EXHIBIT 10.1PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
Cambois Finance, Inc.
And
AvTel Communications, Inc.
Dated as of April 23, 1999
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of April 23, 1999 (the
"Agreement"), between Cambois Finance, Inc., a British Virgin Islands
corporation (the "Investor") and AvTel Communications, Inc., a corporation
organized and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor from
time to time as provided herein, and Investor shall purchase, up to $13,500,000
(the "Aggregate Purchase Price") of the Common Stock (as defined below); and
WHEREAS, such investments will be made by the Investor as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
"Bid Price" shall mean the closing bid price (as reported by Bloomberg
L.P.) of the Common Stock on the Principal Market.
"Capital Shares" shall mean the Common Stock and any shares of any other
class of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
"Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
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subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
"Closing" shall mean one of the closings of a purchase and sale of the
Common Stock pursuant to Section 2.1.
"Closing Date" shall mean, with respect to a Closing, the fifth Trading Day
following the Put Date related to such Closing, provided all conditions to such
Closing have been satisfied on or before such Trading Day. "Commitment Amount"
shall mean the $13,500,000 up to which the Investor has agreed to provide to the
Company in order to purchase the Put Shares pursuant to the terms and conditions
of this Agreement.
"Commitment Period" shall mean the period commencing on the Effective Date
and expiring on the earliest to occur of (x) the date on which the Investor
shall have purchased Put Shares pursuant to this Agreement for an aggregate
Purchase Price of $13,500,000, (y) the date this Agreement is terminated
pursuant to Section 2.4, or (z) the date occurring three years from the date of
commencement of the Commitment Period.
"Common Stock" shall mean the Company's common stock, par value $.01 per
share.
"Condition Satisfaction Date" shall have the meaning set forth in Section
7.2.
"Effective Date" shall mean the date on which the SEC first declares
effective a Registration Statement registering the sale by the Company and
resale by the Investors of the Registrable Securities as set forth in Section
7.2(a).
Section I.11 "Escrow Agent" shall mean the escrow agent designated in the
Escrow Agreement.
Section I.12 "Escrow Agreement" shall mean the escrow agreement in the form
attached hereto as Exhibit A.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Floor Price" shall mean two dollars ($2.00) per share of Common Stock.
"Investment Amount" shall mean the dollar amount to be invested by the
Investor to purchase Put Shares with respect to any Put Date as notified by the
Company to the Investor, all in accordance with Section 2.2 hereof.
"Legend" See Section 9.1.
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"Market Price" on any given date shall mean the single lowest closing Bid
Price (as reported by Bloomberg L.P.) of the Common Stock on any Trading Day
during the Valuation Period relating to such date.
"Material Adverse Effect" shall mean any effect on the business, Bid Price,
operations, properties, prospects, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement, the Registration Rights Agreement
or the Escrow Agreement in any material respect.
"Maximum Put Amount" shall mean the amount indicated by the following
table:
20,000-50,000 Avg. 50,001-75,000 Avg. 75,001-100,000 Avg. 100,001-Above Avg.
Stock Bid 30 Trading Day 30 Trading Day 30 Trading Day 30 Trading Day
Price Volume Volume Volume Volume
2.00-3.50 $ 500,000 $ 750,000 $1,000,000 $1,250,000
3.51-5.00 $ 750,000 $1,000,000 $1,250,000 $1,500,000
5.01-6.50 $1,000,000 $1,250,000 $1,500,000 $1,750,000
6.51-8.00 $1,250,000 $1,500,000 $1,750,000 $1,750,000
8.01-9.50 $1,500,000 $1,750,000 $1,750,000 $2,000,000
9.51-Above $1,750,000 $1,750,000 $2,000,000 $2,000,000
If the Bid Price or the thirty-day average trading volumes shall be less
than the parameters set forth in the foregoing table, the Maximum Put Amount
shall be $250,000.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Outstanding" when used with reference to shares of Common Stock or Capital
Shares (collectively the "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding Shares,
and shall include all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not mean any such Shares then directly or
indirectly owned or held by or for the account of the Company.
"Person" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Principal Market" shall mean the NASDAQ National Market, the NASDAQ
Small-Cap Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock. Principal Market shall not include the OTC Bulletin Board without the
express written consent of the Investor.
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"Purchase Price" shall mean with respect to Put Shares, eighty-nine percent
(89%) (the "Purchase Price Percentage") of the Market Price upon a Put Date (or
such other date on which the Purchase Price is calculated in accordance with the
terms and conditions of this Agreement), provided, however, that in no event
shall the Purchase Price for the Put Shares be less than the Floor Price.
Section I.25 "Put" shall mean each occasion the Company elects to exercise
its right to tender a Put Notice requiring the Investor to purchase shares of
the Company's Common Stock, subject to the terms of this Agreement.
"Put Date" shall mean the Trading Day during the Commitment Period that a
Put Notice to sell Common Stock to the Investor is deemed delivered pursuant to
Section 2.2(b) hereof.
"Put Notice" shall mean a written notice to the Investor setting forth the
Investment Amount that the Company intends to sell to the Investor in the form
attached hereto as Exhibit B.
"Put Shares" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to a Put that has occurred or may occur in
accordance with the terms and conditions of this Agreement.
"Registrable Securities" shall mean the Put Shares until (i) all Put Shares
have been disposed of pursuant to the Registration Statement, (ii) all Put
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Put Shares have been otherwise
transferred to persons who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(iv) such time as, in the opinion of counsel to the Company, all Put Shares may
be sold without any time, volume or manner limitations pursuant to Rule 144(k)
(or any similar provision then in effect) under the Securities Act.
"Registration Rights Agreement" shall mean the agreement regarding the
filing of the Registration Statement for the sale and resale of the Registrable
Securities annexed hereto as Exhibit C.
"Registration Statement" shall mean a registration statement on Form S-3
(if use of such form is then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC, such as Form S-1
or SB-2, for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale by the
Investor of the Registrable Securities to be registered thereunder in accordance
with the provisions of this Agreement, the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
"Regulation D" shall mean Regulation D promulgated by the SEC pursuant to
the Securities Act.
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"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall have the meaning set forth in the recitals of this
Agreement.
"SEC Documents" shall mean the Company's latest Form 10-K or 10-KSB as of
the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until such
time as the Company no longer has an obligation to maintain the effectiveness of
a Registration Statement as set forth in the Registration Rights Agreement.
"Trading Cushion" shall mean the mandatory fifteen (15) Trading Days
between Put Dates.
"Trading Day" shall mean any day during which the Principal Market shall be
open for business.
"Valuation Event" shall mean an event in which the Company at any time
prior to the end of the Commitment Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and
(b) above or (d) and (e) below, at a price per share less, or for other
consideration lower, than the Bid Price in effect immediately prior to such
issuance, or without consideration (other than pursuant to this Agreement);
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant
to such warrants, options or other rights shall be less than the Bid Price
in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares
may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or
surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or
substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (e); or
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(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections
(a) through (f) hereof, inclusive, which in the opinion of the Company's
Board of Directors, determined in good faith, would have a Material Adverse
Effect upon the rights of the Investor at the time of a Put.
"Valuation Period" shall mean the period of five (5) Trading Days during
which the Purchase Price of the Common Stock is valued, which period shall be
with respect to the Purchase Price on any Put Date, the two (2) Trading Days
immediately preceding and the two (2) Trading Days following the Trading Day on
which a Put Notice is deemed to be delivered, as well as the Trading Day on
which such notice is deemed to be delivered; provided, however, that if a
Valuation Event occurs during a Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately after the occurrence of such Valuation
Event and end on the fifth Trading Day thereafter.
ARTICLE II
Purchase and Sale of Common Stock
Section II.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Put Date
the Company may make a Put by the delivery of a Put Notice. The number of
Put Shares that the Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by
the Purchase Price on such Put Date, which amount shall not exceed the
Maximum Put Amount on such date.
(b) Maximum Aggregate Amount of Puts. Anything in this Agreement to
the contrary notwithstanding, unless the Company obtains shareholder
approval of this Agreement pursuant to the applicable corporate governance
rules of The Nasdaq Stock Market, the Company may not make a Put (or issue
any additional shares under Section 2.5) which results in the issuance of
more than 2,103,939 shares of Common Stock in the aggregate pursuant to all
Puts made under the terms of this Agreement.
Section II.2 Mechanics.
(a) Put Notice. At any time during the Commitment Period, the Company
may deliver a Put Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, that the Investment Amount for
each Put as designated by the Company in the applicable Put Notice shall be
neither less than $75,000 nor more than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern
Time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at
any time on a day which is not a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day.
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Closings. On or before each Closing Date for a Put (i) the Company shall
deliver to the Escrow Agent one or more certificates, at the Investor's option,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
registered in the name of such account or accounts previously designated by the
Investor and (ii) the Investor shall deliver the Investment Amount specified in
the Put Notice by wire transfer of immediately available funds to the Escrow
Agent on or before the Closing Date. In addition, on or prior to the Closing
Date, each of the Company and the Investor shall deliver to the Escrow Agent all
documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. Payment of funds to the Company and
delivery of the certificates to the Investor shall occur out of escrow in
accordance with the Escrow Agreement, provided, however, that to the extent the
Company has not paid the fees, expenses, and disbursements of the Investors'
counsel in accordance with Section 13.7, the amount of such fees, expenses, and
disbursements shall be paid in immediately available funds, at the direction of
the Investors, to Investors' counsel with no reduction in the number of Put
Shares issuable to the Investors on such Closing Date.
Termination of Investment Obligation. (a) The obligation of the Investor to
purchase shares of Common Stock shall terminate permanently (including with
respect to a Closing Date that has not yet occurred) in the event that (i) there
shall occur any stop order or suspension of the effectiveness of the
Registration Statement for an aggregate of thirty (30) Trading Days during the
Commitment Period, for any reason other than deferrals or suspensions in
accordance with the Registration Rights Agreement as a result of corporate
developments subsequent to the Effective Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act or (ii)
the Company shall at any time fail to comply with the requirements of Section
6.2, 6.3 or 6.5 or (iii) the Registration Statement shall not have become
effective by October 30, 1999.
(b) The obligation of the Company to sell Put Shares to the Investor
shall terminate if the Investor fails to honor any Put Notice within two
(2) Trading Days of the Closing Date scheduled for such Put, and the
Company notifies Investor of such termination. Upon such termination, the
Company shall maintain the Registration Statement in effect for such
reasonable period, not to exceed forty-five (45) days, as the Investor may
request in order to dispose of any remaining Put Shares. Such termination
shall be the Company's sole remedy for the Investor's failure to honor a
Put.
Additional Shares. In the event that (a) within five Trading Days of any
Closing Date, the Company gives notice to the Investor of an impending "blackout
period" in accordance with Section 3(g) of the Registration Rights Agreement,
and (b) the Bid Price on the Trading Day immediately preceding such "blackout
period" (the "Old Bid Price") is greater than the Bid Price on the first Trading
Day following such "blackout period" (the "New Bid Price") the Company shall
issue to the Investor a number of additional shares (the "Blackout Shares")
equal to the difference between (y) the product of the number of Registrable
Securities purchased by the Investor on such most recent Closing Date and still
held by the Investor during such "blackout period" that are not otherwise freely
tradable during such "blackout period" and the Old Bid Price, divided by the New
Bid Price and (z) the number of Registrable Securities purchased by the Investor
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on such most recent Closing Date and still held by the Investor during such
"blackout period" that are not otherwise freely tradable during such "blackout
period". If any such issuance would result in the issuance of a number of shares
which exceeds the number set forth in Section 2.1(b), then in lieu of such
issuance, the Company shall pay each affected Investor the closing ask price of
the Blackout Shares on the first Trading Day following the end of the blackout
period in cash within five Trading Days.
Liquidated Damages. The parties hereto acknowledge and agree that the sum
payable pursuant to the Registration Rights Agreement, and the obligation to
issue Registrable Securities under Section 2.5 above shall constitute liquidated
damages and not penalties. The parties further acknowledge that (a) the amount
of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor in connection with the failure by the
Company to timely cause the registration of the Registrable Securities or in
connection with a "blackout period" under the Registration Rights Agreement, and
(c) the parties are sophisticated business parties and have been represented by
legal and financial counsel and negotiated this Agreement at arm's length.
ARTICLE III
Representations and Warranties of Investor
Investor represents and warrants to the Company that:
Intent. The Investor is entering into this Agreement for its own account
and the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity; provided,
however, that by making the representations herein, the Investor does not agree
to hold the Common Stock for any minimum or other specific term and reserves the
right to dispose of the Common Stock at any time in accordance with federal and
state securities laws applicable to such disposition.
Sophisticated Investor. The Investor is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Authority. This Agreement has been duly authorized and validly executed and
delivered by the Investor and is a valid and binding agreement of the Investor
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
Not an Affiliate. Investor is not an officer, director or "affiliate" (as
that term is defined in Rule 405 of the Securities Act) of the Company.
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Organization and Standing. Investor is a corporation duly organized,
validly existing, and in good standing under the laws of the British Virgin
Islands.
Absence of Conflicts. The execution and delivery of this Agreement and any
other document or instrument executed in connection herewith, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Investor, or, to the Investor's
knowledge, (a) violate any provision of any indenture, instrument or agreement
to which Investor is a party or is subject, or by which Investor or any of its
assets is bound; (b) conflict with or constitute a material default thereunder;
(c) result in the creation or imposition of any lien pursuant to the terms of
any such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investor to any third party; or (d) require the approval
of any third-party (which has not been obtained) pursuant to any material
contract, agreement, instrument, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or management may
be subject.
Disclosure; Access to Information. Investor has received and reviewed all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by Investor. The
Company is subject to the periodic reporting requirements of the Exchange Act,
and Investor has reviewed copies of any such reports that have been requested by
it.
Manner of Sale. At no time was Investor presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement or any
other form of general solicitation or advertising.
Financial Capacity. Investor currently has the financial capacity to meet
its obligations to the Company hereunder, and the Investor has no present
knowledge of any circumstances which could cause it to become unable to meet
such obligations in the future.
Underwriter Liability. Investor understands that it is the position of the
SEC that the Investor is an underwriter within the meaning of Section 2(11) of
the Securities Act and that the Investor will be identified as an underwriter of
the Put Shares in the Registration Statement.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors that, except as set forth
the Schedule of Exceptions attached hereto:
Organization of the Company. The Company is a corporation duly incorporated
and existing in good standing under the laws of the State of Delaware and has
all requisite corporate authority to own its properties and to carry on its
business as now being conducted. The Company does not have any subsidiaries and
does not own more that fifty percent (50%) of or control any other business
entity except as set forth in the SEC Documents. The Company is duly qualified
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and is in good standing as a foreign corporation to do business in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, other than those in which the failure so
to qualify would not have a Material Adverse Effect.
Authority. (i) The Company has the requisite corporate power and corporate
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement and the Escrow Agreement and to issue the Put
Shares, (ii) the execution, issuance and delivery of this Agreement, the
Registration Rights Agreement and the Escrow Agreement and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, and (iii) this
Agreement, the Registration Rights Agreement and the Escrow Agreement have been
duly executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock of the issuance of the Put Shares.
Capitalization. The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, $0.01 par value per share, of which
10,519,694 shares are issued and outstanding as of April 6, 1999 and 1,000,000
shares of preferred stock, par value $0.01 per share, of which 250,000 have been
designated as Series A Convertible Preferred Stock, 147,700 of which shares are
issued and outstanding. The Company has duly designated 1,500 shares of its
preferred stock as Series B Convertible Preferred Stock, all of which are issued
and outstanding. Except for (i) the outstanding Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock, (ii) outstanding options and
Warrants as set forth in the SEC Documents, (iii) stock options awarded under
the Company's 1998 Stock Incentive Plan after September 30, 1998, (iv) stock
options awarded under the Company's New Best Connections, Inc. 1997 Stock Option
Plan after September 30, 1998 and (v) as set forth in the Schedule of
Exceptions, there are no outstanding Capital Shares Equivalents. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable.
Common Stock. The Company has registered its Common Stock pursuant to
Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
SEC Documents. The Company has delivered or made available to the Investors
true and complete copies of the SEC Documents. The Company has not provided to
the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. As of their respective dates, the
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SEC Documents complied in all material respects with the requirements of the
Exchange Act, and rules and regulations of the SEC promulgated thereunder and
the SEC Documents did not contain any untrue statement of a material fact or
omit 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 SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Valid Issuances. When issued and paid for in accordance with a Put, the Put
Shares will be duly and validly issued, fully paid, and non-assessable. Neither
the sales of the Put Shares nor the Company's performance of its obligations
under this Agreement, the Registration Rights Agreement or the Escrow Agreement
will (i) result in the creation or imposition by the Company of any liens,
charges, claims or other encumbrances upon the Put Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
to or acquire the Capital Shares or other securities of the Company. The Put
Shares shall not subject the Investors to personal liability to the Company or
its creditors by reason of the possession thereof.
No Conflicts. The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby, including without limitation the issuance of the Put Shares, do not and
will not (i) result in a violation of the Company's Certificate of Incorporation
or By-Laws or (ii) conflict with, or constitute a material default (or an event
that 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 material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
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in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate 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 this Agreement or issue and sell the Put Shares in accordance
with the terms hereof (other than any SEC, Nasdaq or state securities filings
that may be required to be made by the Company subsequent to Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Nasdaq Stock Market); 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 Investors herein.
No Material Adverse Change. Since December 31, 1998, no Material Adverse
Effect has occurred or exists with respect to the Company, except as disclosed
in the SEC Documents.
No Undisclosed Events or Circumstances. Since December 31, 1998, no event
or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Litigation and Other Proceedings. Except as disclosed in the SEC Documents,
there are no lawsuits or proceedings pending or, to the knowledge of the
Company, threatened, against the Company, nor has the Company received any
written or oral notice of any such action, suit, proceeding or investigation,
which could reasonably be expected to have a Material Adverse Effect. Except as
set forth in the SEC Documents, no judgment, order, writ, injunction or decree
or award has been issued by or, to the knowledge of the Company, requested of
any court, arbitrator or governmental agency which could result in a Material
Adverse Effect.
No Misleading or Untrue Communication. The Company and, to the knowledge of
the Company, any person representing the Company, or any other person selling or
offering to sell the Common Stock in connection with the transaction
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Material Non-Public Information. Except as set forth in the Schedule of
Exceptions, the Company has not disclosed to the Investors any material
non-public information that (i) if disclosed, would reasonably be expected to
have a material effect on the price of the Common Stock or (ii) according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company prior to the date hereof but which has not been so disclosed. The
Company has disclosed material non-public information to Trinity Capital
Advisors, Inc. subject to a confidentiality agreement, and makes no
12
representation as to Trinity's possible use or disclosure of any of such
information.
Insurance. The Company maintains property and casualty, general liability,
workers' compensation, environmental hazard, personal injury and other similar
types of insurance with financially sound and reputable insurers that is
adequate, consistent with industry standards and the Company's historical claims
experience. The Company has not received notice from, and has no knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy presently in force.
Section IV.14 Tax Matters.
(a) The Company has filed all Tax Returns which it is required to file
under applicable laws; all such Tax Returns are true and accurate and have
been prepared in compliance with all applicable laws; the Company has paid
all Taxes due and owing by it (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate
taxing authorities all Taxes which it is required to withhold from amounts
paid or owing to any employee, stockholder, creditor or other third
parties; and since December 31, 1997, the charges, accruals and reserves
for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate
to cover any Tax liabilities of the Company if its current tax year were
treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may
be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending
or being conducted with respect to the Company; no information related to
Tax matters has been requested by any foreign, federal, state or local
taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by
the Company from any foreign, federal, state or local taxing authority.
There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its subsidiaries or
has any knowledge that the IRS has proposed any such adjustment or change
in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not
been a United States real property holding corporation within the meaning
of ss. 897(c)(2) of the Internal Revenue Code during the applicable period
specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. ss.
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as
a transferee or
13
successor, (C) by contract or indemnity or (D) otherwise. The Company is
not a party to any tax sharing agreement. The Company has not made any
payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under
ss. 280G of the Internal Revenue Code.
(d) For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
Property. Neither the Company nor any of its subsidiaries owns any real
property. Each of the Company and its subsidiaries has good and marketable title
to all personal property owned by it, free and clear of all liens, encumbrances
and defects except such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company; and to the Company's knowledge any real property
and buildings held under lease by the Company as tenant are held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made of such
property and buildings by the Company.
Licensing. The Company or a subsidiary holds valid licenses from the
Federal Communications Commission and each state public service commission with
jurisdiction over the Company or any of its subsidiaries for all products and
services which require such licenses. All of such licenses are in good standing
and the Company is not in material default of any of the conditions thereof.
Intellectual Property. Each of the Company and its subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed in the SEC Documents, no claims have
been asserted by any person to the ownership or use of any Intangibles and the
Company has no knowledge of any basis for such claim.
14
Internal Controls and Procedures. The Company maintains books and records
and internal accounting controls which provide reasonable assurance that (i) all
transactions to which the Company is a party or by which its properties are
bound are executed with management's authorization; (ii) the recorded accounting
of the Company's assets is compared with existing assets at regular intervals;
(iii) access to the Company's assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company is a
party or by which its properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in accordance with U.S.
generally accepted accounting principles.
Payments and Contributions. Neither the Company nor any of its directors,
officers or, to its knowledge, other employees has (i) used any Company funds
for any unlawful contribution, endorsement, gift, entertainment or other
unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
No Misrepresentation. Except as set forth in the Disclosure Schedule, the
representations and warranties of the Company contained in this Agreement, any
schedule, annex or exhibit hereto and any agreement, instrument or certificate
furnished by the Company to the Investors pursuant to this Agreement, do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company that:
Compliance with Law. The Investor's trading activities with respect to
shares of the Company's Common Stock will be in compliance with all applicable
state and federal securities laws, rules and regulations and rules and
regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Investor agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Put Shares
from the Investor.
Short Sales. The Investor and its affiliates shall not engage in short
sales of the Company's Common Stock; provided, however, that the Investor may
enter into any short sale or other hedging or similar arrangement it deems
appropriate (collectively, a "short sale") with respect to the Put Shares, so
long as such sales or arrangements do not involve more than the number of such
Put Shares (determined as of the date of such Put Notice) and are otherwise in
compliance with Regulation M under the Securities Act. In addition to the
foregoing, any short sale permitted by this Section 5.2 shall be made in
compliance with all applicable rules of the National Association of Securities
15
Dealers, Inc., including, without limitation, the requirement that a short sale
may only be done on an "uptick" or "zero-uptick".
ARTICLE VI
Covenants of the Company
Registration Rights. The Company shall cause the Registration Rights
Agreement to remain in full force and effect and the Company shall comply in all
material respects with the terms thereof.
Listing of Common Stock. The Company hereby agrees to maintain the listing
of the Common Stock on a Principal Market, and as soon as practicable (but in
any event prior to the commencement of the Commitment Period) to list the Put
Shares. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Put Shares and will take such other action as is necessary or desirable in
the opinion of the investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will take all action to
continue the listing and trading of its Common Stock on the Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide
Investor with copies of any correspondence to or from such Principal Market
which questions or threatens delisting of the Common Stock, within one Trading
Day of the Company's receipt thereof.
Exchange Act Registration. The Company will cause its Common Stock to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
use its best efforts to comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act.
Legends. The certificates evidencing the Common Stock to be sold to the
Investor shall be free of restrictive legends.
Corporate Existence. The Company will take all steps necessary to preserve
and continue the corporate existence of the Company.
Additional SEC Documents. During the Commitment Period, the Company will
deliver to the Investor, as and when the originals thereof are submitted to the
SEC for filing, copies of all SEC Documents so furnished or submitted to the
SEC.
Notice of Certain Events Affecting Registration; Suspension of Right to
Make a Put. The Company will immediately notify the Investor upon the occurrence
of any of the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities; (i) receipt of
any request for additional information from the SEC or any other federal or
state governmental authority during the period of effectiveness of the
Registration Statement the response to which would require any amendments or
supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
16
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to the Investor any Put
Notice during the continuation of any of the foregoing events.
Expectations Regarding Put Notices. Within ten (10) days after the
commencement of each calendar quarter occurring subsequent to the commencement
of the Commitment Period, the Company must notify the Investor, in writing, as
to its reasonable expectations as to the dollar amount it intends to raise
during such calendar quarter, if any, through the issuance of Put Notices. Such
notification shall constitute only the Company's good faith estimate and shall
in no way obligate the Company to raise such amount, or any amount, or otherwise
limit its ability to deliver Put Notices. The failure by the Company to comply
with this provision can be cured by the Company's notifying the Investor, in
writing, at any time as to its reasonable expectations with respect to the
current calendar quarter.
Consolidation; Merger. The Company shall not, at any time after the date
hereof, effect any merger or consolidation of the Company with or into, or a
transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investor such shares of stock and/or securities
as the Investor is entitled to receive pursuant to this Agreement.
Minimum Issuance of Put Shares. The Company shall issue at least one Put
Notice in the minimum amount of $250,000 during the Commitment Period.
Limitation on Future Financing. The Company agrees that, except as set
forth below, it will not enter into any sale of its securities for cash at a
discount to the Bid Price until the earlier of (i) one year from the Effective
Date or, if later, the date the Company has satisfied the minimum issuance
described in Section 6.10 or (ii) sixty (60) days after the entire Commitment
Amount has been purchased by Investor. The foregoing shall not prevent or limit
the Company from engaging in any sale of securities (i) in a registered public
offering by the Company which is underwritten by one or more established
investment banks, (ii) in one or more private placements where the purchasers do
17
not have registration rights (except for "piggyback" registration rights
relating to subsequent public offerings for the account of the Company), (iii)
pursuant to any presently existing or future employee benefit plan which plan
has been or is approved by the Company's stockholders or pursuant to the
existing New Best Connections, Inc. 1997 Stock Option Plan, (iv) pursuant to any
compensatory plan for a full-time employee or key consultant, (v) pursuant to
any repricing of any existing warrants or options outstanding on the initial
Closing Date (but not to any exercise price below the closing Bid Price of the
Common Stock on the date of such repricing), (vi) in connection with a strategic
partnership or other business transaction, the principal purpose of which is not
simply to raise money, or (vii) to which Investor gives its written approval.
ARTICLE VII
Conditions to Delivery of Puts
and Conditions to Closing
Conditions Precedent to the Obligation of the Company to Issue and Sell
Common Stock. The obligation hereunder of the Company to issue and sell the Put
Shares to the Investor incident to each Closing is subject to the satisfaction,
at or before each such Closing, of each of the conditions set forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in
all material respects as of the date of this Agreement and as of the date
of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Investor at or prior to such Closing, and
Investor shall provide a certificate to the Company, substantially in the
form of that delivered by the Investor at the Closing of the sale of the
Initial Shares, to such effect.
Conditions Precedent to the Right of the Company to Deliver a Put Notice
and the Obligation of the Investor to Purchase Put Shares. The right of the
Company to deliver a Put Notice and the obligation of each Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on both (i) the date of delivery of such Put Notice and (ii) the
applicable Closing Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
(a) Closing Certificate. All representations and warranties of the
Company contained herein shall remain true and correct as of the Closing
Date as though made as of such date and the Company shall have delivered
into escrow an Officer's Certificate signed by its Chief Executive Officer
certifying that all of the Company's representations and warranties herein
remain true and correct as of the Closing Date and that the Company has
performed all covenants and satisfied all conditions to be performed or
satisfied by the Company prior to such Closing;
18
(b) Blue Sky. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Common
Stock to the Investors and by the Investors as set forth in the
Registration Rights Agreement or shall have the availability of exemptions
therefrom;
(c) Delivery of Put Shares. Delivery into escrow of the Put Shares;
(d) Opinion of Counsel. Receipt by the Investor of an opinion of
counsel to the Company, in the form of Exhibit D hereto; and
(e) Transfer Agent. Delivery to the Company's transfer agent of
instructions to such transfer agent in form and substance reasonably
satisfactory to the Investors.
(f) Registration of the Common Stock with the SEC. The Registration
Statement shall have previously become effective and shall remain effective
and available for making resales of the Put Shares on each Condition
Satisfaction Date and (i) neither the Company nor the Investor shall have
received notice that the SEC has issued or intends to issue a stop order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement,
either temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and the Investor is
reasonably satisfied that the SEC no longer is considering or intends to
take such action), and (ii) no other suspension of the use or withdrawal of
the effectiveness of the Registration Statement or related prospectus shall
exist.
(g) Authority. The Company will satisfy all laws and regulations
pertaining to the sale and issuance of the Put Shares.
(h) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration
Rights Agreement and the Escrow Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition Satisfaction
Date.
(i) 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 that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have
been commenced that may have the effect of prohibiting or adversely
affecting any of the transactions contemplated by this Agreement.
(j) Adverse Changes. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(k) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares)
is not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved
for listing or quotation on and shall not have been delisted from the
Principal Market. The issuance of shares of Common Stock with respect to
the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have received
19
any notice threatening to delist the Common Stock from the Principal
Market.
(l) Minimum Bid Price. The Bid Price equals or exceeds 113% of the
Floor Price during each day of the applicable Valuation Period (as adjusted
for stock splits, stock dividends, reverse stock splits, and similar
events).
(m) Minimum Trading Volume. The dollar value of the average daily
trading volume of the Common Stock on the Principal Market during the
thirty (30) Trading Days prior to the Put Date shall be at least $20,000.
(n) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective (which event is reasonably likely
to occur within the thirty (30) Trading Days following the Trading Day on
which such Notice is deemed delivered).
(o) Trading Cushion. The Trading Cushion shall have elapsed since the
next preceding Put Date.
(p) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by the Investor in
order for the Investor to confirm the Company's satisfaction of the
conditions set forth in this Section 7.2.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Due Diligence Review. The Company shall make available for inspection and
review by the Investor, advisors to and representatives of the Investor (who may
or may not be affiliated with the Investor and who are reasonably acceptable to
the Company), any underwriter participating in any disposition of the
Registrable Securities on behalf of the Investor pursuant to the Registration
Statement, any such registration statement or amendment or supplement thereto or
any blue sky, NASD or other filing, all SEC Documents and other filings with the
SEC, and all other publicly available corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such publicly
available information reasonably requested by the Investor or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the Investor and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section VIII.2 Non-Disclosure of Non-Public Information.
20
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as
being non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Investor's
advisors and representatives to enter into a confidentiality agreement in
form reasonably satisfactory to the Company and the Investor.
(b) The Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives
of the Investor and, if any, underwriters, of any event or the existence of
any circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material misstatement or
to omit a material fact required to be stated therein in order to make the
statements, therein in light of the circumstances in which they were made,
not misleading. Nothing contained in this Section 8.2 shall be construed to
mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information)
may not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of
their opinion that based on such due diligence by such persons or entities,
that the Registration Statement contains an untrue statement of a material
fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light
of the circumstances in which they were made, not misleading.
ARTICLE IX
Transfer Agent Instructions
Transfer Agent Instructions. Upon each Closing, the Company will issue to
the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions to deliver the Put Shares
without restrictive legends to the Escrow Agent.
No Legend or Stock Transfer Restrictions. No legend shall be placed on the
share certificates representing the Put Shares and no instructions or "stop
transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto.
Investor's Compliance. Nothing in this Article shall affect in any way the
Investor's obligations under any agreement to comply with all applicable
securities laws upon resale of the Put Shares.
21
ARTICLE X
Choice of Law
Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
or any Exhibit attached hereto shall be submitted to arbitration under the
American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its attorney's fees from the non-prevailing party as part of the arbitration
award. Any party shall have the right to seek injunctive relief from any court
of competent jurisdiction in any case where such relief is available.
ARTICLE XI
Assignment
Assignment. Neither this Agreement nor any rights of the Investor or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased or acquired by the Investor hereunder with respect to the Common
Stock held by such person, and (b) upon the prior written consent of the
Company, which consent shall not unreasonably be withheld or delayed in the case
of an assignment to an affiliate of the Investor, the Investor's interest in
this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound hereby.
22
ARTICLE XII
Notices
Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, 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 reputable
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 AvTel Communications, Inc.:
ββ. βββββββ β. ββββ
Chief Executive Officer
AvTel Communications, Inc.
βββ ββββ ββββββ
βββββ βββββββ, ββ βββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
with a copy to: ββ. ββββββ β. βββββββ, Esq.
(shall not constitute notice) Seed, βββββββ & ββββ LLP
ββββ βββββββ ββββββ
βββββ βββ
βββββ βββββββ, ββ βββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
if to the Investor: Cambois Finance, Inc.
c/o ββ. ββββββββ & Partners
βββββββββββ ββ
ββ-ββββ, βββββ, βββββββββββββ
Attention: ββββ βββββββ
Telephone: 011-
Facsimile: 011-
23
with a copy to: ββββββ β. βββββ, Esq.
(shall not constitute notice) βββββββ ββββββ & Green, P.C.
βββ ββββ ββββββ
βββ ββββ, βββ ββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
ARTICLE XIII
Miscellaneous
Counterparts/ Facsimile/ Amendments. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. Except as otherwise
stated herein, in lieu of the original documents, a facsimile transmission or
copy of the original documents shall be as effective and enforceable as the
original. This Agreement may be amended only by a writing executed by all
parties.
Entire Agreement. This Agreement, the Exhibits hereto, which include, but
are not limited to the Escrow Agreement, and the Registration Rights Agreement,
set forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
Survival; Severability. The representations, warranties, covenants and
agreements of the parties hereto shall survive each Closing hereunder. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that
such severability shall be ineffective if it materially changes the economic
benefit of this Agreement to any party.
Title and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
Reporting Entity for the Common Stock. The reporting entity relied upon for
the determination of the trading price or trading volume of the Common Stock on
any given Trading Day for the purposes of this Agreement shall be Bloomberg,
L.P. or any successor thereto. The written mutual consent of the Investor and
the Company shall be required to employ any other reporting entity.
24
Replacement of Certificates. Upon (i) receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of a
certificate representing the Put Shares and (ii) in the case of any such loss,
theft or destruction of such certificate, upon delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
(which shall not exceed that required by the Company's transfer agent in the
ordinary course) or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Fees and Expenses. Each of the Company and the Investors agrees to pay its
own expenses incident to the performance of its obligations hereunder, except
that the Company shall pay the fees, expenses and disbursements of Investors'
counsel in the amount of $5,000 plus $750 per Closing of a Put.
Brokerage. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will
demand payment of any fee or commission from the other party except as set forth
on the Schedule of Exceptions, whose fee shall be paid by the Company. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Effectiveness of Agreement. This Agreement shall become effective only upon
satisfaction of the conditions precedent to the Initial Closing set forth in
Article I of the Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line
of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
AvTel Communications, Inc.
By: /s/ βββββββ β. ββββ
βββββββ β. ββββ
Chief Executive Officer
Cambois Finance, Inc.
By: /s/ ββββ βββββββ
ββββ βββββββ, Director
