Exhibit 10.24
SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Dated as of February 2, 2000
among
SKYLYNX COMMUNICATIONS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of February 2, 2000 by and among SkyLynx
Communications, Inc., a Delaware corporation (the "Company"), and the Purchasers
of shares of Series F Convertible Preferred Stock of the Company whose names are
set forth on Exhibit A hereto (the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to each Purchaser and each
Purchaser shall purchase from the Company, the number of shares of the Company's
Series F Convertible Preferred Stock, par value $.01 per share (the "Preferred
Shares"), at a purchase price of $1,000 per share, set forth opposite such
Purchaser's name on Exhibit A hereto. The designation, rights, preferences and
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other terms and provisions of the Series F Convertible Preferred Stock are set
forth in the Certificate of Designations attached hereto as Exhibit B (the
---------
"Certificate of Designations"). The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Rule 506 of Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act").
Section 1.2 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, solely for the purpose of
issuance upon the conversion of the Preferred Shares, a sufficient number of its
authorized but unissued shares of its Common Stock, par value $.001 per share
(the "Common Stock"), to effect the conversion of the Preferred Shares. Any
shares of Common Stock issuable upon conversion of the Preferred Shares (and
such shares when issued) are herein referred to as the "Conversion Shares." The
Preferred Shares and the Conversion Shares are sometimes collectively referred
to as the "Shares."
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to each Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
each Purchaser agrees to purchase that number of the Preferred Shares set forth
opposite such Purchaser's respective name on Exhibit A. The aggregate purchase
price of the Preferred Shares being acquired by each Purchaser (the "Purchase
Price") is set forth opposite such Purchaser's name on Exhibit A.
(a) The first closing of the purchase and sale of the Preferred Shares to
be acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (the "First Closing") at
11:00 a.m. California Time on the earlier of (i)
February 2, 2000 or (ii) the date on which the last to be fulfilled or waived of
the conditions set forth in Article IV hereof and applicable to the First
Closing shall be fulfilled or waived in accordance herewith, or at such other
time and place or on such date as the Purchasers purchasing at least a majority
of the Preferred Shares and the Company may agree upon (the "First Closing
Date"). On the First Closing Date, the Company shall deliver to each Purchaser
participating in the First Closing a certificate for the number of Preferred
Shares set forth opposite the Purchaser's name under the heading "Number of
Preferred Shares Purchased" on Exhibit A hereto, registered in such Purchaser's
name (or its nominee) and such Purchaser shall pay the Purchase Price by wire
transfer of funds into the Company's account at Norwest Bank Colorado, N.A.,
ABA#: ___________, Account Number: ___________.
(b) The second closing of the purchase and sale of the Preferred Shares to
be acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (the "Second Closing") at
11:00 a.m. California Time on the earlier of (i) February 18, 2000 or (ii) the
date on which the last to be fulfilled or waived of the conditions set forth in
Article IV hereof and applicable to the Second Closing shall be fulfilled or
waived in accordance herewith, or at such other time and place or on such date
as the Purchasers purchasing the balance of the Preferred Shares and the Company
may agree upon (the "Second Closing Date"). On the Second Closing Date, the
Company shall deliver to each Purchaser participating in the Second Closing a
certificate for the number of Preferred Shares set forth opposite the
Purchaser's name under the heading "Number of Preferred Shares Purchased" on
Exhibit A hereto, registered in such Purchaser's name (or its nominee) and such
Purchaser shall pay the Purchase Price by wire transfer of funds into the
Company's account at Norwest Bank Colorado, N.A., ABA#: 102 000 076, Account
Number: 106-▇▇▇▇▇▇▇. The First Closing and the Second Closing are sometimes, as
and when the context indicates, referred to herein individually as a "Closing"
and collectively as the "Closings."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Purchasers:
(a) (i) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business and any
other business presently proposed to be conducted. The Company does not have
any subsidiaries except as set forth in the Company's Form 10-KSB for the year
ended December 31, 1998, including the accompanying financial statements (the
"Form 10-KSB"), or on Schedule 2.1(a) hereto. The Company and each such
subsidiary is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification
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necessary, except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified would not have a Material Adverse Affect (as
defined in Section 2.1(e) hereof).
(ii) Except as set forth in Schedule 2.1(a) hereto, each of the
Company and its subsidiaries has all requisite corporate power and authority and
all franchises, licenses, permits, consents, authorizations, regulatory
approvals and other approvals necessary to own and operate its properties, to
carry on its business and any other businesses presently proposed to be
conducted and to carry out the transactions contemplated by this Agreement,
except where the failure to possess such franchises, licenses, permits,
consents, authorizations, regulatory approvals and other approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. All such franchises, licenses, permits, consents, authorizations,
regulatory approvals and other approvals are valid and in full force and effect,
and the Company has duly performed and is in compliance in all material respects
with all of its obligations thereunder. No event has occurred with respect to
any of such franchises, licenses, permits, consents, authorizations, regulatory
approvals or other approvals that allows, or after notice or lapse of time or
both would allow, the suspension, limitation, revocation, non-renewal or
termination thereof that, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect, and, to the Company's
knowledge, no termination of any such franchises, licenses, permits, consents,
authorizations, regulatory approvals or other approvals, or proceedings to
suspend, limit, revoke or terminate any such franchises, licenses, permits,
consents, authorizations, regulatory approvals or other approvals has been
threatened.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 3.11) and the
Registration Rights Agreement substantially in the form attached hereto as
Exhibit C (the "Registration Rights Agreement") (collectively, the "Transaction
Documents") and to issue and sell the Shares in accordance with the terms of
this Agreement and the Certificate of Designations. The execution, delivery and
performance of the Transaction Documents and the Certificate of Designations by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of
Directors or stockholders is required. This Agreement has been duly executed
and delivered by the Company. The Registration Rights Agreement and the
Certificate of Designations will have been duly executed and delivered by the
Company at the First Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof issued and outstanding as of January 27, 2000 are set forth
on Schedule 2.1(c) hereto. All of the issued and outstanding shares of the
Common Stock, Series A Convertible Preferred Stock, Series C Convertible
Preferred Stock and Series D Convertible Preferred Stock have been duly and
validly authorized and issued and are fully-paid and nonassessable. Except as
set forth in the 1999 Commission Documents (as defined in Section 2.1(f)
herein), the
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Certificate of Incorporation, with any and all amendments thereto, as in effect
on the date hereof (the "Certificate"), or on Schedule 2.1(c) hereto, no shares
of Common Stock or of any series of the Company's preferred stock are entitled
to preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, call or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company. Furthermore, except as set forth in this
Agreement and the Registration Rights Agreement, and as set forth in the 1999
Commission Documents, the Certificate or on Schedule 2.1(c), there are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities,
as provided on Schedule 2.1(c) hereto, the Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. Except as provided on Schedule
2.1(c), the Company is not a party to any agreement with respect to the voting
or transfer of any shares of the capital stock of the Company. Except as set
forth on Schedule 2.1(c) hereto, the offer and sale of all capital stock,
convertible securities, rights, warrants, or options of the Company issued prior
to the Closing complied with all applicable federal and state securities laws,
and no stockholder has a right of rescission or damages with respect thereto
which would have a Material Adverse Effect. The Company has furnished to each
Purchaser a true, complete and correct copy of the Certificate and the Company's
Bylaws, with any and all amendments thereto, as in effect on the date hereof
(the "Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Preferred Shares
shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designations. When the Conversion Shares are issued in accordance with the
terms of the Preferred Shares as set forth in the Certificate of Designations,
such shares will be validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock. The Conversion Shares have been duly authorized and
reserved for issuance upon conversion of the Preferred Shares.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under and the execution of the Certificate of Designations and the
consummation by the Company of the transactions contemplated herein and therein
do not and will not (i) violate any provision of the Certificate or Bylaws, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party or by which the
Company's assets are bound, (iii) create or impose a lien, charge or encumbrance
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or
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asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clause (i) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not have, individually or in the aggregate, a Material
Adverse Effect. For the purposes of this Agreement, "Material Adverse Effect"
means any adverse effect on the business, operations, properties, prospects, or
financial condition of the Company and its subsidiaries, taken as a whole, and
which is material to the Company and its subsidiaries, taken as a whole. The
business of the Company and its subsidiaries is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which individually or in the aggregate do not and would not
have a Material Adverse Effect. The Company is not required under federal, state
or local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or the Certificate of Designations, or issue and sell the
Preferred Shares or the Conversion Shares in accordance with the terms hereof or
thereof (other than any filings which may be required to be made by the Company
with the Commission or state securities administrators subsequent to the
Closing, and any registration statement which may be filed pursuant hereto, and
the filing of the Certificate of Designations with the Secretary of State of the
State of Delaware); provided that, for purposes of the representation made in
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including materials filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing, including filings incorporated by reference therein,
being referred to herein as the "Commission Documents"). The Company has
delivered or made available to each of the Purchasers true and complete copies
of the Commission Documents filed with the Commission since December 31, 1998
(the "1999 Commission Documents"). As of their respective dates, the Commission
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and, as of their respective dates, none of the
Commission Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the Commission Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present the financial position of
the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
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(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each applicable person's ownership of the
outstanding stock or other interests of such subsidiary. Each subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation and has the requisite corporate power to
own, lease and operate its properties and assets and to conduct its business as
it is now being conducted. For the purposes of this Agreement, "subsidiary"
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares of capital
stock of each subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable. Except as set forth in Schedule 2.1(g), there are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
or has any knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since September 30, 1999, the date
through which the most recent quarterly report of the Company on Form 10-QSB has
been prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than (i)
those disclosed in the Commission Documents or (ii) those incurred in the
ordinary course of the Company's or its subsidiaries respective businesses since
September 30, 1999 (none of which results from breach of contract, breach of
warranty, tort, infringement claim or other lawsuit) and which, individually or
in the aggregate, do not or would not have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. The 1999 Commission Documents or Schedule 2.1(k)
hereto sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary or for which the Company or any
subsidiary has commitments. For
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the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $25,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Except as set forth in Schedule 2.1(l), each of
the Company and the subsidiaries has good title to all of its real and personal
property as reflected in the Commission Documents, free of any mortgages,
pledges, charges, liens, security interests or other encumbrances, except which,
individually or in the aggregate, would not have a Material Adverse Effect. All
leases of the Company and each of its subsidiaries are valid and subsisting and
in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation or proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of the subsidiaries has accurately
prepared and filed all Tax Returns required by law to be filed by it; the
Company and each of the subsidiaries has paid all Taxes due and owing and all
additional assessments; and adequate provisions have been made and are reflected
in the financial statements of the Company and the subsidiaries for all current
Taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. The Company and each of the
Subsidiaries have withheld and paid over all Taxes which it is obligated to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except for any failures to so
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pay as would not have a Material Adverse Effect; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency; none of
the federal income Tax returns of the Company or any subsidiary for the years
subsequent to December 31, 1996 has been audited by the Internal Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) pending or threatened
against the Company or any subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency. The term "Tax" (including, with
correlative meaning, the terms "Taxes," "Taxing" and "Taxable") shall mean all
federal, state, local and foreign income, profits, franchise, gross receipts,
license, premium, environmental (including taxes under IRC Section 59A) capital
stock, severance, stamp, payroll, sales, employment, unemployment, disability,
use, transfer, property, withholding, excise, production, occupation, windfall
profits, customs duties, social security (or similar), registration, value
added, alternative or add-on minimum, estimated, occupancy and other taxes,
duties or governmental assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions. The term "Tax Return" shall
mean any return, report, form or similar statement required to be filed with
respect to any Tax (including any attached schedules), including any information
return, claim for refund, amended return, election or declaration of estimated
Tax.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary or the Purchasers with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement nor the Schedules hereto nor any other documents, certificates, or
instruments furnished to the Purchasers by the Company or any of its
subsidiaries in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made, not misleading.
(r) Intellectual Property. "Intellectual Property" means (i) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereon, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations, continuations-
in-part, revisions, extensions and reexaminations thereof, (ii) all trademarks,
service marks, trade dress, logos, trade names, domain names, and corporate
names, together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrights and all
applications, registrations and renewals in connection therewith, (iv) all mask
works and all applications, registrations and renewals in connection therewith,
(v) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, methods, schematics, technology, technical
data, designs, drawings, flowcharts, block diagrams, specifications, customer
and supplier lists, pricing and cost information and business and marketing
plans and proposals), (vi) all computer software (including data and related
documentation), (vii) all other proprietary rights, (viii) all copies and
tangible embodiments of the foregoing categories of intellectual property listed
in subsections (i) through
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(vii) herein (in whatever form or medium) and (ix) all licenses, sublicenses,
agreements, or permissions related to the foregoing categories of intellectual
property listed in subsections (i) through (vii) herein. "Company Intellectual
Property" means any Intellectual Property owned by the Company and its
subsidiaries.
(a) Each item of Company Intellectual Property which is a
patent, patent application, trademark, trademark application, service ▇▇▇▇,
service ▇▇▇▇ application, trade dress, logo, trade name, corporate name,
copyright registration, copyright application, mask work registration or mask
work application is set forth on Schedule 2.1(r) or is disclosed in the
Commission Documents;
(b) Each item of Intellectual Property owned or available for
use by the Company and its subsidiaries immediately prior to the Closing
hereunder will be owned or available for use by the Company and its subsidiaries
on identical terms and conditions immediately subsequent to the Closing
hereunder;
(i) all registered patents, trademarks, service marks and
copyrights constituting part of the Company Intellectual Property are valid and
subsisting and in full force and effect and are not subject to any taxes or
other fees except for annual filing and maintenance fees;
(ii) the Company is not aware of any notice, claim or
assertion that any item of Intellectual Property owned or used by the Company
and its subsidiaries is invalid nor is the Company aware of any facts that would
cause a reasonable person to conclude that any such item of Intellectual
Property is invalid;
(iii) to the best knowledge of the Company, the Company and
its subsidiaries has the sole and exclusive right to use all of the Company
Intellectual Property in all jurisdictions in which the Company and its
subsidiaries conducts or proposes to conduct its business, and the consummation
of the transactions contemplated hereby will not alter or impair any such
rights;
(iv) to the best knowledge of the Company, the Intellectual
Property owned or used by the Company and its subsidiaries is all the
Intellectual Property that is necessary for the ownership, maintenance and
operation of the Company's and its subsidiaries properties and assets; and
(v) to the best knowledge of the Company, the Company and
its subsidiaries has taken all reasonable action to maintain and protect each
item of Company Intellectual Property.
(c) Other than as set forth on Schedule 2.1(r), to the best
knowledge of the Company, it has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of third parties, and the Company has not received any charge, complaint,
claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that the Company and its
subsidiaries must
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license or refrain from using any Intellectual Property rights of any third
party). Other than as set forth on Schedule 2.1(r), to the best knowledge of the
Company, no third party has interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Company Intellectual Property.
(d) With respect to each item of Company Intellectual Property,
except as set forth on Schedule 2.1(r):
(i) the Company and its subsidiaries possesses all right,
title and interest in and to the item, free and clear of any encumbrance,
license or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the best knowledge of the
Company, is threatened which challenges the legality, validity, enforceability,
use or ownership of the item;
(iv) to the best knowledge of the Company, the Company and
its subsidiaries has never agreed to indemnify any person for or against any
interference, infringement, misappropriation or other conflict with respect to
the item;
(v) to the best knowledge of the Company, each license,
sublicense, agreement or permission is legal, valid, binding, enforceable and in
full force and effect and will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms immediately following the
Closing;
(vi) to the best of the Company's knowledge, no party to
any license, sublicense, agreement or permission is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification or acceleration thereunder;
(vii) no party to any license, sublicense, agreement or
permission has repudiated any provision thereof;
(viii) with respect to any sublicense, the representations
and warranties set forth in subsections (v) through (vii) above are true and
correct with respect to the underlying license;
(ix) with respect to each license, sublicense, agreement
or permission, the underlying item of Company Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree, ruling or
charge;
(x) with respect to the each license, sublicense,
agreement or permission, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or
10
demand is pending or, to the best knowledge of the Company, is threatened which
challenges the legality, validity or enforceability of the underlying item of
Company Intellectual Property; and
(xi) with respect to the each license, sublicense,
agreement or permission, the Company and its subsidiaries has not granted any
sublicense or similar right with respect to the license, sublicense, agreement
or permission.
(e) The continued operation of the Company's and its
subsidiaries business and any other businesses presently proposed to be
conducted by the Company and its subsidiaries will not, to the best knowledge of
the Company, interfere with, infringe upon, misappropriate, or otherwise come
into conflict with, any Intellectual Property rights of third parties.
(f) The Company is not aware that any of its 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 such
employee's best efforts to promote the interest of the Company and its
subsidiaries or that would conflict with the Company's and its subsidiaries
business or any other businesses presently proposed to be conducted by the
Company and its subsidiaries or the Company's and its subsidiaries use of the
Intellectual Property.
(g) Neither the execution nor delivery of this Agreement, nor
the carrying on of the Company's and its subsidiaries business by the employees
of the Company and its subsidiaries, nor the conduct of the Company's and its
subsidiaries business or any other businesses presently proposed to be conducted
by the Company and its subsidiaries, will, to the best knowledge of the Company,
conflict with or result in a breach of the terms, conditions of provisions of,
or constitute a default under, any contract, covenant or instrument under which
any or such employees is now obligated.
(h) The Company and its subsidiaries does not and will not need,
in order to conduct its business and any other businesses presently proposed to
be conducted by the Company and its subsidiaries, to utilize any inventions of
any of its employees, former employees (or persons it currently intends to hire)
made while not employed by the Company and its subsidiaries and the rights to
which have not been fully assigned to the Company.
(i) The Company and its subsidiaries has obtained valid and
effective assignments from all of its employees, former employees, independent
contractors, and former independent contractors of all of such persons' rights
in any Company Intellectual Property developed by such persons while employed by
or under contract with the Company and its subsidiaries, except to the extent
that failure to do so has not had and would not reasonably be expected to have a
Material Adverse Effect.
(j) For each item of Company Intellectual Property which is an
application, including but not limited to patent applications, trademark
applications, service ▇▇▇▇ applications, copyright applications, or mask work
applications, the Company and its
11
subsidiaries has the right to require the applicant to transfer ownership to the
Company and its subsidiaries of the application and of the registration once it
issues.
(s) Environmental Compliance. Except as disclosed in the 1999
Commission Documents or on Schedule 2.1(s) hereto, the Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. The 1999 Commission Documents or Schedule 2.1(s) hereto
sets forth all material permits, licenses and other authorizations issued under
any Environmental Laws to the Company or its subsidiaries. "Environmental Laws"
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth in the 1999 Commission Documents or on Schedule 2.1(s) hereto, the Company
has all necessary governmental approvals required under all Environmental Laws
and used in its business or in the business of any of its subsidiaries. The
Company and each of its subsidiaries are also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws. Except for such
instances as would not, individually or in the aggregate, have a Material
Adverse Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its subsidiaries that violate or may violate any Environmental Law after the
Closing or that may give rise to any Environmental Liabilities, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance. "Environmental Liabilities" means all liabilities of a person
(whether such liabilities are owed by such person to governmental authorities,
third parties or otherwise) whether currently in existence or arising hereafter
which arise under or relate to any Environmental Law.
(t) Books and Record Internal Accounting Controls. The records and
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.
(u) Material Agreements. Except as set forth in the Commission
Documents or on Schedule 2.1(u) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form ▇-▇, ▇▇▇▇
▇-▇ or other applicable forms (collectively, "Material Agreements") if the
Company or any subsidiary were registering securities under the Securities Act.
The Company
12
and each of its subsidiaries have in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge, are not in default under any Material Agreement now in effect, the
result of which could reasonably be expected to have a Material Adverse Effect.
Except as set forth in the Certificate or Schedule 2.1(u), no written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of dividends
on the Preferred Shares, other preferred stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the 1999
Commission Documents or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $60,000 between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company or any of its subsidiaries, or any corporation or other entity
controlled by such officer, employee, consultant or director, or any person
owning 5% or more of the Company's capital stock, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares and Conversion Shares. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has offered
to sell or solicited offers to buy the Preferred Shares, or entered into any
preliminary conversations or negotiations relating thereto with any person, or
has taken any action so as to bring the issuance and sale of the Preferred
Shares and the Conversion Shares under the registration provisions of the
Securities Act and applicable state securities laws. Neither the Company nor
any person acting on its behalf has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Preferred Shares and the
Conversion Shares.
(x) Governmental Approvals. Except as set forth in the 1999
Commission Documents or on Schedule 2.1(x) hereto, and except for the filing of
any notice prior or subsequent to the Closing that may be required under
applicable state and/or federal securities laws (which if required, shall be
filed on a timely basis), including the filing of a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designations with the Secretary of State for the State of
Delaware, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares,
or for the performance by the Company of its obligations under the Transaction
Documents or the Certificate of Designations.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the 1999 Commission Documents or on Schedule 2.1(y)
hereto. Except as set forth in the 1999 Commission Documents or on Schedule
2.1(y) hereto, neither the Company nor its subsidiaries
13
has any material employment contract, non-competition agreement, agreement
regarding proprietary information, confidentiality agreement, non-solicitation
agreement or any other similar contract or restrictive covenant, relating to the
right of any officer, employee or consultant to be employed or engaged by the
Company. Since September 30, 1999, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect, or
has been terminated or, to the knowledge of the Company, has any present
intention of terminating his or her employment or engagement with the Company or
any subsidiary.
(z) Absence of Certain Developments. Except as provided in the 1999
Commission Documents or on Schedule 2.1(z) hereto, since September 30, 1999,
neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other securities or any rights,
options or warrants with respect thereto, except pursuant to the Company's stock
option plans;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
14
(x) other than the transactions contemplated by this
Agreement, entered into any other transaction other than in the ordinary course
of business, or entered into any other material transaction, whether or not in
the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and
acquisitions.
(ab) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if the Purchasers, or any person or entity that owns
a beneficial interest in any Purchaser, is an "employee pension benefit plan"
(within the meaning of Section 3(2) of ERISA) with respect to which the Company
is a "party in interest" (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.
As used in this Section 2.1(ac), the term "Plan" shall mean an "employee pension
benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(ad) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in
15
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designations in accordance with this
Agreement, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Company.
(ae) Other Sales. The Company has not and will not sell any
shares of Series F Convertible Preferred Stock to any person or entity other
than the Purchasers or their affiliates.
(af) Listing. The Common Stock is listed and traded on the over-
the-counter electronic bulletin board (the "OTC Bulletin Board").
(ag) Year 2000. To the knowledge of the Company, all of the
Company's and its subsidiaries products and services that record, store, process
and calculate and present calendar dates, or calculate any information dependent
on or relating to such dates, will operate on and after January 1, 2000 without
error caused by date data that represents or references different centuries or
more than one century (▇▇▇▇▇▇▇▇▇▇▇▇, "▇▇▇ Compliant"). To the knowledge of the
Company, all of the Company's and its subsidiaries material products and
services will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. To the knowledge of the
Company, all of the Company's and its subsidiaries internal computer systems are
Y2K compliant.
Section 2.2 Representations and Warranties of the Purchasers.
Each Purchaser hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, the Purchaser is a corporation, partnership, limited
liability company or trust duly incorporated, formed or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, formation or organization.
(b) Authorization and Power. Each Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by each
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate, partnership,
limited liability or other action (if the Purchaser is an entity), and no
further consent or authorization of such Purchaser or its Board of Directors,
stockholders, partners, managers, members or trustees, as the case may be, is
required. Each of this Agreement and the Registration Rights Agreement has been
duly authorized, executed and delivered by each Purchaser.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
each Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
16
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Purchaser
is a party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a material adverse effect
on such Purchaser). No Purchaser is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement or to
purchase the Preferred Shares in accordance with the terms hereof, provided that
for purposes of the representation made in this sentence, such Purchaser is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(d) Acquisition for Investment. Each Purchaser is purchasing the
Preferred Shares solely for its own account for the purpose of investment and
not with a view to or for sale in connection with distribution. No Purchaser
has a present intention to sell the Preferred Shares, nor a present arrangement
(whether or not legally binding) or intention to effect any distribution of the
Preferred Shares to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(f) below, none of
the Purchasers agrees to hold the Preferred Shares for any minimum or other
specific term and each of the Purchasers reserves the right to dispose of the
Preferred Shares at any time in accordance with federal securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Preferred Shares.
(e) Accredited Investors. Each Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144; Listing. Each Purchaser understands that the Shares
must be held indefinitely unless such Shares are registered under the Securities
Act or an exemption from registration is available. Each Purchaser acknowledges
that such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Each Purchaser understands that to the extent that Rule
144 is not available, such person will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement. Each Purchaser understands that
the Common Stock is traded on the OTC Bulletin Board and that no assurance can
be given that the Company's Common Stock will qualify for listing or trading on
the Nasdaq Stock Market, or any other relevant exchange, market or system, or
that, if listed or traded thereon in the future, it will continue to qualify for
listing or trading thereon.
(g) General. Each Purchaser understands that the Preferred Shares
are being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Preferred Shares.
17
(h) Access to Information. Each Purchaser has received all
documents, records, books and publicly available information pertaining to
Purchaser's investment in the Company that have been reasonably requested by
Purchaser. Purchaser acknowledges that the Company is subject to the periodic
reporting requirements of the Exchange Act, and Purchaser has received or
reviewed copies of the Commission Documents.
ARTICLE III
COVENANTS
The Company covenants as follows, which covenants are for the benefit of
the Company, each of the Purchasers and their permitted assignees (as defined
herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with their
rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred
Shares and the Conversion Shares as required under Regulation D, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Preferred Shares and the Conversion Shares to the Purchasers.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Purchasers set forth herein in order to determine the applicability of
federal and state securities laws exemptions and the suitability of the
Purchasers to acquire the Preferred Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
comply with its reporting and filing obligations under the Exchange Act, will
comply with all requirements related to any registration statement filed
pursuant to this Agreement or the Registration Rights Agreement, and, except as
required by applicable law, will not take any action or file any document
(whether or not permitted by the Securities Act or the rules promulgated
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act or Securities Act.
The Company will take all action necessary to continue the listing or trading of
its Common Stock on the OTC Bulletin Board or any relevant market or system, if
applicable, and to comply with the Company's reporting, filing and other
obligations under the bylaws or rules of the OTC Bulletin Board or any relevant
market or system.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, the Purchasers
or any employees, agents or representatives thereof, so long as the Purchasers
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares which represent 10% or more of the total
combined voting power of all voting securities of the Company then outstanding,
to examine and make reasonable copies of and extracts from the records and books
of account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors and key employees.
18
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
following to the Purchasers so long as the Purchasers shall be obligated
hereunder to purchase the Preferred Shares or shall beneficially own any
Preferred Shares which represent more than 10% of the total combined voting
power of all voting securities of the Company then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as
soon as available, and in any event within 45 days after the end of each of the
first three fiscal quarters of the Company or such later date pursuant to an
extension granted by the Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon
as available, and in any event within 90 days after the end of each fiscal year
of the Company or such later date pursuant to an extension granted by the
Commission; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
provision of the Certificate or Bylaws of the Company or Registration Rights
Agreement in any way that would materially adversely affect any of the rights of
the holders of Preferred Shares, including but not limited to the liquidation
preferences, dividends rights, conversion rights, voting rights or redemption
rights of the holders of the Preferred Shares.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would materially restrict or
impair the right or ability to perform of the Company or any subsidiary to
perform under any Transaction Document or the Certificate of Designations.
Section 3.9 Distributions. So long as any Preferred Shares remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company, except for the repurchase or
reacquisition of Common Stock pursuant to the terms of the Company's stock
option plans.
19
Section 3.10 Reservation of Shares. So long as any Preferred Shares
remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, no less than the
aggregate number of shares of Common Stock needed to provide for the issuance of
the Conversion Shares.
Section 3.11 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchasers or their
respective nominee(s), for the Conversion Shares in such amounts as specified
from time to time by the Purchasers to the Company upon conversion of the
Preferred Shares in substantially the form of Exhibit D attached hereto (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 6.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.11 will be given by the Company to
its transfer agent and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.11
shall affect in any way the Purchasers' obligations and agreements set forth in
Section 6.1 to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Shares. If any Purchaser provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of Shares may be made without registration under
the Securities Act or such Purchaser provides the Company with reasonable
assurances that Shares can be sold pursuant to Rule 144 without any restriction
as to the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.11 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.11 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.11, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
Section 3.12 FIRPTA. The Company acknowledges that holders of Preferred
Shares may be foreign persons or may have foreign persons or entities as
partners and that the Company may be required to file or cause to be filed in
the future with the IRS certain statements with its United States income Tax
Returns required under Section 1.897-2(h) of the Treasury Regulations. The
Company is not a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code and the Company shall use reasonable
efforts consistent with sound business practice to avoid becoming a "United
States real property holding corporation." Upon the request of any holder of
Preferred Shares, the Company shall provide such holder with a statement that
the Company is not a "United States real property holding corporation" as of the
date specified by the holder (or as of the date of the request if the holder
does not specify a date) and shall send a copy of such statement to the IRS in a
form and manner which identifies the holder and which otherwise satisfies the
requirements of Section 1.897-
20
2(h)(2) of the Treasury Regulations. In the event the Company in the future
becomes a "United States real property holding corporation," the Company shall
promptly notify each holder in writing of such fact. Thereafter, upon written
request from any holder Preferred Shares, the Company shall provide information,
documentation and assistance to such holder reasonably related to the Company's
status as a "United States real property holding corporation," including but not
limited to (i) an affidavit stating (if true) that the stock held by such holder
is of a class that is regularly traded (as defined by Sections 1.897-1(n) and
1.897-9T of the Treasury Regulations) on an established securities market (as
defined by Section 1.897-1(m) of the Treasury Regulations), and (ii) information
or assistance which would enable such holder to obtain a withholding certificate
permitting a transferee of such holder's stock to avoid or reduce any
withholding obligation such transferee would otherwise have under federal Tax
law.
Section 3.13 Regulation S. The Company covenants and agrees that if the
Company fails to (i) file a registration statement within 60 days from the First
Closing Date and/or (ii) register the Conversion Shares within 120 days from the
First Closing Date, under the terms and conditions of the Registration Rights
Agreement attached hereto as Exhibit C, then for so long as any of the Preferred
Shares or Conversion Shares remain outstanding and continue to be "restricted
----------
securities" within the meaning of Rule 144 under the Securities Act, the Company
----------
shall, in order to permit resales of the Preferred Shares or Conversion Shares
pursuant to Regulation S under the Securities Act, (a) continue to file all
material required to be filed pursuant to Section 13(a) or 15(d) of the Exchange
Act, and (b) not knowingly engage in directed selling efforts in connection with
the resale of securities by any Purchaser under Regulation S.
Section 3.14 Restrictions on Subsequent Financings. From the First
Closing Date until the date 180 days immediately following such First Closing
Date, the Company covenants and agrees that, without the consent of Purchasers
purchasing at least three-quarters of the Preferred Shares, it will not agree
to, enter into or otherwise accept any subsequent offer or sale to, or exchange
with (or other type of distribution to), any third party (a "Subsequent
Financing"), of Common Stock or any securities convertible or exchangeable into
Common Stock, including debt securities (the "Financing Securities").
Notwithstanding the foregoing, a Subsequent Financing shall not include: (i) any
transaction involving the Company's issuance of any Financing Securities (other
than for cash) (A) as consideration in a merger, acquisition, consolidation or
sale or disposition of stock or assets or (B) in exchange for stock or assets;
(ii) the grant of any Financing Securities under any Company employee benefit
plan, stock option plan, restricted stock plan or stock purchase plan or
agreement for the benefit of the Company's employees, directors or consultants;
(iii) the issuance of Financing Securities pursuant to (x) the options, warrants
or other convertible securities outstanding as of the First Closing Date and (y)
the Second Closing, and specifically listed on the Schedules hereto; or (iv) any
transaction entered into and completed on terms and conditions which contemplate
the exchange, consideration or sale (or other type of distribution or payment,
as applicable) of any Financing Securities at an "effective" price at or above
(A) forty percent (40%) of the closing bid price per share of the Common Stock
on the date of the execution of the definitive agreement to sell such Financing
Securities on the OTC Bulletin Board or any registered
21
national stock exchange or market on which the Common Stock is then listed (or
the then average of the "Pink Sheet" quotes, if the Common Stock is not then
listed on the OTC Bulletin Board or any registered national stock exchange or
market) and (B) $2.50 per share (each of the transactions set forth in (i)-(iv)
of this Section 3.14 being a "Permitted Financing"); provided, however, that
-------- -------
each such Permitted Financing is not subject to any term or condition which
shall require the Company to file with the Commission a registration statement
in respect of any Financing Securities prior to sixty (60) days after the
Effectiveness Date (as such term is defined in the Registration Rights
Agreement); provided, further, the preceding proviso shall not apply to any
-------- ------- -------
Permitted Financing pursuant to Section 3.14(ii) which is disclosed in Schedule
2.1(c) hereto under the heading "Registration Rights". The Company will promptly
notify the Purchasers in writing of the terms and conditions of any proposed
Subsequent Financing.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares to the Purchasers is subject to the satisfaction or waiver, at
or before the respective Closing, of each of the conditions set forth below.
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of the Purchasers shall be true and correct in
all material respects as of the date when made and as of the Closing as though
made at that time, except for representations and warranties that are expressly
made as of a particular date, which shall be true and correct as of such date.
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Purchasers at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Proceedings or Litigation. No investigation, action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced or threatened against the Company, any subsidiary thereof or any
Purchaser, or any of the officers, directors or affiliates of the Company, any
subsidiary thereof or any Purchaser seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(e) Securities Law Exemptions. The sale and issuance of the
Preferred Shares and the Conversion Shares to the Purchasers shall be permitted
by applicable law, rule and regulation, and shall be exempt from the
registration or qualification requirements of the Securities Act and applicable
state securities laws.
22
(f) Consents and Approvals. All authorizations, consents, approvals,
licenses, exemptions of, filings or registrations with any third party or any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, necessary for, or in connection with, the
execution or delivery of the Preferred Shares, or for the performance by the
Company of its obligations under the Transaction Documents or the Certificate of
Designations, shall have been received.
(g) Registration Rights Agreement. At the Closing, each Purchaser
shall have executed and delivered the Registration Rights Agreement in
substantially the form attached hereto as Exhibit C to the Company.
(h) Transfer Agent Instructions. At the First Closing, the
Irrevocable Transfer Agent Instructions in substantially the form attached
hereto as Exhibit D shall have been delivered to and acknowledged in writing by
the Company's transfer agent.
(i) Minimum First Closing Purchase. At the First Closing, the
Company shall make sales of the Preferred Shares to the Purchasers and the
Purchasers shall purchase from the Company as listed on Exhibit A hereto
Preferred Shares resulting in gross proceeds of a minimum of $10,000,000 to the
Company, less any and all fees and legal expenses payable to the Purchasers.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of the Purchasers to acquire and
pay for the Preferred Shares is subject to the satisfaction or waiver, at or
before the respective Closing, of each of the conditions set forth below. These
conditions are for the Purchasers' sole benefit and may be waived by the
Purchasers at any time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing as
though made at that time, except for representations and warranties that speak
as of a particular date, which shall be true and correct as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing.
(c) Suspension, Etc. From the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to Closing), and, at any
time prior to the Closing, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, on Nasdaq
or on the OTC Bulletin Board, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there have
occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
23
material adverse change in any financial market which, in each case, in the
judgment of the Purchasers, makes it impracticable or inadvisable to purchase
the Preferred Shares.
(d) Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Proceedings or Litigation. No investigation, action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced or threatened against the Company, any subsidiary thereof or any
Purchaser, or any of the officers, directors or affiliates of the Company, any
subsidiary thereof or any Purchaser seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Securities Law Exemptions. The sale and issuance of the
Preferred Shares and the Conversion Shares to the Purchasers shall be permitted
by applicable law, rule and regulation, and shall be exempt from the
registration or qualification requirements of the Securities Act and applicable
state securities laws.
(g) Consents and Approvals. All authorizations, consents, approvals,
licenses, exemptions of, filings or registrations with any third party or any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, necessary for, or in connection with, the
execution or delivery of the Preferred Shares, or for the performance by the
Company of its obligations under the Transaction Documents or the Certificate of
Designations, shall have been received.
(h) Preferred Stock Certificates. The Company shall have executed and
delivered to each Purchaser a stock certificate or certificates (in such
denominations as such Purchaser shall request) for the Preferred Shares being
purchased by such Purchaser at the Closing.
(i) Certificate of Designations of Rights and Preferences. Prior to
the First Closing, the Certificate of Designations shall have been filed with
the Secretary of State of the State of Delaware.
(j) Registration Rights Agreement. At the First Closing, the Company
shall have executed and delivered the Registration Rights Agreement in
substantially the form attached hereto as Exhibit C to the Purchasers.
(k) Transfer Agent Instructions. At the First Closing, the
Irrevocable Transfer Agent Instructions in substantially the form attached
hereto as Exhibit D shall have been delivered to and acknowledged in writing by
the Company's transfer agent.
(l) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the Certificate of
Designations, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction
24
Documents and any other documents required to be executed or delivered in
connection therewith.
(m) Officer's Certificate. The Company shall have delivered to the
Purchasers an officer's certificate, dated as of the Closing Date, certifying as
to the items in subsections (a) through (k) above.
(n) Opinion of Counsel. At the Closing, the Purchasers shall have
received opinions of counsel to the Company, dated the Closing Date, in form and
substance acceptable to the Purchasers' counsel, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl,
LLP, and such other certificates and documents as the Purchasers or such counsel
shall reasonably require incident to the Closing.
ARTICLE V
REGISTRATION RIGHTS
At the Closing, the Company and the Purchasers shall enter into the
Registration Rights Agreement in substantially the form attached hereto as
Exhibit C.
ARTICLE VI
STOCK CERTIFICATE LEGEND
Section 6.1 Legend. Each certificate representing the Preferred Shares,
and, if appropriate, securities issued upon conversion thereof, shall be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. (THE
"COMPANY") SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION OF SUCH SECURITIES
UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Preferred
Shares or Conversion Shares without the legend set forth above if at such time,
prior to making any transfer of any Preferred Shares or Conversion Shares, such
holder thereof shall give written notice to the Company describing the manner
and terms of such transfer or removal as the Company may reasonably request.
Such proposed transfer or removal will not be effected until: (a) (i) holder has
delivered to the Company a legal opinion from counsel to holder that, in the
25
opinion of such counsel, the registration of such Preferred Shares or Conversion
Shares under the Securities Act is not required in connection with such proposed
transfer; or (ii) a registration statement under the Securities Act covering
such proposed disposition has been filed by the Company with the Commission and
has become effective under the Securities Act; and (b) the Company is reasonably
satisfied that (i) the registration or qualification of such Preferred Shares or
Conversion Shares under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition; or (ii) compliance with
applicable state securities or "blue sky" laws has been effected. The Company
will use its best efforts to respond to any such notice from a holder, or else
effect such transfer or removal, within three (3) days. In the case of any
proposed transfer under this Section 6, the Company will use reasonable efforts
to comply with any such applicable state securities or "blue sky" laws, but
shall in no event be required, in connection therewith, to qualify to do
business in any state where it is not then qualified or to take any action that
would subject it to tax or to the general service of process in any state where
it is not then subject. The restrictions on transfer contained in Section 6.1
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this Agreement.
ARTICLE VII
TERMINATION
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to any Closing by the mutual written consent of the
Company and the Purchasers purchasing a majority of the Preferred Shares at such
Closing.
Section 7.2 Other Termination. This Agreement may be terminated as to
the First Closing by the action of the Board of Directors of the Company or by
the Purchasers purchasing a majority of the Preferred Shares at the First
Closing at any time if the First Closing shall not have been consummated by
February 2, 2000, provided that the reason the First Closing shall not have been
consummated is not the breach of the terminating party's representations,
warranties or covenants hereunder. This Agreement may be terminated as to the
Second Closing by the action of the Board of Directors of the Company or by the
Purchasers purchasing a majority of the Preferred Shares at the Second Closing
at any time if the Second Closing shall not have been consummated by February
18, 2000, provided that the reason the Second Closing shall not have been
consummated is not the breach of the terminating party's representations,
warranties or covenants hereunder.
Section 7.3 Effect of Termination. In the event of termination by the
Company or the Purchasers, written notice thereof shall forthwith be given to
the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party as to such Closing. If this
Agreement is terminated as provided in Section 7.1 or 7.2 herein, this Agreement
shall become void and of no further force and effect as to such Closing, and
neither the Company nor the Purchasers as to such Closing shall have any
liability to the other party hereunder, except as otherwise provided in Sections
9.2, 9.9, 9.12 and 9.15.
26
ARTICLE VIII
INDEMNIFICATION
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their directors, officers, partners, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers, severally but not jointly, agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent
27
to entry of any judgment in respect thereof which imposes any future obligation
on the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party of
a release from all liability in respect of such claim. The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement or the Registration Rights Agreement, each party shall pay the fees
and expenses of its advisors, counsel, accountants and other experts, if any,
and all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall reimburse the Purchasers for up to $30,000 of the aggregate fees and
expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Flattau & Klimpl, LLP, with respect to the
transactions contemplated by this Agreement. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the
Preferred Shares pursuant hereto.
Section 9.2 Consent to Jurisdiction. Each of the Company and the
Purchasers (i) hereby irrevocably submits to the jurisdiction of the United
States District Court sitting in the State of Delaware for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 9.2 shall affect
or limit any right to serve process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designations, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of three-quarters of the
Preferred Shares then outstanding, and no provision hereof may be waived other
than by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought. No such amendment shall be effective to the
extent that it
28
applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents or the Certificate of Designations unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: SkyLynx Communications, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and CEO
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
One ▇▇▇▇▇▇▇▇▇▇ Street, Telesis Tower
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchasers: At the address of the Purchasers set forth on the
signature page to this Agreement, with copies to
Purchasers' counsel as set forth on the signature page or
as specified in writing by the Purchasers.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
29
Section 9.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to the choice of law provisions.
Section 9.10 Survival. The representations and warranties of the Company
and the Purchasers contained in: (i) Section 2.1(o) shall survive until the
expiration of the statute of limitations applicable to the matters covered
thereby (giving effect to any waiver, mitigation or extension thereof); (ii)
Section 2.1(s) shall survive until three years after the First Closing Date; and
(iii) Article II, with the exception of Sections 2.1(o) and (s), shall survive
the execution and delivery hereof and the Closing until the date two years from
the First Closing Date. The agreements and covenants set forth in Articles I,
III, V and VII of this Agreement shall survive the execution and delivery hereof
and the Closing hereunder until the Purchasers and their affiliates in the
aggregate or their permitted transferees beneficially own (on a fully-diluted
basis, giving effect to the issuance of the Conversion Shares, and determined in
accordance with Rule 13d-3 under the Exchange Act) less than 2% of the total
combined voting power of all voting securities of the Company then outstanding;
provided, however, that the agreements and covenants set forth in Sections 3.1,
3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10 and 3.11 shall survive the execution and
delivery hereof and the Closing hereunder for an indefinite period. The
agreements and covenants set forth in Articles VIII and IX of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder for an
indefinite period.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 9.12. Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement. Each Purchaser agrees that it
will not disclose this Agreement or the transactions contemplated hereby, except
to Purchaser's lawyers, accountants or similar representatives to the extent
30
reasonably required, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designations or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designations or the Registration Rights Agreement and this Agreement, the
Certificate of Designations and the Registration Rights Agreement, as
applicable, shall be reformed and construed as if such invalid, illegal or
unenforceable provision, or part of such provision, to the extent of its
invalidity, illegality or unenforceability, had never been contained herein or
therein.
Section 9.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchasers or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Certificate of Designations, and
the Registration Rights Agreement.
Section 9.15 Specific Enforcement. The Company and the Purchasers
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement or the Registration Rights Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 9.16 ▇▇▇▇▇▇▇▇▇▇ Warrants. The Company and the Purchasers
acknowledge and agree that no adjustment to the conversion price of the
Preferred Shares shall be made by virtue of the issuance of the ▇▇▇▇▇▇▇▇▇▇
Warrants (as defined in Schedule 2.1(c)), or the issuance of shares of Common
Stock upon exercise of the ▇▇▇▇▇▇▇▇▇▇ Warrants. The Company and those
Purchasers who are holders of warrants to purchase shares of Common Stock of the
Company, dated as of April 16, 2000, issued in connection with the sale of
Series D Convertible Preferred Stock of the Company, or holders of warrants to
purchase shares of Common Stock of the Company, dated as of November 15, 1999,
issued in connection with the Series F Bridge Financing (as defined in Schedule
2.1(c)), acknowledge and agree that no adjustment to the warrant price of any
such warrant, or the number of shares of Common Stock issuable thereunder, shall
be made by virtue of the issuance of the ▇▇▇▇▇▇▇▇▇▇ Warrants, or the issuance of
shares of Common Stock upon exercise of the ▇▇▇▇▇▇▇▇▇▇ Warrants. The Company
and the Purchasers further acknowledge and agree that the Company may include
the shares of Common Stock issuable upon exercise of the ▇▇▇▇▇▇▇▇▇▇ Warrants in
the Registration Statement to be filed pursuant to the Registration Rights
Agreement.
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
SKYLYNX COMMUNICATIONS, INC.
By: _______________________________
Name:
Title:
PURCHASER:
Signature:
By: _______________________________
Name:
Title:
Address:
Tel No.:
Fax No.:
___________________________________
32
SECOND CLOSING
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Series F Investors Shares Amount
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Purchasers to come
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Series F Investors Total
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______________
(1) Includes the conversion of a convertible promissory note held by a certain
holder, issued by the Company as of November 15, 1999 and certain other
convertible promissory notes in the aggregate principal amount of
$1,450,000 held by the other lenders set forth above as issued by the
Company as of November 15, 1999. Such notes will be deemed converted, paid
in full and of no further force or effect upon the First Closing,
notwithstanding any failure on such lender's part to return such lender's
original note. The warrants issued to all of the lenders in connection with
such notes will be deemed amended so that the First Closing constitutes a
"Qualified Financing" under the warrants.
EXHIBIT B
CERTIFICATE OF DESIGNATIONS
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
EXHIBIT D
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
SCHEDULES