrees with the Purchaser and any subsequent holders of the Note, the
Warrants and/or Warrant Shares that, in the event the Company proposes
to file a registration statement under the Securities Act with respect
to a firm commitment offering of Common Stock (other than in connection
with an exchange offer or a registration statement on Form S-4 or S-8
or other similar registration statements not available to register
securities so requested to be included), the Company shall in each case
give written notice of such proposed filing to the Purchaser at least
30 days before the earlier of the anticipated or the actual effective
date of the registration statement and at least ten days before the
initial filing of such registration statement and such notice shall
offer to such holders the opportunity to include in such registration
statement such number of shares of Common Stock issued upon conversion
of the Note or Warrant Shares or both (the "PIGGY-BACK SECURITIES", and
together with the securities referred to in Section 4.1.11(a) above,
the "REGISTRABLE SECURITIES") as they may request. Holders desiring
inclusion of Piggy-back Securities in such registration statement shall
so inform the Company by written notice, given within ten days of the
giving of such notice by the Company in accordance with the provisions
of Section 8.11 hereof. The Company shall permit, or shall cause the
managing underwriter of a proposed offering to permit, the holders of
Piggy-back Securities requested to be included in the registration to
include such securities in the proposed offering on the same terms and
conditions as applicable to securities of the Company, if any, included
therein for the account of any person other than the Company and the
holders. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company in writing that, in its opinion,
the distribution of securities by holders thereof, including all or a
portion of the Piggy-back Securities, requested to be included in the
registration concurrently with the securities being registered by the
Company, would materially adversely affect the distribution of such
securities by the Company for its own account, then the holders of the
Registrable Securities shall delay their offering and sale of the
Registrable Securities (or the portions thereof so designated by such
managing underwriter) for such period, not to exceed 120 days, as the
managing underwriter shall request, provided that if any other
securities are included in such registration statement for the account
of any person other than the Company and the holders of Piggy-back
Securities, then such securities, including the Piggy-back Securities,
so included shall be apportioned among holders who wish to be included
therein pro rata according to amounts so requested to be included by
each such person. No such delay shall in any event impair any right
granted hereunder to make subsequent requests for inclusion pursuant to
the terms of this Section 4.1.11(b). The Company shall continuously
maintain in effect any registration statement with respect to which the
Piggy-back Securities have been requested to be included (and so
included) for a period of not less than 180 days after the
effectiveness of such registration statement ("PIGGY-BACK TERMINATION
DATE"); PROVIDED, HOWEVER, that if at the Piggy-back Termination Date
the Piggy-back Securities are covered by a registration statement which
is, or is required to remain, in effect beyond the Piggy-back
Termination Date, the Company shall maintain in effect the registration
statement as it relates to the Piggy-back Securities for so long as
such registration statement remains or is required to remain in effect
for any of such other securities. All expenses of such registration
shall be borne by the Company, except that underwriting commissions and
expenses attributable to the Piggy-back Securities and fees and
distributions of counsel and other advisors (if any) to the holders
requesting that the Piggy-back Securities be offered will be borne by
such holders.
(C) OTHER MATTERS. In connection with the registration of
Registrable Securities in accordance with Sections 4.1.11(a) or (b)
above, the Company agrees to:
(i) Use its commercially reasonable efforts to
register or qualify the Registrable Securities for offer or
sale under state securities or Blue Sky laws of such
jurisdictions in which the holders of such Registrable
Securities shall designate; PROVIDED that in no event shall
the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in
any jurisdiction where it is not now so subject, and use its
commercially reasonable efforts to do any and all other acts
and things which may be necessary or advisable to enable the
holders of Registrable Securities to consummate the sale,
transfer, or other disposition of such securities in any
jurisdiction;
(ii) Enter into indemnity and contribution
agreements, each in customary form, with each underwriter, if
any, and each holder of Registrable Securities included in
such registration statement; and, if requested, enter into an
underwriting agreement containing customary representations,
warranties, covenants, allocation of expenses, and customary
closing conditions including, but not limited to, opinions of
counsel and accountants' cold comfort letters with any
underwriter who participates in the offering of Registrable
Securities;
(iii) Pay all expenses in connection with the
registration of the Registrable Securities under the
Securities Act and compliance with the provisions of clause
(i) above, except to the extent otherwise provided in Sections
4.1.11(a) and (b); and
(iv) List the Registrable Securities on each
securities exchange, if any, on which the Common Stock is
listed.
In connection with the registration of Registrable Securities
in accordance with Paragraph (b) above, the holders agree to enter into
an underwriting agreement containing customary representations,
warranties, covenants, allocation of expenses (not otherwise
inconsistent with this Agreement), and customary closing conditions,
with any underwriter who participates in the offering of Registrable
Securities.
(D) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company
agrees not to effect any public sale or distribution of any shares of
Common Stock or any securities convertible into or exchangeable or
exercisable for such shares of Common Stock (or any option or other
right for such securities), except for any securities that may be
issued to the holders pursuant to the Note or the Warrants during the
15-day period prior to, and during the 60-day period beginning on the
effective date of any registration statement under which the
Registrable Securities are registered in accordance with Section
4.1.11(a) (other than as part of such registration).
(E) RULE 144. With a view to making available to Purchaser the
benefits of certain rules of the Securities and Exchange Commission
(the "COMMISSION") that may permit the sale of Registrable Securities
to the public without registration, the Company hereby covenants and
agrees to use its commercially reasonable best efforts to: (i) file in
a timely manner all reports and other documents required to be filed by
it under the Securities Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations adopted by the Commission
thereunder necessary to permit sales under Rule 144 under the
Securities Act, and the Company will take such further action to the
extent reasonably required from time to time to permit the Purchaser to
sell Registrable Securities (whether or not any such securities have
been the subject of a demand or piggy-back request under Section
4.1.11(a) and (b) hereof) without registration under the Securities Act
within the limitation of the exemptions provided by (A) Rule 144 under
the Securities Act, as such Rule may be amended from time to time, or
(B) any similar rule or regulation hereafter adopted by the Commission
and (ii) promptly furnish Purchaser a copy of all such reports and
documents upon request. Upon the request of Purchaser, the Company will
deliver to Purchaser a written statement as to whether it has complied
with such requirements.
(F) OTHER REGISTRATION RIGHTS. The Company hereby agrees that
it shall not grant any additional registration rights with respect to
shares of its Common Stock, warrants to purchase its Common Stock or
securities convertible into its Common Stock, which are inconsistent
with the provisions of this Agreement.
4.1.12 FURTHER ASSURANCES. Each Seller covenants that it shall
cooperate with Purchaser and execute such further instruments and
documents as Purchaser shall reasonably request to carry out to the
satisfaction of Purchaser the transactions contemplated by this
Agreement.
4.2 REPORTING COVENANTS. So long as any principal or other amounts due
and owing under the Note remain outstanding, the Sellers will furnish to
Purchaser:
4.2.1 ANNUAL FINANCIAL STATEMENTS. As soon as available and in
any event within 120 days after the end of each fiscal year of the
Company occurring after the date hereof, a Consolidated and
consolidating balance sheet of the Company and its Subsidiaries as at
the end of such year and the related Consolidated and consolidating
statements of operations, shareholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and accompanied by a report thereon of Ernst &
Young LLP or other independent public accountants of comparable
recognized national standing, which such report shall state that such
Consolidated Financial Statements present fairly the Consolidated
financial position as at the end of such fiscal year, and the
Consolidated results of operations and cash flows for such fiscal year,
in accordance with GAAP, of the Company and its Subsidiaries.
4.2.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available and
in any event within 50 days after the end of each fiscal quarter of the
Company occurring after the date hereof (other than the fourth quarter
of each fiscal year of the Company), an unaudited Consolidated and
consolidating balance sheet of the Company and its Subsidiaries as at
the end of such quarter and the related Consolidated and consolidating
statements of operations, shareholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal quarter and for the
portion of the Company's fiscal year ended at the end of such quarter,
setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the Company's
previous fiscal year, all in reasonable detail and certified by a
Responsible Officer of the Company that they are complete and correct
and that they fairly present in all material respects the Consolidated
financial position as at the end of such fiscal quarter, and the
Consolidated results of operations and cash flows for such fiscal
quarter and such portion of the Company's fiscal year, in accordance
with GAAP, of the Company and its Subsidiaries (subject to normal,
year-end audit adjustments).
4.2.3 COMPLIANCE CERTIFICATE. Together with the Financial
Statements required pursuant to Sections 4.2.1 and 4.2.2 above, a
certificate of a Responsible Officer of the Company, substantially in
the form of Exhibit F, together with or accompanied by such financial
or other details, information, and material as Purchaser may reasonably
request to evidence such compliance.
4.2.4 AUDITORS' NO DEFAULT CERTIFICATE; MANAGEMENT LETTERS.
Together with the Financial Statements required pursuant to Section
4.2.1 above, a certificate of the accountants who prepared the annual
report referred to therein, to the effect that, in making the review
necessary for their certification of such Financial Statements, they
have obtained no knowledge of any Default or Event of Default, or if
they have obtained knowledge of any Default or Event of Default,
specifying the nature and period of existence thereof. Promptly
following the preparation thereof, copies of each management letter
formally issued to the Company by such accountants (together with any
response thereto prepared by the Company).
4.2.5 NOTICE OF CERTAIN EVENTS. Promptly after a Responsible
Officer obtains knowledge of the receipt or occurrence of any of the
following, a certificate of a Responsible Officer of any Seller
specifying (i) any official notice of any violation, non-compliance, or
claim made by any Governmental Authority pertaining to all or any part
of the properties of such Seller or any of its Subsidiaries (which
violation, non-compliance, or claim could have a Material Adverse
Effect); (ii) any event which constitutes a default or an Event of
Default, together with a detailed statement specifying the nature
thereof and the steps being taken to cure such default or Event of
Default; (iii) the receipt of any notice from, or the taking of any
other action by, the holder of any promissory note, debenture or other
evidence of indebtedness of such Seller or any of its Subsidiaries or
of any security (as defined in the Securities Act) of such Seller or
any of its Subsidiaries with respect to a claimed default, together
with a detailed statement specifying the notice given or other action
taken by such holder and the nature of the claimed default and what
action such Seller or its Subsidiary is taking or proposes to take with
respect thereto; (iv) any dispute between such Seller or any of its
Subsidiaries and any Governmental Authority, which, if adversely
determined, would have a Material Adverse Effect; (v) any default or
noncompliance of any party to any of the Operative Documents with any
of the terms and conditions thereof or any notice of termination or
other proceedings or actions which might adversely affect any of the
Operative Documents; (vi) any event or condition which violates any
Environmental Law which could potentially result in liability in excess
of $250,000, or which could potentially result in remedial obligations
in excess of $250,000, assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such event or condition; or (vii)
any event or condition which may reasonably be expected to have a
Material Adverse Effect.
4.2.6 SHAREHOLDER COMMUNICATIONS, FILINGS, ETC. Promptly upon
the mailing or filing thereof, copies of all Financial Statements,
reports and proxy statements mailed to the Company's shareholders, and
copies of all effective registration statements or periodic reports
filed with the Commission.
4.2.7 INTENTIONALLY OMITTED.
4.2.8 ERISA. Promptly (and in any event within 30 days) after
the Company or any of its Subsidiaries knows or has reason to know that
a Reportable Event with respect to any Plan has occurred, that any Plan
is or may be terminated, reorganized, partitioned or declared insolvent
under Title IV of ERISA or that any Seller or any of its Subsidiaries
will or may incur any liability to or on account of a Plan under
Sections 4062, 4063, 4064, 4201, or 4204 of ERISA, such Seller will
deliver to Purchaser a certificate of the Chief Financial Officer of
such Seller setting forth information as to such occurrence and what
action, if any, such Seller is required or proposes to take with
respect thereto, together with any notices concerning such occurrences
which are (a) required to be filed by such Seller or the plan
administrator of any such Plan controlled by such Seller or its
Subsidiaries, with the PBGC or (b) received by such Seller or its
Subsidiaries from any plan administrator of a multiemployer or other
Plan not under their control. Each Seller shall furnish to Purchaser
and each other holder of securities a copy of each annual report (Form
5500 Series) of any Plan received or prepared by such Seller or any of
its Subsidiaries. Each annual report and any notice required to be
delivered hereunder shall be delivered no later than 10 days after the
later of the date such report or notice is filed with the Internal
Revenue Service or the PBGC or the date such report or notice is
received by any Seller or any of its Subsidiaries, as the case may be.
4.3 NEGATIVE COVENANTS. So long as any principal or other amounts due
and owing under the Note remain outstanding, without the prior written consent
of the holders of a majority of the principal outstanding under the Note, the
Sellers:
4.3.1 INDEBTEDNESS INCURRED. Shall not, and shall not permit
any of their Subsidiaries to, issue, incur, assume or permit to exist
any Indebtedness, except (a) the Note, (b) Indebtedness not in excess
of $50,000 at any one time and secured by Permitted Liens described in
Section 4.3.2 of this Agreement, (c) Indebtedness for unsecured trade
payables and lease payables incurred in the ordinary course, (d) the
Senior Obligations, (e) Indebtedness existing on the date of this
Agreement and described on SCHEDULE 4.3.1 hereto, and (f) preferred
stock issued pursuant to that certain letter of intent attached hereto
as Exhibit H hereto.
4.3.2 LIENS. Shall not, and shall not permit any of its
Subsidiaries to, create or permit to exist any Lien with respect to any
assets now or hereafter existing or acquired, except the following
(herein collectively called the "PERMITTED LIENS"): (a) Liens for
current taxes or special assessments not delinquent or for taxes or
special assessments being contested in good faith and by appropriate
proceedings that do not subject any Seller or any of its Subsidiaries
to penalties under the Code or other applicable tax laws and for which
adequate reserves shall have been established and are then being
maintained in accordance with GAAP; (b) Liens in connection with the
acquisition of tangible property after the date hereof and attaching
only to the property acquired; (c) Liens incurred in the ordinary
course of business in connection with worker's compensation,
unemployment insurance or other forms of governmental insurance or
benefits; (d) mechanics', workers', materialmen's, and other like Liens
arising in the ordinary course of business in respect of obligations
which are not delinquent or which are being contested in good faith and
by appropriate proceedings and for which adequate reserves shall have
been established and are then maintained in accordance with GAAP; (e)
easements, municipal and zoning ordinances, and rights of way
restrictions not interfering with the ordinary conduct of the business
of any Seller as conducted on the date of execution hereof; (f) Liens
or deposits required by law as a condition to the transaction of
business in the ordinary course; (g) intentionally omitted; (h) Liens
incurred to secure the obligations incurred or undertaken in connection
with this Agreement and the other Operative Documents; (i) Liens
subject to a subordination agreement pursuant to which the Indebtedness
evidenced thereby is subordinated to the Indebtedness evidenced by this
Agreement and the other Operative Documents; and (j) Liens existing on
the date of this Agreement and described on SCHEDULE 4.3.2 hereto.
4.3.3 MERGERS. Shall not, and shall not permit any of their
Subsidiaries to, enter into any transaction of merger or consolidation
or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, transfer, or otherwise dispose
of, in one transaction or a series of transactions, all or
substantially all of its business, property, or assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all the business, property or assets of, or stock or
other evidence of beneficial ownership of, any Person (other than any
sales or transfers by a Subsidiary to any Seller or to another
Subsidiary), except that the Company may enter into or permit a
transaction of purchase, merger or consolidation if (i) (A) the Company
is the surviving entity, (B) immediately after such purchase, merger or
consolidation (and giving effect thereto) no default under any
Indebtedness shall have occurred and be continuing, and (C) the
consolidated net worth of the surviving entity shall be equal to or
greater than the consolidated net worth of the Company and its
Subsidiaries immediately preceding such purchase, merger or
consolidation, in each case as determined in accordance with GAAP, or
(ii) the merger or consolidation is (X) between two or more wholly
owned Subsidiaries of the Company or (Y) of one or more of the
Subsidiaries with and into the Company.
4.3.4 DISPOSITION OF SUBSTANTIAL ASSETS. Shall not, and shall
not permit any of their Subsidiaries to, sell, dispose of, or otherwise
convey (by merger, consolidation, sale of stock or otherwise), in any
single or related series of sales, dispositions, or conveyances, any
assets of the Sellers or any Subsidiary if the aggregate fair market
value (determined in good faith by the Board of Directors or management
of the Sellers, as appropriate) of all assets (taking into account all
liabilities related to such assets) so sold, disposed of or conveyed by
the Company and its Subsidiaries after the date hereof would exceed the
lesser of (a) $1,000,000 or (b) 25% of the aggregate fair market value
of total assets of the Company and its Subsidiaries taken as a whole
(taking into account all liabilities related to such assets) as of the
end of the most recently ended fiscal year of the Company (other than
any sales or transfers by a Subsidiary to any Seller or to another
Subsidiary); PROVIDED that the Sellers may dispose of assets that are
no longer used in or useful to the operations or business of the
Sellers. Notwithstanding this Section 4.3.4, no assets of any Seller or
its Subsidiaries shall be sold, disposed or otherwise conveyed at less
than fair market value as determined in good faith by the Board of
Directors or management of the Company, as appropriate, except (i) in
accordance with the terms of the RFC Agreement and (ii) for compromises
of accounts in the ordinary course of business.
4.3.5 CHARTER. Other than the Company, shall not, and shall
not permit any of its Subsidiaries to, amend its Charter or its by-laws
or create additional series or classes of shares.
4.3.6 SUBSIDIARY PAYMENTS AND ISSUANCES.
(a) Shall not, and shall not permit any of its Subsidiaries
to, enter into or permit to exist any agreement or undertaking which
prohibits, restricts, or limits the ability of any of the Company's
Subsidiaries to pay dividends or distributions to the Company; or
(b) Other than the Company, shall not, and shall not permit
any of its Subsidiaries to, issue any securities.
4.3.7 TRANSACTIONS WITH AFFILIATES. Shall not enter into or
maintain, and shall not permit any Subsidiary to enter into or
maintain, any transaction or agreement with any of its or any
Subsidiary's Affiliates other than any other Seller, except in the
ordinary course of business and upon fair and reasonable terms no less
favorable to the Seller or any of its Subsidiaries than would be
obtained by such Seller or any such Subsidiary in a comparable arm's
length transaction with a Person who is not an Affiliate of such Seller
or any of its Subsidiaries.
4.3.8 LOAN, ADVANCES, AND INVESTMENTS. Shall not, and shall
not permit any Subsidiary to, make or permit to remain outstanding any
loan or advance to, or guarantee, endorse, or otherwise be or become
contingently liable, directly or indirectly, in connection with the
obligations, stock, or dividends of, or own, purchase, or acquire any
stock, obligations, or securities of, or, except in the ordinary course
of business as reasonably deemed appropriate by the management of the
Company, make any Investment in any Person other than (a) the Sellers
or any of their Subsidiaries or (b) United Network Services, L.L.C., a
Delaware limited liability company (to the extent such loan, advance,
guarantee, or Investment exists on the date of this Agreement), except
that the Sellers or any of their Subsidiaries may:
(i) own, purchase or acquire (a) commercial paper
rated A-1 by Standard & Poor's Corporation or P-1 by Xxxxx'x
Investors Service, Inc. on the date of acquisition; (b)
certificates of deposit of United States commercial banks
(having a combined capital and surplus in excess of
$100,000,000), (c) obligations of or guaranteed by the United
States government or any agency thereof; and (d) money market
funds organized under the laws of the United States or any
state thereof that invest substantially all of their assets in
any of the types of investments described in clauses (a), (b)
or (c) of this clause (i);
(ii) endorse negotiable instruments for collection in
the ordinary course of business, make or permit to remain
outstanding travel, moving and other like advances to
officers, employees and consultants in the ordinary course of
business or make or permit to remain outstanding lease,
utility and other similar deposits in the ordinary course of
business;
(iii) make loans or advances to or Investments in a
Person, in an aggregate amount of up to $100,000 at any one
time outstanding; and
(iv) normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods
that those extended by similar businesses operated in a normal
and prudent manner.
4.3.9 ENVIRONMENTAL MATTERS. Shall not cause or permit, and
shall not allow any of its Subsidiaries to cause or permit, any of
their respective properties to be in violation of, or do anything to
permit anything to be done which will subject such property to any
remedial obligations under any Environmental Laws, that could
reasonably be expected to result in liability in excess of $250,000 or
which could reasonably be expected to result in remedial obligations in
excess of $250,000 assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.
4.3.10 ERISA COMPLIANCE. Shall not permit any Plan maintained
by it or any Subsidiary to:
(a) engage in any "prohibited transaction" as such
term is defined in Section 4975 of the Code:
(b) incur any "accumulated funding deficiency" as
such term is defined in Section 302 of ERISA; or
(c) terminate any such Plan in a manner which could
result in the imposition of a Lien on the property of the
Sellers or their Subsidiaries pursuant to Section 4068 of
ERISA.
4.3.11 SALE AND LEASEBACK. Shall not, and shall not permit any
of its Subsidiaries to, enter into any arrangements with any lender or
investor or to which such lender or investor is a party providing for
the leasing by the Sellers or any Subsidiary of real or personal
property which has been or is to be sold or transferred by the Sellers
or any Subsidiary to such lender or investor or any Person to whom
funds have been or are to be advanced by such lender or investor on the
security of such property or rental obligations of the Sellers or any
Subsidiary.
4.3.12 SALE OF STOCK AND DEBT OF SUBSIDIARIES. Shall not, and
shall not permit any of its Subsidiaries to, sell or otherwise dispose
of, or part with control of, any shares of stock or Indebtedness of any
Subsidiary, except to the Company or another Subsidiary and except that
all shares of stock and Indebtedness of any Subsidiary at the time
owned by or owed to the Company and all Subsidiaries may be sold as an
entirety for a cash consideration which represents the fair value (as
determined in good faith by the Board of Directors of the Company) at
the time of sale of the shares of stock and Indebtedness so sold;
PROVIDED that such sale or disposition does not violate Section 4.3.4
hereof; PROVIDED FURTHER that, at the time of such sale, such
Subsidiary shall not own, directly or indirectly, any shares of stock
or Indebtedness of any other Subsidiary (unless all of the shares of
stock and Indebtedness of such other Subsidiary owned, directly or
indirectly, by the Company, and all its Subsidiaries are simultaneously
being sold as permitted by this Section 4.3.12).
4.3.13 CERTAIN CONTRACTS. Except as otherwise specifically
permitted by any other provision of Section 4.3, shall not, and shall
not permit any of its Subsidiaries to, enter into or be a party to (i)
any contract to rent or lease (as lessee) any real or personal property
if such contract (or any related document) provides an obligation to
make payments under conditions not customarily found in commercial
leases then in general use or requires that the lessee purchase or
otherwise acquire securities or obligations of the lessor (unrelated to
the lease in question), (ii) any contract for the sale or use of
materials, supplies, or other property, or the rendering of services,
if such contract (or any related document) provides that payment for
such materials, supplies or other property, or the use thereof or
payment for such services, shall be subordinated to any indebtedness
(of the purchaser or user of such materials, supplies or other property
or the Person entitled to the benefit of such services) owed or to be
owed to any Person, or (iii) any other contract which is, or, in the
economic effect, is substantially equivalent to, a guarantee, except,
with respect to (iii) hereof, as permitted under Section 4.3.1 hereof.
ARTICLE V
CONVERSION RIGHTS
5.1 CONVERSION RIGHTS. The Note shall be convertible into Common Stock
as follows:
5.1.1 CONVERSION AT HOLDER'S OPTION. Subject to the provisions
of Section 5.2 hereof, the holder of the Note shall have the right at
such holder's option, at any time and from time to time after the date
of issuance of the Note and without the payment of any additional
consideration, to convert the Note, in whole or in part, into fully
paid and nonassessable shares of Common Stock at the Conversion Price
(as defined in Section 5.1.2 below) in effect on the Conversion Date
(as defined in Section 5.1.3 below) upon the terms hereinafter set
forth.
5.1.2 NUMBER OF SHARES. In the event of a conversion pursuant
to Sections 5.1.1 and 5.2, the Note shall be converted into such number
of shares of Common Stock as is determined by dividing (x) $1,000,000
(plus accrued and unpaid interest on the portion of the Note so
converted through the Conversion Date) by (y) the Conversion Price in
effect on the Conversion Date. If less than the full principal amount
of the Note is converted, the accrued and unpaid interest shall be
calculated on a PRO RATA basis. The "CONVERSION PRICE" shall be the
lesser of (i) $1.00 per share of Common Stock (the "INITIAL CONVERSION
PRICE") and (ii) 85% of the Current Market Price, as defined in Section
5.1.6 below, on the Conversion Date. Such Initial Conversion Price
shall be subject to adjustment in order to adjust the number of shares
of Common Stock into which the Note is convertible, as hereinafter
provided.
5.1.3 MECHANICS OF CONVERSION. The holder of the Note may
exercise the conversion right specified in Section 5.1.1 by
surrendering to the Company or any transfer agent of the Company the
Note to be converted. If the certificate representing shares of Common
Stock issuable upon conversion of the Note is to be issued in a name
other than the name on the face of the Note, such Note shall be
accompanied by such evidence of the assignment and such evidence of the
signatory's authority with respect thereto as deemed appropriate by the
Company or its transfer agent. Conversion shall be deemed to have been
effected with respect to conversions pursuant to Section 5.1.1, on the
date when delivery of notice of an election to convert pursuant to
Section 5.1.1 is made, and such applicable date is referred to herein
as the "CONVERSION DATE." Subject to the provisions of Section
5.1.5(f), as promptly as practicable after the Conversion Date (and
after surrender of the Note to the Company), the Company shall issue
and deliver to or upon the written order of such holder a certificate
or certificates for the number of full shares of Common Stock to which
such holder is entitled upon such conversion, and a check or cash with
respect to any fractional interest in a share of Common Stock, as
provided in Section 5.1.4. Subject to the provisions of Section
5.1.5(f), the person in whose name the certificate or certificates for
Common Stock are to be issued shall be deemed to have become a holder
of record of such Common Stock on the applicable Conversion Date. Upon
conversion of only a portion of the Note the Company shall issue and
deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Company, a new
Note representing the remaining unconverted principal amount of the
Note so surrendered.
5.1.4 FRACTIONAL SHARES. No fractional shares of Common Stock
or scrip shall be issued upon conversion of the Note. The number of
full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Note to
be converted. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of the Note, the Company
shall pay a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of the then Current Market
Price, as defined in Section 5.1.6 below.
5.1.5 CONVERSION PRICE AND NUMBER OF SHARES ADJUSTMENTS. The
Initial Conversion Price shall be subject to adjustment from time to
time as follows:
(a) COMMON STOCK ISSUED AT LESS THAN THE CONVERSION
PRICE. If the Company shall issue any Common Stock, other than
Excluded Stock, without consideration or for consideration per
share less than the lower of (1) the Initial Conversion Price
in effect immediately prior to such issuance and (2) the
Current Market Price, the Initial Conversion Price in effect
immediately prior to each such issuance shall immediately
(except as otherwise expressly provided below) be reduced to
the price that is equivalent to such consideration received by
the Company upon such issuance; PROVIDED that this Section
5.1.5(a) shall expire and be of no force and effect after
April 1, 1998.
(i) ISSUANCE FOR CASH. In the case of the
issuance of Common Stock for cash, the amount of the
consideration received by the Company shall be deemed
to be the amount of the cash proceeds received by the
Company for such Common Stock before deducting
therefrom any discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Company for
any underwriting or otherwise in connection with the
issuance and sale thereof.
(ii) CONSIDERATION OTHER THAN CASH. In the
case of the issuance of Common Stock (otherwise than
upon the conversion of shares of capital stock or
other securities of the Company) for a consideration
in whole or in part other than cash, including
securities acquired in exchange therefor (other than
securities that by their terms are exchangeable for
such Common Stock), the consideration other than cash
shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors,
irrespective of any accounting treatment; PROVIDED
that such fair value as determined by the Board of
Directors shall not exceed the aggregate Current
Market Price of the shares of Common Stock being
issued as of the date the Board of Directors
authorizes the issuance of such shares.
(iii) OPTIONS AND CONVERTIBLE SECURITIES. In
the case of the issuance of (x) options, warrants or
other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (y)
securities by their terms convertible into or
exchangeable for Common Stock (whether or not at the
time so convertible or exchangeable, or (z) options,
warrants or rights to purchase such convertible or
exchangeable securities (whether or not at the time
exercisable), other than in each case Excluded Stock
as defined in Section 5.1.5(b) below:
(A) the aggregate maximum number of
shares of Common Stock deliverable upon
exercise of such options, warrants or other
rights to purchase or acquire Common Stock
shall be deemed to have been issued at the
time such options, warrants or rights were
issued and for a consideration equal to the
consideration (determined in the manner
provided in Sections 5.1.5(a)(i) and (ii)
above), if any, received by the Company upon
the issuance of such options, warrants or
rights plus the minimum purchase price
provided in such options, warrants or rights
for the Common Stock covered thereby;
(B) the aggregate maximum number of
shares of Common Stock deliverable upon
conversion of or in exchange for any such
convertible or exchangeable securities, or
upon the exercise of options, warrants or
other rights to purchase or acquire such
convertible or exchangeable securities and
the subsequent conversion or exchange
thereof, shall be deemed to have been issued
at the time such securities were issued or
such options, warrants or rights were issued
and for a consideration equal to the
consideration if any, received by the
Company for any such securities and related
options, warrants or rights (excluding any
cash received on account of accrued interest
or accrued dividends), plus the additional
consideration (determined in the manner
provided in Sections 5.1.5(a)(i) and (ii)
above), if any, to be received by the
Company upon the conversion or exchange of
such securities, or upon the exercise of any
related options, warrants or rights to
purchase or acquire such convertible or
exchangeable securities and the subsequent
conversion or exchange thereof;
(C) on any change in the number of
shares of Common Stock deliverable upon
exercise of any such options, warrants or
rights or conversion or exchange of such
convertible or exchangeable securities or
any change in the consideration to be
received by the Company upon such exercise,
conversion or exchange, including, but not
limited to, a change resulting from the
anti-dilution provisions thereof, the
Conversion Price as then in effect shall
forthwith be readjusted to such Conversion
Price as would have been obtained had an
adjustment been made upon the issuance of
such options, warrants or rights not
exercised prior to such change, or of such
convertible or exchangeable securities not
converted or exchanged prior to such change,
upon the basis of such change;
(D) on the expiration or
cancellation of any such options, warrants
or rights, or the termination of the right
to convert or exchange such convertible or
exchangeable securities, if the Initial
Conversion Price shall have been adjusted
upon the issuance thereof, the Initial
Conversion Price shall forthwith be
readjusted to such Initial Conversion Price
as would have been obtained had an
adjustment been made upon the issuance of
such options, warrants, rights or such
convertible or exchangeable securities on
the basis of the issuance of only the number
of shares of Common Stock actually issued
upon the exercise of such options, warrants
or rights, or upon the conversion or
exchange of such convertible or exchangeable
securities; and
(E) if the Initial Conversion Price
shall have been adjusted upon the issuance
of any such options, warrants, rights or
convertible or exchangeable securities, no
further adjustment of the Conversion Price
shall be made for the actual issuance of
Common Stock upon the exercise, conversion
or exchange thereof.
In addition to the adjustments set forth above, the Initial
Conversion Price shall be immediately reduced on a PARI PASSU
basis with the conversion, exercise, or strike price of any
other derivative securities of the Company whether now
outstanding or hereafter issued.
(b) EXCLUDED STOCK. "Excluded Stock" shall mean (i)
shares of Common Stock issued or reserved for issuance by the
Company upon exercise of warrants outstanding on the date
hereof, other than warrants described in SCHEDULE 5.1.5
hereto, (ii) shares of Common Stock issued or reserved for
issuance by the Company as a stock dividend payable in shares
of Common Stock, or upon any subdivision or split-up of the
outstanding shares of Common Stock, each of which is subject
to the provisions of Section 5.1.5(c) below, (iii) shares of
Common Stock issued to Purchaser or any holder of the Note or
the Warrants, or (iv) grants of options and shares of Common
Stock issuable or issued thereunder pursuant to the Company's
stock option plans existing on the date hereof. All shares of
Excluded Stock which the Company has reserved for issuance
shall be deemed to be outstanding for all purposes of
computations under Section 5.1.5(a).
(c) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS
OR COMBINATIONS. If the Company shall (i) declare a dividend
or make a distribution on its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding
shares of Common Stock into a greater number of shares, or
(iii) combine or reclassify the outstanding Common Stock into
a smaller number of shares, the Initial Conversion Price in
effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately
adjusted so that the holder of the Note surrendered for
conversion after such date shall be entitled to receive the
number of shares of Common Stock which he would have owned or
been entitled to receive had the Note been converted
immediately prior to such date. Successive adjustments in the
Initial Conversion Price shall be made whenever any event
specified above shall occur.
(d) OTHER DISTRIBUTIONS. In case the Company shall
fix a record date for the making of a distribution to all
holders of shares of its Common Stock (i) of shares of any
class other than its Common Stock or (ii) of evidences of
Indebtedness of the Company or any Subsidiary or (iii) of
assets (excluding cash dividends or distributions, and
dividends or distributions referred to in 5.1.5(c) above), or
(iv) of rights or warrants (excluding those referred to in
Section 5.1.5(a) above), in each case the Initial Conversion
Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (A)
an amount equal to the difference resulting from (1) the
number of shares of Common Stock outstanding on such record
date multiplied by the Initial Conversion Price per share on
such record date, less (2) the fair market value (as
determined by the Board of Directors, whose determination
shall be conclusive) of said shares or evidences of
indebtedness or assets or rights or warrants to be so
distributed, by (B) the number of shares of Common Stock
outstanding on such record date. Such adjustment shall be made
successively whenever such a record date is fixed. In the
event that such distribution is not so made, the Initial
Conversion Price then in effect shall be readjusted, effective
as of the date when the Board of Directors determines not to
distribute such shares, evidences of indebtedness, assets,
rights or warrants, as the case may be, to the Initial
Conversion Price which would then be in effect if such record
date had not been fixed.
(e) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this Section 5.1.5 shall be made to the
nearest cent or to the nearest one thousandth (1/1000th) of a
share, as the case may be. Any provision of this Section 5.1.5
to the contrary notwithstanding, no adjustment in the Initial
Conversion Price shall be made if the amount of such
adjustment would be less than $0.05, but any such amount shall
be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate $0.05 of
more; PROVIDED that if the events giving rise to such
adjustments occur within three months of each other, then such
adjustments shall be calculated as if the events giving rise
to them had occurred simultaneously on the date of the first
such event.
(f) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK
UPON CERTAIN ADJUSTMENTS. In any case in which the provisions
of this Section 5.1.5 shall require that an adjustment shall
become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i)
issuing to the holder of the Note converted after such record
date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason
of the adjustment required by such event over and above the
shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such
holder any amount of cash in lieu of a fractional share of
Common Stock pursuant to Section 5.1.4; PROVIDED that the
Company upon request shall deliver to such holder a due xxxx
or other appropriate instrument evidencing such holder's right
to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.
5.1.6 CURRENT MARKET PRICE. The Current Market Price at any
date shall mean, in the event the Common Stock is publicly traded, the
average of the daily closing prices per share of Common Stock for five
consecutive trading days ending one trading day before such date (as
adjusted for any stock dividend, split, combination or reclassification
that took effect during such five trading day period). The closing
price for each day shall be the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average
of the last closing bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the closing sale price for such
day reported by The Nasdaq Stock Market, if the Common Stock is traded
over-the-counter and quoted in the National Market System, or if the
Common Stock is so traded, but not so quoted, the average of the
closing reported bid and asked prices of the Common Stock as reported
by The Nasdaq Stock Market or any comparable system, or, if the common
stock is not listed on The Nasdaq Stock Market or any comparable
system, the average of the closing bid and asked prices as furnished by
two members of the National Association of Securities Dealers, Inc.
selected from time to time by the Company for that purpose. If the
Common Stock is not traded in such manner that the quotations referred
to above are available for the period required hereunder, Current
Market Price per share of Common Stock shall be deemed to be the fair
value per share of Common Stock as determined in good faith by the
Board of Directors, irrespective of any accounting treatment.
5.1.7 STATEMENT REGARDING ADJUSTMENTS. Whenever the Initial
Conversion Price shall be adjusted as provided in Section 5.1.5, the
Company shall forthwith file, at the office of any transfer agent for
the Note and Common Stock and at the principal office of the Company, a
statement showing in detail the facts requiring such adjustment and the
Initial Conversion Price that shall be in effect after such adjustment,
and the Company shall also cause a copy of such statement to be sent by
mail, first class postage prepaid, to the holder the Note at its
address appearing on the Company's records. Each such statement shall
be signed by the Company's chief financial officer. Where appropriate,
such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of Section 5.1.8.
5.1.8 NOTICE TO HOLDERS. In the event the Company shall
propose to take any action of the type described in clause (i) (but
only if the action of the type described in clause (i) would result in
an adjustment in the Initial Conversion Price), (iii) or (iv) of
Section 5.1.5, or described in Section 5.1.11, the Company shall give
notice to each holder of the Notes, in the manner set forth in Section
5.1.7, which notice shall specify the record date, if any, with respect
to any such action and the approximate date on which such action is to
take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect on the
Initial Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable upon conversion
of the Note. In the case of any action which would require the fixing
of a record date, such notice shall be given at least ten days prior to
the date so fixed, and in case of all other action, such notice shall
be given at least 15 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect
the legality or validity of any such action.
5.1.9 TREASURY STOCK. For the purposes of this Section 5.1,
the sale or other disposition of any Common Stock theretofore held in
the Company's treasury shall be deemed to be an issuance thereof.
5.1.10 COSTS. The Company shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of the Note;
PROVIDED that the Company shall not be required to pay any federal or
state income taxes or other taxes which may be payable in respect of
any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the Notes in
respect of which such shares are being issued.
5.1.11 CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE. In
case of any consolidation with or merger of the Company with or into
another corporation or other entity, or in case of any sale, lease or
conveyance to another corporation or other entity of the assets of the
Company as an entirety or substantially as an entirety, the Note shall
after the date of such consolidation, merger, sale, lease or conveyance
be convertible into the number of shares of stock or other securities
or property (including cash) to which the Common Stock issuable (at the
time of such consolidation, merger, sale, lease or conveyance, as if
the Note was then optionally convertible or mandatorily convertible, as
the case may be) upon conversion of the Note would have been entitled
upon such consolidation, merger, sale, lease or conveyance; and in any
such case, if necessary, the provisions set forth herein with respect
to the rights and interests thereafter of the holders of the Note
(including without limitation the definition of Current Market Price)
shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the conversion of the Note.
5.2 LIMITATION ON CONVERSION. So long as the Company satisfies the
continued listing requirements of the Nasdaq National Market, the conversion
rights set forth above in Section 5.1 and the right to exercise the Warrants as
set forth in the Warrant Agreement shall be limited so that, upon conversion of
the Note or exercise of the Warrants or both, the Purchaser's aggregate
ownership of the Company will be less than 20% of the shares of Common Stock
outstanding on the date of issuance of the Note and the Warrants; PROVIDED that
such limitation shall cease and this Section 5.2 shall become null and void upon
the approval of the issuance of the Note and the Warrants by the shareholders of
the Company or the National Association of Securities Dealers, Inc. or upon such
other event as shall allow the conversion or exercise or both, as appropriate,
without violating the applicable requirements of the Nasdaq National Market.
ARTICLE VI
EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY. If any one or
more of the following events (herein called "EVENTS OF DEFAULT") shall have
occurred:
(a) all or any part of the principal of the Note is not paid
when and as the same shall become due and payable, whether at the
maturity thereof, by acceleration, or otherwise;
(b) all or any part of the interest on the Note is not paid
within three days of the date when the same shall become due and
payable;
(c) all or any part of any other amount owing to Purchaser
pursuant to the terms of this Agreement or the Note is not paid within
three days of the date when such other amount is due and payable;
(d) default shall occur in the observance or performance of
any covenant contained in Article IV of this Agreement;
(e) default shall occur in the observance or performance of
any of the other covenants or agreements of the Sellers contained in
this Agreement, any other Operative Document or any other agreement
evidencing Indebtedness by the Sellers or any of their Subsidiaries,
which is not remedied within ten days after notice thereof to the
Company;
(f) a receiver, conservator, custodian, liquidator or trustee
of any Seller or any of its Subsidiaries or of all or any of the assets
of any of them, is appointed by court order and such order remains in
effect for more than 30 days; or an order for relief is entered under
the federal or any foreign bankruptcy laws with respect to any Seller
or any of its Subsidiaries; or any of the material assets of any of
them is sequestered by court order and such order remains in effect for
more than 30 days; or a petition is filed against any Seller or any of
its Subsidiaries under the bankruptcy, reorganization, moratorium,
arrangement, insolvency, readjustment of debt, dissolution,
liquidation, or other similar law of any applicable Governmental
Authority, whether now or hereafter in effect, and is not dismissed
within 60 days after such filing;
(g) any Seller or any of its Subsidiaries files a petition in
voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, moratorium, arrangement, insolvency,
readjustment of debt, dissolution, liquidation, or other similar law of
any applicable Governmental Authority, whether now or hereafter in
effect, or consents to the filing of any petition against it under any
such law;
(h) any Seller or any of its Subsidiaries makes a general
assignment for the benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become due, or consents to
the appointment of a receiver, conservator, custodian, liquidator or
trustee of any Seller or any of its Subsidiaries, or of all or any part
of the assets of any of them;
(i) final judgment for the payment of money in excess of
$100,000 shall be rendered by a court of record against any Seller or
any of its Subsidiaries or such Seller or such Subsidiary shall not (i)
discharge the same or provide for its discharge in accordance with its
terms or (ii) procure a stay of execution thereof within 15 days from
the date of entry thereof and within said period of 15 days, or such
longer period during which execution of such judgment shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal including, without limitation, by providing adequate
bond for such judgment;
(j) any representation, warranty, or certification made by any
Seller or any of its Subsidiaries, or any of their officers in this
Agreement or any other Operative Document or in any certificate,
report, Financial Statement, or other instrument delivered under or
pursuant to any provision hereof or thereof shall prove to have been
false or incorrect in any material respect on the date or dates as of
which they were made;
(k) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any Plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under Section 4.12 of the Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under ERISA Section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of Section 4001(a)(18) of ERISA) under
all Plans determined in accordance with Title IV of ERISA, shall exceed
$500,000, (iv) the Company or any ERISA Affiliate shall have incurred
or is reasonably expected to incur any liability to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans, (v) the Company or any ERISA Affiliate
withdraws from any Multiemployer Plan, or (vi) the Company or any
Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would
increase the liability of the Company or any subsidiary thereunder; and
any such event or events described in clauses (i) through (vi) above
either individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect; or
(l) the occurrence of an "Event of Default" as defined in the
Xxxxx Agreement;
then, when any Event of Default described in clause (a), (b), (c), (d), (e),
(i), (j), (k), or (l) above has occurred and shall be continuing, the principal
of the Note and the interest accrued thereon and all other amounts due hereunder
(the "other payments") shall, upon written notice from Purchaser, forthwith
become and be due and payable, if not already due and payable, without
presentment, further demand or other notice of any kind. When any Event of
Default described in clause (f), (g) or (h) above has occurred, then the
principal of the Note, the interest accrued thereon, and the other payments
shall immediately become due and payable, upon the occurrence thereof, without
presentment, demand, or notice of any kind. If any principal, installment of
interest, or other payment is not paid in full on the due date thereof whether
by maturity, or acceleration or any Event of Default has occurred and is
continuing, then the outstanding principal balance of the Note, any overdue
installment of interest (to the extent permitted by applicable law), including
interest accruing after the commencement of any proceeding under any bankruptcy
or insolvency law, and all other payments will bear additional interest from the
due date of such payment, or from and after an Event of Default, at a rate equal
to the lesser of (i) the Highest Lawful Rate or (ii) an amount equal to the then
applicable interest rate on the Note plus 2% per annum (such applicable rate
being referred to as the "DEFAULT RATE"), compounded monthly, until the payment
is received or the Event of Default is cured, if permitted, or waived. If
payment of the Note is accelerated, then the outstanding principal balance
thereof shall bear interest at the Default Rate from and after the Event of
Default. The Sellers shall pay to the holder of the Note all reasonable
out-of-pocket costs and expenses, incurred by such holder in any effort to
collect the Note and other payments, including the reasonable attorneys fees and
expenses for services rendered in connection therewith, and pay interest on such
costs and expenses to the extent not paid when demanded at the Default Rate.
6.2 SUITS FOR ENFORCEMENT. If any Event of Default specified in Section
6.1 above has occurred and is continuing, the holder of the Note may pursue any
available remedy to protect and enforce such holder's rights, including without
limitation, instituting a suit in equity or by action at law, or both, whether
for the specific performance of any covenant or agreement contained in this
Agreement or any other Operative Document, or in aid of the exercise of any
power granted in this Agreement or any other Operative Document, or to enforce
any other legal or equitable right or remedy of such holder.
6.3 INDEMNIFICATION. The Sellers agree, jointly and severally, to
indemnify, defend, and hold Purchaser harmless from, against, and in respect of
any and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties and
reasonable attorneys' fees (collectively, "CLAIMS"), that Purchaser shall incur
or suffer, which arise, result from, or relate to (a) any breach of, or failure
by any Seller or any of its Subsidiaries to perform, any of its representations,
warranties, covenants, or agreements in this Agreement or any other Operative
Document or in any schedule, certificate, exhibit, or other instrument furnished
or to be furnished by any Seller or any of its Subsidiaries hereunder or
thereunder, or in the Charter of any Seller or any of its Subsidiaries or (b)
any claims of any applicable Governmental Authority or other Person arising
under any Environmental Law.
6.4 DELAYS OR OMISSIONS. No failure to exercise or delay in the
exercise of any right, power or remedy accruing to any holder of the Note upon
any breach or default of any Seller or any of its Subsidiaries under this
Agreement or any other Operative Document shall impair any such right, power, or
remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default hereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.
6.5 REMEDIES CUMULATIVE. All remedies, under either this Agreement or
any other Operative Document, by law or otherwise afforded to any holder of the
Note, shall be cumulative and not alternative.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO CLOSING BY PURCHASER. The obligation of Purchaser to
purchase the Note and the Warrants, as the case may be, on the Closing Date is
subject to the fulfillment to its satisfaction at or prior to the Closing Date
of each of the following conditions:
7.1.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Section 3.1 shall be true and correct when made
and shall be true and correct as of the Closing Date as if made on the
Closing Date.
7.1.2 PERFORMANCE; DEFAULTS. The Sellers shall have performed
and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it prior to or
on the Closing Date and, after giving effect to the issue and sale of
the Note and the Warrants, no default or Event of Default shall have
occurred and be continuing.
7.1.3 LEGAL INVESTMENT. As of the Closing Date, the purchase
of the Note and the Warrants by Purchaser shall (a) be legally
permitted by all laws and regulations to which regulations of each
jurisdiction to which each Seller and Purchaser are subject, (b) not
violate any applicable Governmental Requirement, and (c) not subject to
any tax, penalty, or liability under or pursuant to any applicable
Governmental Requirement.
7.1.4 PROCEEDINGS AND DOCUMENTS. As of the Closing Date, all
corporate, if applicable, and other proceedings in connection with the
transactions contemplated hereby shall be reasonably satisfactory in
form and substance to Purchaser, and Purchaser shall have received on
or prior to the Closing Date copies of all such legal documents or
proceedings taken in connection with the consummation of the
transactions as it shall have reasonably requested.
7.1.5 QUALIFICATIONS. As of the Closing Date, all
authorizations, approvals, or permits of or filings with any
Governmental Authority that are required by law in connection with the
lawful issuance, sale, and delivery of the Note and the Warrants (as
applicable) shall have been duly obtained by each Seller and shall be
effective on and as of the Closing Date.
7.1.6 CONSENTS. On or prior to the Closing Date, each Seller
shall have received in writing consents required of third parties for
the consummation of the transactions contemplated hereby, pursuant to
any law, contract, agreement, or instrument by which such Seller is
bound or to which it is subject.
7.1.7 CERTIFICATES.
(a) Each Seller shall have delivered to Purchaser certificates
executed by their respective Chief Executive Officer, dated as of the
Closing Date, certifying that all representations and warranties of
such Seller in this Agreement are true and correct, and such other
matters as Purchaser shall have reasonably requested.
(b) Each Seller shall have delivered to Purchaser copies of
each of the following, in each case certified to be in full force and
effect on the Closing Date by the Secretary of such Seller:
(i) the certificate and articles of association of
such Seller (certified by the appropriate Governmental
Authority) and all amendments thereof, certified as true and
correct as of the Closing Date;
(ii) the by-laws of such Seller as of the Closing
Date; and
(iii) resolutions of the Board of Directors of such
Seller, the form and substance of which are satisfactory to
Purchaser, authorizing (A) the execution, delivery, and
performance of this Agreement and the other Operative
Documents and the transactions contemplated hereby and
thereby, (B) the execution, issuance, sale, delivery, and
performance of the Note, and (C) the reservation of the
Warrant Shares (as applicable).
7.1.8 GOOD STANDING CERTIFICATES. The Company shall have
delivered a certificate of status relating to each Seller from the
Secretary of State of the respective jurisdiction of incorporation
dated not more than ten days prior to the Closing Date.
7.1.9 LEGAL OPINION. The Sellers shall have delivered to
Purchaser the legal opinion of Fulbright & Xxxxxxxx L.L.P., counsel to
the Sellers, dated as of the Closing Date and substantially in the form
of Exhibit G attached hereto.
7.1.10 FEES AND EXPENSES. The Sellers shall have paid to
Purchaser the fees, costs, and expenses that the Sellers are obligated
to pay pursuant to Section 4.1.8 hereof.
7.1.11 OPERATIVE DOCUMENTS. Each Seller shall have executed
and delivered to Purchaser each of the Operative Documents to which
such Person is a party.
7.2 CONDITIONS TO CLOSING BY THE COMPANY. The obligations of the
Sellers to sell the Note and the Warrants to Purchaser are subject to the
fulfillment to its satisfaction on or prior to the Closing Date of each of the
following conditions:
7.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in Section 3.2 shall be true and
correct when made, and shall be true and correct as of the Closing Date
as if made on the Closing Date.
7.2.2 PERFORMANCE; PAYMENT. All covenants, agreements, and
conditions contained in this Agreement to be performed or complied with
by Purchaser on or prior to the Closing Date, including the payment of
the Purchase Price as consideration for the Note and Warrants shall
have been performed or complied with.
ARTICLE VIII
MISCELLANEOUS
8.1 CONSENT TO AMENDMENTS; WAIVERS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived only
by the written agreement of the Sellers and Purchaser. Any waiver, permit,
consent, or approval of any kind or character on the part of such holder of any
provisions or conditions of this Agreement must be made in writing and shall be
effective only to the extent specifically set forth in such writing.
8.2 SURVIVAL OF TERMS; FAILURE TO CLOSE. All representations,
warranties, and covenants contained herein or made in writing by any party in
connection herewith will survive the execution and delivery of this Agreement
and any investigation made at any time by or on behalf of Purchaser.
Notwithstanding anything herein to the contrary, in the event the Closing Date
has not occurred on or before October 15, 1997 because one or more conditions
set forth in Article VII has not been satisfied, Purchaser may terminate its
obligations under this Agreement by written notice to the Sellers.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors of the parties hereto, whether so expressed or not and the
permitted assigns of the parties hereto including, without limitation and
without need of any express assignment. This Agreement and the rights and
obligations of the Sellers shall not be assigned without the prior written
consent of Purchaser.
8.4 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement unless the consummation of the transaction contemplated hereby is
materially and adversely affected thereby.
8.5 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
and shall not be utilized in interpreting this Agreement.
8.6 GOVERNING LAW. Each Seller hereby consents and agrees that this
Agreement shall be deemed a contract and instrument made under the laws of the
State of New York and shall be construed and enforced in accordance with and
governed by the laws of the State of New York without regard to principles of
conflicts of law.
8.7 DISPUTES; EXCLUSIVE METHOD; JURISDICTION.
(A) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE NOTE OR THE
OTHER OPERATIVE DOCUMENTS, INCLUDING ANY CLAIM OR CONTROVERSY OF ANY KIND BASED
ON OR ARISING IN TORT, SHALL BE DETERMINED EXCLUSIVELY BY BINDING ARBITRATION IN
ACCORDANCE WITH THE U.S. FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE,
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES AND THE RULES SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE RULES SET FORTH IN SECTION 8.7(B) BELOW SHALL CONTROL.
JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. ANY PARTY TO THE NOTE OR THE OTHER OPERATIVE DOCUMENTS MAY BRING
AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF
ANY CONTROVERSY OR CLAIM TO WHICH EITHER THE NOTE OR ANY OPERATIVE DOCUMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(B) THE ARBITRATION SHALL BE CONDUCTED IN HOUSTON, TEXAS AND
ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION. ALL ARBITRATION HEARINGS
WILL BE COMMENCE WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION. THE ARBITRATOR
SHALL, ONLY UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF
SUCH HEARING FOR AN ADDITIONAL 60 DAYS. THE ARBITRATOR SHALL NOT HAVE AUTHORITY
TO AWARD PUNITIVE, CONSEQUENTIAL, OR INCIDENTAL DAMAGES.
(C) THE PROVISIONS OF THIS SECTION 8.7 SHALL SURVIVE ANY TERMINATION,
AMENDMENT, OR EXPIRATION OF THE DOCUMENTS EVIDENCING THE TRANSACTIONS. EACH
PARTY AGREES TO KEEP ALL DISPUTES AND ARBITRATION PROCEEDINGS STRICTLY
CONFIDENTIAL, EXCEPT FOR DISCLOSURES OF INFORMATION REQUIRED IN THE ORDINARY
COURSE OF BUSINESS OF THE PARTIES OR BY APPLICABLE LAW OR REGULATION.
(d) Each of the parties hereto submits itself and its property to the
personal jurisdiction of the United States District Court for the Southern
District of Texas and the courts of the State of Texas sitting in and for Xxxxxx
County in any such action or proceeding.
8.8 FINAL AGREEMENT. THIS AGREEMENT, THE NOTE, AND THE OTHER OPERATIVE
DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE SELLERS AND PURCHASER
CONCERNING THE MATTERS REFERRED TO HEREIN AND THEREIN, AND SUPERSEDE ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS AMONG THE SELLERS AND PURCHASER RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN OR AMONG THE PARTIES. Any conflict or ambiguity between the terms and
provisions of this Agreement and the terms and provisions of any other Operative
Document shall be controlled by the terms and provisions hereof.
8.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument.
8.10 FURTHER COOPERATION. At any time and from time to time, and at its
own expense, the Sellers shall promptly execute and deliver all such documents
and instruments, and do all such acts and things, as Purchaser may reasonably
request in order to further effect the purposes of this Agreement and the other
Operative Documents.
8.11 NOTICES. All notices, requests, and other communications to any
party hereunder shall be in writing (including bank wire, telecopy, or similar
teletransmission or writing) and shall be given to such party at its address or
telecopy number set forth on the signature pages hereof or such other address or
telecopy number as such party may hereafter specify by notice to the other
parties.
8.12 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
Purchaser in exercising any right or remedy under this Agreement, the Note, or
any other Operative Document and no course of dealing between the Sellers and
Purchaser shall operate as a waiver thereof, nor shall any single or partial
exercise of any right or remedy under this Agreement, the Note, or any other
Operative Document preclude any other or further exercise thereof or the
exercise of any other right or remedy under this Agreement, the Note, or any
other Operative Document. The rights and remedies expressly provided are
cumulative and not exclusive and any rights or remedies that Purchaser would
otherwise have. No notice to or demand on the Sellers not otherwise required by
this Agreement, the Note, or any other Operative Document in any case shall
entitle the Sellers to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of Purchaser to any other or
further action in any circumstances without notice or demand.
8.13 EXHIBITS; SCHEDULES. The exhibits and schedules attached to this
Agreement are incorporated herein and shall be considered to be a part of this
Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such exhibits or schedules and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
8.14 MAXIMUM INTEREST. It is the intention of the parties hereto to
conform strictly to applicable usury laws and, anything herein to the contrary
notwithstanding, the obligations of the Sellers to Purchaser under this
Agreement and the other Operative Documents shall be subject to the limitation
that payments of interest shall not be required to the extent that receipt
thereof would be contrary to provisions of law applicable to Purchaser limiting
rates of interest which may be contracted for, charged, reserved, received, or
taken by Purchaser. Accordingly, if the transactions contemplated hereby would
be usurious under applicable law (including the Federal and state Laws of the
United States of America, or of any other jurisdiction whose laws may be
mandatorily applicable) with respect to Purchaser then, in that event,
notwithstanding anything to the contrary in this Agreement or any other
Operative Document, it is agreed as follows: (a) the provisions of this Section
8.14 shall govern and control; (b) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for, charged,
received, reserved, or taken under this Agreement or any other Operative
Document, or otherwise in connection with this Agreement or the transactions
contemplated by the Operative Documents by Purchaser shall under no
circumstances exceed the maximum amount of interest allowed by applicable law
(such maximum lawful interest rate, if any, with respect to Purchaser herein
called the "HIGHEST LAWFUL RATE"), and any excess shall be credited to the
Sellers by Purchaser (or, if such consideration shall have been paid in full,
such excess refunded to the Sellers); (c) all sums paid, or agreed to be paid,
to Purchaser for the use, forbearance, and detention of any indebtedness of the
Sellers to Purchaser hereunder or under any other Operative Document shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term of any such indebtedness until payment in full
so that the actual rate of interest does not exceed the Highest Lawful Rate; and
(d) if at any time the sum of the interest and all other amounts payable
pursuant to this Agreement and the other Operative Documents that are deemed to
be interest under applicable law exceeds that amount which would have accrued at
the Highest Lawful Rate, the interest and other amounts to accrue to Purchaser
pursuant to this Agreement and the other Operative Documents shall be limited,
notwithstanding anything to the contrary in this Agreement or any other
Operative Document, to that amount which would have accrued at the Highest
Lawful Rate, but any subsequent reductions, as applicable, shall not reduce the
interest or other amounts payable to Purchaser pursuant to this Agreement and
the other Operative Documents below the Highest Lawful Rate until the total
amount of interest accrued pursuant to this Agreement and the other Operative
Documents and such other amounts deemed to be interest equals the amount that
would have accrued to Purchaser if the rate per annum set forth in the Note had
at all times been in effect, PLUS all other amounts that which would have been
received but for the effect of this Section 8.14. For purposes of Article
5069-1.04, Vernon's Texas Civil Statutes, as amended, to the extent, if any,
applicable to Purchaser, the Sellers agree that the Highest Lawful Rate shall be
the "indicated (weekly) rate ceiling" as defined in said Article; PROVIDED that
Purchaser may also rely, to the extent permitted by applicable laws, on
alternative maximum rates of interest under other laws applicable to Purchaser
if greater. Tex. Rev. Civ. Stat. Xxx. Art. 0000, Xx. 15 (which regulates certain
revolving credit loan accounts and revolving tri-party accounts) shall not apply
to this Agreement or any other Operative Document.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
THE XXXXXX GROUP LLC
By:
Name:
Title:
Address for Notice:
00000 X. Xxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention:
Telecopy:
EQUALNET HOLDING CORP.
By:
Name:
Title:
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
EQUALNET CORPORATION
By:
Name:
Title:
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
TELESOURCE, INC.
By:
Name:
Title:
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
EQUALNET WHOLESALE SERVICES, INC.
By:
Name:
Title:
Address for Notice:
EqualNet Holding Corp.
0000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopy: (000)000-0000
with a copy to:
Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx, Xx.
Telecopy: (000)000-0000
SCHEDULE 3.1.8
TO
NOTE AND WARRANT PURCHASE AGREEMENT
LIABILITIES
Assessed Federal Excise Tax Penalties for 1997 $21,406.14*
*All other assessments due the Internal Revenue Service are referred to in the
financial statement.
SCHEDULE 3.1.9
TO
NOTE AND WARRANT PURCHASE AGREEMENT
PENDING LITIGATION
AND MATTERS FOR WHICH FORMAL WRITTEN
DEMANDS HAVE BEEN MADE
1.Civil Action No. 95-CH-0142 filed int he Circuit Court of the Seventh Judicial
Circuit of Sangamon County, Illinois filed against EqualNet Corporation and
EqualNet Holding Corp., filed by the office of the Illinois Attorney General and
based upon an allegedly excessive number of customer complaints that long
distance service was switched to EqualNet without the customer's knowledge or
informed consent, with remedies sought under the deceptive trade
practices-consumer protection statutes of that state. EqualNet has filed an
answer denying each of the material allegations of this complaint.
0.Xxxx Number IJ96-1153 filed in the Chancery Court of Pulansky County,
Arkansas, 1st Division, by the office of the Arkansas Attorney General and based
upon an allegedly excessive number of customer complaints that long distance
service was switched to EqualNet without the customer's knowledge or informed
consent, with remedies sought under the Arkansas Deceptive Trade Practices Act.
EqualNet has filed an answer denying each of the material allegations of this
complaint.
3.The assistant attorneys general for each of the foregoing matters have
indicated that any settlement of their cases must be done jointly, and that
other states (Arizona, Idaho, Wisconsin, Texas, Michigan, Tennessee, Kansas,
Nevada and New Jersey) have indicated that they intend to be included in any
such settlement. Fines, penalties, costs of investigations, restitution of all
or portions of customer charges, or some combination of the foregoing or other
assessments may be required of EqualNet to resolve each of the matters described
n paragraph 1 through 3, or that EqualNet will choose to enter into consent
decrees or orders without any admission of fault, as a means to resolve these
matters, rather than pursue a judicial determination as to the truth or falsity
of the allegations made against the Company. It is impossible to forecast with
any accuracy the potential exposure in these matters, but such exposure could be
a material amount. Subject to approval of its board of directors, EqualNet has
offered to resolve these matters cumulatively for the amount of $500,000 plus
certain refunds in an amount to e determined, provided such amounts could be
paid over time. The refunds are not anticipated to be a significant monetary
sanction. The potential cost of protracted litigation simultaneously in several
states was a significant factor in the Company's decision to respond with this
settlement offer. Such offer is not an admission of wrongdoing by the Company in
any manner.
4.Civil Action No. 97-C-2842 filed in the federal District Court for the
Northern District of Illinois, with process served on July 21, 1997 on EqualNet
Corporation and EqualNet Wholesale Services, Inc. (its wholly-owned subsidiary).
This action was filed by American Teletronics Long Distance, Inc. ("ATLD) and
MetroLink Communications, Inc. ("MetroLink") alleging breach of contract, fraud
and negligent misrepresentation arising out of a letter of intent EqualNet
Corporation signed with MetroLink in November, 1995 to create a joint venture
eventually known as Unified Network Services LLC, a Delaware limited liability
company ("UNS") with EqualNet Corporation, MetroLink, MediaNet, Inc. (a
MetroLink affiliate) and EqualNet Wholesale Services, Inc., as
shareholder/members. EqualNet Wholesale Services has not conducted any business
other than the purchase of a 49% ownership interest in UNS. EqualNet Corporation
owns a 1% interest in the limited liability company. MetroLink and MediaNet each
own 25% ownership interests in UNS. The suit alleges that EqualNet did not
provide "back office" support for UNS, and failed to complete the purchase of
ATLD's customer base. EqualNet has filed an answer denying the allegations made
against it, has filed a motion seeking to have EqualNet Wholesale Services, Inc.
dismissed as a defendant, and has filed a counterclaim for damages, based upon
MetroLink's failure or refusal to provide a fully functional, industry standard
network for wholesale by UNS. EqualNet further denies that any contractual
obligation ever existed for EqualNet to acquire ATLD's customer base. EqualNet
conducted its due diligence, and decided upon the conclusion of such due
diligence, that it did not want to acquire the ATLD customer base.
SCHEDULE 3.1.10
EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974
(ERISA)
None
SCHEDULE 3.1.12
DEFAULTS
1. EqualNet has defaulted in the timely payments of obligations under its
promissory notes payable to Sprint Communications LP dated November 18,
1996 and March 11, 1997.
2. EqualNet has defaulted in the timely payments of obligations to AT&T
Corp. under both its Carrier Agreement and agreement for payment of
obligations incurred prior to the effective date of the current Carrier
Agreement.
3. EqualNet has defaulted under certain provisions of its agreements with
The Xxxxx Group, Inc.
SCHEDULE 3.1.18
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION FILINGS
1. Prospectus March 9, 1995
2. Form 10-K Report Fiscal Year Ended June 30, 1995
3. Form 10-Q Quarterly Report Period Ended March 31, 1995
4. Form 10-Q Quarterly Report Period Ended September 30, 1995
5. Form 8-K Report, June 6, 1995
6. Form 10-Q Quarterly Report Period Ended December 31, 1995
7. Form 10-Q Quarterly Report Period Ended March 31, 1996
8. Amendment No. 1 To Form 8-K, May 10, 1996
9. Form 10-K Report Fiscal Year Ended June 30, 1996
10. Form 10-Q Quarterly Report Period Ended September 30, 1996
11. Form 8-K Report, September 30, 1996
12. Form 10-Q Quarterly Report Period Ended December 31, 1996
13. Form 10-Q Quarterly Report Period Ended March 31, 1997
14. Form 8-K Report, July 1, 1997
15. Form 8-K Report, July 7, 1997
SCHEDULE 3.1.19
TO
OUTSTANDING WARRANTS AND OPTIONS
1. Key Employee Stock Grants 36,435
2. Director Options 13,000
3. Employee Options Grant 1 (vesting July 11, 1997) 230,000
4. "Creative Employee Options 40,000*
5. Creative Communications, International Warrants 100,000
6. Xxxxx Group Warrants 1,500,000
7. Employee Options Grant 2 (vesting July 11, 1998) 231,000
8. Lexus 167,465
SCHEDULE 3.1.21
INTELLECTUAL PROPERTY
None
SCHEDULE 4.3.1
SCHEDULE OF INDEBTEDNESS
1. Sprint Note dated November 18, 1996
2. Sprint Note dated March 11, 1997
3. Capital Lease (Global Services) from 1995 for equipment and
furniture
4. Miscellaneous leases (Comerica, Global Services) secured with
UCC filings
5. Letter of Credit (Comerica Bank) in lieu of premises lease
deposit
6. Obligations arising under the RFC Agreement if and to the
extent such agreement were to be construed as a secured loan
transaction rather than a factoring agreement
7. Obligations to repurchase from The Xxxxx Group certain Common
Stock or other equity instruments of the Company in accordance
with the Letter Agreement dated October 1, 1997, between The
Xxxxx Group and the Company.
SCHEDULE 4.3.2
LIENS
1. Those liens created in the documents of Receivables Funding
Corporation signed on or about June 18, 1997.
2. Those liens created in the document of The Xxxxx Group, Inc.
signed on or about February 3, 1997.
3. Those liens securing the obligations under the Comerica LOC.
SCHEDULE 5.1.5
TO
NOTE AND WARRANT PURCHASE AGREEMENT
EXCLUSIONS FROM
DEFINITION EXCLUDED STOCK
1. Subscription for 167,465 shares of Common Stock by Lexus
Commercial Enterprises, Ltd.
2. Warrant for 100,000 shares of Common Stock to be issued to
Receivables Funding Corporation.
AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT
AND WARRANT AGREEMENT
This Amendment to Note and Warrant Purchase Agreement and Warrant
Agreement ("Amendment") is entered into between EqualNet Holding Corp.
("EqualNet"), EqualNet Corporation, Telesource, Inc., EqualNet Wholesale
Services, Inc. and Xxxxxx Group, LLC ("TWG") effective as of February 12, 1998.
RECITALS
Each of the entities listed in the preamble is a party to a Note and
Warrant Purchase Agreement ("Note Agreement") dated October 1, 1997. In
addition, EqualNet and TWG are parties to a Warrant Agreement dated October 1,
1997, pursuant to which EqualNet issued to TWG a warrant for 200,000 shares of
EqualNet's Common Stock (the "Warrant Agreement"). Any capitalized term used but
not defined herein shall have the meaning ascribed to such term in the Note
Agreement or Warrant Agreement, as applicable.
The parties desire to amend the Warrant Agreement and Warrant issued
pursuant thereto, and the Note Agreement, in accordance with the terms of this
Amendment.
NOW, THEREFORE, in and for the mutual covenants and promises set forth
herein, EqualNet and TWG agree as follows:
1. Each of the Warrant Agreement and Warrant is generally amended to
include a covenant on the part of EqualNet that it will use its best efforts to
cause the number of shares of EqualNet Common Stock authorized under EqualNet's
Articles of Incorporation to be increased to permit the full exercise of the
Warrant and a limitation on the holder of the Warrant to the effect that the
obligation of EqualNet to issue shares upon the exercise of the Warrant in whole
or in part shall be conditioned upon EqualNet having a number of UNRESERVED
authorized shares of EqualNet Common Stock at such time sufficient to cover the
number of shares relating to the exercise.
2. The Note Agreement is generally amended to include a covenant on the
part of EqualNet that it will use its best efforts to cause the number of shares
of EqualNet Common Stock authorized under EqualNet's Articles of Incorporation
to be increased to permit the full conversion of the Note and a limitation on
the holder of the Note to the effect that the obligation of EqualNet to issue
shares upon the conversion of the Note in whole or in part shall be conditioned
upon EqualNet having a number of unreserved authorized shares of EqualNet Common
Stock at such time sufficient to cover the number of shares relating to the
conversion.
By entering into this Amendment, TWG does not waive by implication or
otherwise any of the conditions to the consummation of any transaction between
EqualNet and any of its affiliates and TWG pursuant to any separate agreement
between such parties. This Amendment contains the entire understanding and
agreement between the parties with respect to the subject matter of this
Amendment and supersedes any prior or contemporaneous statements, understandings
or agreements with respect to such subject matter.
EQUALNET HOLDING CORP.
By:
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice President
EQUALNET CORPORATION
By:
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
TELESOURCE, INC.
By:
Name: Xxx Xxxxxx
Title: Secretary and Authorized Agent
EQUALNET WHOLESALE SERVICES, INC.
By:
Name: Xxxx X. Xxxxxx
Title: Secretary and Authorized Agent
XXXXXX GROUP, LLC
By:
Name: Xxxx X. Xxxxxx
Title: President
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