EXHIBIT 10.12
CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
Between
SkyLynx Communications, Inc.
and
AMRO International, S.A.
CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT dated as of
January 18, 1999 (the "Agreement"), between AMRO International, S.A., a Panama
corporation (the "Investor"), and SkyLynx Communications, Inc., a corporation
organized and existing under the laws of the State of Colorado (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase pro-rata, as set forth on the signature page
hereof, (i) 600 shares of Series B Convertible Preferred Stock (as defined
below), (ii) Warrants (as defined below) to purchase up to 120,000 shares of the
Common Stock (as defined below) and (iii) 15,000 shares of Common Stock.
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") of the United States Securities Act of 1933, as
amended, and Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in the securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of
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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.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights,
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or obligations that are convertible into or exchangeable for or give any right
to 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.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of the
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Convertible Preferred and Warrants pursuant to Section 2.1.
Section 1.4. "Closing Date" shall mean the date on which all conditions to the
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Closing have been satisfied (as defined in Section 2.1 (a) hereto) and the
Closing shall have occurred.
Section 1.5. "Common Stock" shall mean the Company's common stock, $0.001 par
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value per share.
Section 1.6. "Conversion Shares" shall mean the shares of Common Stock
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issuable upon conversion of the Convertible Preferred or issued as dividends
upon the Convertible Preferred.
Section 1.7. "Convertible Preferred" shall mean the 600 shares of Series B
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Convertible Preferred Stock, the terms of which are set forth in the Certificate
of Designation in the form of Exhibit A hereto, to be issued to the Investors
pursuant to this Agreement.
Section 1.8. "Damages" shall mean any loss, claim, damage, judgment, penalty,
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deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.9. "Effective Date" shall mean the date on which the SEC first
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declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "Escrow Agent"
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shall have the meaning set forth in the Escrow Agreement.
Section 1.11. "Escrow Agreement" shall mean the Escrow Agreement in
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substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended, and the rules and regulations promulgated thereunder.
Section 1.13. "Legend" shall mean the legend set forth in Section 9.1.
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Section 1.14. "Market Price" on any given date shall mean the average of the
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lowest closing bid prices on the Principal Market (as reported by Bloomberg
L.P.) of the Common Stock on any three (3) Trading Days during the twenty-two
(22) Trading Day period ending on the Trading Day immediately prior to the date
for which the Market Price is to be determined, as selected by the Investor.
Section 1.15. "Material Adverse Effect" shall mean any effect on the business,
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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,
the Escrow Agreement, the Convertible Preferred or the Warrant in any material
respect.
Section 1.16. "Outstanding" when used with reference to shares of Common Stock
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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
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directly or indirectly owned or held by or for the account of the Company.
Section 1.17. "Person" shall mean an individual, a corporation, a partnership,
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an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.18. "Principal Market"
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shall mean the OTC Bulletin Board, the American Stock Exchange, the New York
Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock.
Section 1.19. "Purchase Price" shall mean six hundred thousand dollars
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($600,000) in the aggregate.
Section 1.20. "Registrable Securities" shall mean the 15,000 shares of Common
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Stock, the Conversion Shares and the Warrant Shares until the earliest to occur
of: (i) the Registration Statement has been declared effective by the SEC, and
all Conversion Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement, (ii) all Conversion Shares and Warrant 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 Conversion Shares and Warrant Shares have been
otherwise transferred to holders 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 Conversion
Shares and Warrant 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.
Section 1.21. "Registration Rights Agreement" shall mean the agreement
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regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Closing Date in the form annexed hereto as Exhibit C.
Section 1.22. "Registration Statement" shall mean a registration statement on
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Form S-1 or SB-2 (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
for which the Company then qualifies and which counsel for the Company shall
deem appropriate, and which form shall be available for the resale 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.
Section 1.23. "Regulation D" shall have the meaning set forth in the recitals
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of this Agreement.
Section 1.24. "SEC" shall mean the United States Securities and Exchange
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Commission.
Section 1.25. "Section 4(2)" shall have the meaning set forth in the recitals
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of this Agreement.
Section 1.26. "Securities Act" shall have the meaning set forth in the recitals
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of this Agreement.
Section 1.27. "SEC Documents" shall mean the Company's Registration Statement
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on Form 10-SB and each report, proxy statement or registration statement filed
by the Company with the SEC pursuant to the Exchange Act or the Securities Act
since the filing of such Registration Statement through the date hereof and
available through the SEC's ▇▇▇▇▇ system.
Section 1.28. "Shares" shall have the meaning set forth in Section 1.16.
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Section 1.29. "Trading Day" shall mean any day during which the Principal
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Market at such day shall be open for business.
Section 1.30. "Warrant(s)" shall mean the warrant substantially in the form of
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B to be issued to the Investor hereunder. "Warrant Shares" shall mean all shares
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of Common Stock or other securities issued or issuable pursuant to exercise of
the Warrants.
ARTICLE II
Purchase and Sale of Convertible Preferred and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investor agrees to purchase, for an aggregate
Purchase Price of $600,000, 600 shares of Convertible Preferred, together with
the Warrant and 15,000 shares of Common Stock, on the Closing Date as follows:
(i) Upon execution and delivery of this Agreement, the Investor
shall deliver to the Escrow Agent immediately available funds
in the amount of the Purchase Price, and the Company shall
deliver the certificates representing the Common Stock, the
Convertible Preferred and the Warrant to the Escrow Agent, to
be held by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section 2.1(b),
the Closing ("Closing") shall occur at the offices of the Escrow
Agent at which the Escrow Agent (x) shall release the
Convertible Preferred certificates, the Common Stock and the
Warrant to the Investor and (y) shall release the Purchase Price
(after all fees have been paid as set forth in the Escrow
Agreement) to the Company, pursuant to the terms of the Escrow
Agreement.
(b) The Closing is subject to the satisfaction of the following
conditions:
(i) acceptance and execution by the Company and by the Investor of
this Agreement and all Exhibits hereto;
(ii) delivery into escrow by the Investor of immediately available
funds in the amount of the Purchase Price of the Convertible
Preferred, as more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Investor contained
herein shall remain true and correct ' as of the Closing Date
(as a condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as ' of the Closing Date
(as a condition to the Investor's obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Common
Stock, the Convertible Preferred and the Warrants, or shall
have the availability of exemptions therefrom;
(vi) the sale and issuance of the Common Stock, the Convertible
Preferred and Warrants hereunder, and the proposed issuance by
the Company to the Investor of the Common Stock underlying
the Convertible Preferred and Warrant Shares upon the
conversion or exercise thereof shall be legally permitted by
all laws and regulations to which the Investor and the
Company are subject and there shall be no ruling, judgment
or writ of any court prohibiting the transactions
contemplated by this Agreement;
(vii) delivery of the original fully executed Common Stock,
Convertible Preferred and Warrant certificates to the Escrow
Agent;
(viii) receipt by the Investor of an opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ &
Stone, LLC, counsel to the Company, in the form of Exhibit E
hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions
to Transfer Agent in the form attached hereto as Exhibit F;
and
(x) delivery to the Investor of the Registration Rights
Agreement.
Section 2.2. Liquidated Damages.
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The parties hereto acknowledge and agree that the sum payable pursuant to
the Registration Rights Agreement 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 and (c)
the parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.
ARTICLE III
Representations and Warranties of Investor
The Investor represents and warrants to the Company that:
Section 3.1. Intent.
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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, the Convertible Preferred, the Warrant, any Conversion Shares or Warrant
Shares to or through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold such securities for
any minimum or other specific term and reserves the right to dispose of the
Common Stock, the Conversion Shares and Warrant Shares at any time in accordance
with federal and state securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor.
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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 is capable of evaluating the merits and risks of an investment
in the Common Stock, the Convertible Preferred, the Warrant and the underlying
Common Stock. The Investor acknowledges that an investment in the Common Stock,
the Convertible Preferred, the Warrant and the underlying Common Stock is
speculative and involves a high degree of risk.
Section 3.3. Authority.
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This Agreement and each agreement attached as an Exhibit hereto which is
required to be executed by Investor 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.
Section 3.4. Not an Affiliate.
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The Investor is not an officer, director or "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
Section 3.5. Absence of Conflicts.
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The execution and delivery of this Agreement and the agreements the forms
of which are attached as Exhibits hereto and executed by the Investor in
connection herewith, and the consummation of the transactions contemplated
hereby and 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 (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.
Section 3.6. Disclosure; Access to Information.
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The Investor has received all documents, records, books and other publicly
available information pertaining to Investor's investment in the Company that
have been requested by the Investor. Investor acknowledges that the Company is
subject to the periodic reporting requirements of the Exchange Act, and the
Investor has reviewed or received copies of all SEC Documents that have been
requested by it.
Section 3.7. Manner of Sale.
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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 by the Company.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investor that:
Section 4.1. Organization of the Company.
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The Company is a corporation duly incorporated and existing in good
standing under the laws of the State of Colorado 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 active business entity except as set
forth in the SEC Documents. The Company is duly qualified 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.
Section 4.2. Authority.
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(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, the Escrow Agreement, and the Warrants and to issue the Common
Stock, the Convertible Preferred, the Conversion Shares, the Warrants and the
Warrant Shares pursuant to their respective terms, (ii) the execution, issuance
and delivery of this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Common Stock, the Convertible Preferred and the Warrants by the
Company 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 shareholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Common Stock certificates, the Convertible Preferred stock
certificates and the Warrants have been duly executed and delivered by the
Company and at the Closing shall 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,
moratorium, 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 has duly and validly authorized and reserved for
issuance shares of Common Stock sufficient in number for the conversion of the
Convertible Preferred (assuming a Market Price of $.50) and for the exercise of
the Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Conversion. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Preferred and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company and notwithstanding the
commencement of any case under 11 U.S.C. (S) 101 et seq. (the "Bankruptcy
Code"), subject only to compliance with any applicable federal or state
securities laws. The Company shall not seek judicial relief from its obligations
hereunder except pursuant to the Bankruptcy Code. In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. (S) 362 in
respect of the conversion of the Convertible Preferred and the exercise of the
Warrants. The Company agrees, without cost or expense to the Investor, to take
or consent to any and all action necessary to effectuate relief under 11 U.S.C.
(S) 362.
Section 4.3. Capitalization.
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The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, $0.001 par value per share, of which 9,531,186 shares are
issued and outstanding as of December 1, 1998, 50,000,000 shares of preferred
stock, $.01 par value per share, 5,000,000 of which have been designated as
Series A Convertible Preferred Stock, of which 988,750 shares are issued and
outstanding, and 988,750 Redeemable Class A Common Stock Purchase Warrants and
988,750 Redeemable Class B Common Stock Purchase Warrants are issued and
outstanding. Except as set forth on Exhibit 4.3 hereto, there are no other
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.
Section 4.4. Common Stock.
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The Company has registered its Common Stock pursuant to Section 12(g) of
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the Exchange Act and is in full compliance with all reporting requirements of
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the Exchange Act, and the Company is in compliance with all requirements for the
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continued listing or quotation of its Common Stock, and such Common Stock is
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currently listed or quoted on the Principal Market. As of the date hereof, the
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Principal Market is the OTC Bulletin Board and the Company has not received any
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notice regarding, and to its knowledge there is no threat, of the termination or
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discontinuance of the eligibility of the Common Stock for such listing.
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Section 4.5. SEC Documents.
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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 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 SEC Documents, 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.
Section 4.6. Exemption from Registration; Valid Issuances.
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Subject to the continuing accuracy of each Investor's representations in
Article III, the sale of the Common Stock, the Convertible Preferred, the
Conversion Shares, the Warrants and the Warrant Shares will not require
registration under the Securities Act and/or any applicable state securities
law. The Common Stock to be issued at Closing shall be validly issued fully paid
and non-assessable. When issued and paid for in accordance with each Warrant and
the Convertible Preferred, the Conversion Shares and the Warrant Shares will be
duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Common Stock, the Convertible Preferred, the Conversion Shares, the Warrants
or the Warrant Shares pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Convertible Preferred, or the Warrants will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Common Stock, the Convertible Preferred, the Conversion
Shares, the Warrants or the Warrant 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 Common Stock, the
Convertible Preferred, the Conversion Shares, and the Warrant Shares shall not
subject the Investor to personal liability to the Company or its creditors by
reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
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Transaction.
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Neither the Company nor any of its Affiliates (as defined in Rule 405 under
the Securities Act) nor, to its knowledge, any person acting on its or their
behalf has conducted or will conduct any general solicitation (as that term is
used in Rule 502(c) of Regulation D) or general advertising with respect to the
sale of the Common Stock, the Convertible Preferred or the Warrants.
Section 4.8. Corporate Documents.
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The Company has furnished or made available to the Investor true and
correct copies of the Company's Articles of Incorporation, as amended and in
effect on the date hereof (the "Articles"), and the Company's By-Laws, as
amended and in effect on the date hereof (the "By-Laws").
Section 4.9. No Conflicts.
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Except as set forth on Schedule 4.9, 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 Common Stock, the Convertible Preferred, the Conversion Shares,
the Warrants and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Articles of Incorporation
or By-Laws, (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
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 Common Stock, the
Convertible Preferred or the Warrants in accordance with the terms hereof (other
than any SEC 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); 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 each Investor herein.
Section 4.10. No Material Adverse Change.
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Since September 30, 1998, no Material Adverse Effect has occurred or exists
with respect to the Company, except as disclosed in the SEC Documents.
Section 4.11. No Undisclosed Events or Circumstances.
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Since September 30, 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 or in
this Agreement.
Section 4.12. Not Used.
Section 4.13. Litigation and Other Proceedings.
--------------------------------
Except as disclosed in the SEC Documents or on Schedule 4.13 hereto,
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 and in Schedule 4.13, 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.
Section 4.14. No Misleading or Untrue Communication.
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The Company and, to the knowledge of the Company, its officers and directors,
have not made, at any time, any oral communication to the Investor in connection
with the offer or sale of the Convertible Preferred and the Warrants 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.
Section 4.15. Material Non-Public Information.
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The Company has not disclosed to any Investor any material non-public
information that (i) if disclosed, could 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.
Section 4.16. Insurance.
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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 the Company's historical claims experience and comparable
industry standards. 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 4.17. Tax Matters.
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(a) The Company has filed all Tax Returns which it is required to file
under applicable laws, except where the failure to file any Tax Return would not
have a Material Adverse Effect on the Company; 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,
shareholder, 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 (S) 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 (S) 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 (S) 897(c)(2) of the Internal Revenue Code
during the applicable period specified in (S) 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under (S) 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. (S) 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
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 (S) 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.17:
"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.
Section 1.18. Property.
--------
Neither the Company nor any of its subsidiaries owns any real property except
as disclosed in the SEC Documents. 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, except as set forth in
Schedule 4.18, 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.
Section 4.19. Intellectual Property.
---------------------
Except as disclosed in the SEC Documents or in Exhibit 4.19 hereto, 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.
Section 4.20. Not Used.
--------
Section 4.21. 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.
Section 4.22. No Misrepresentation.
--------------------
No representation or warranty of the Company contained in this Agreement, any
schedule, annex or exhibit hereto or any agreement, instrument or certificate
furnished by the Company to the Investors pursuant to this Agreement, contains
any untrue statement of a material fact or omits 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
Covenant of the Investor
The Investor covenants and agrees with the Company as follows:
Section 5.1. 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.
ARTICLE VI
Covenants of the Company
Section 6.1. 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.
Section 6.2. Reservation of Common Stock.
---------------------------
As of the date hereof, the Company has reserved and the Company shall continue
to reserve and keep available at all times, free of preemptive rights, shares of
Common Stock for the purpose of enabling the Company to issue the Conversion
Shares and the Warrant Shares pursuant to any conversion of the Convertible
Preferred or exercise of the Warrants; such amount of shares of Common Stock to
be reserved shall be calculated based upon a Market Price for the Common Stock
under the terms of the Convertible Preferred of $.50. The number of shares so
reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered pursuant to
any conversion of the Convertible Preferred or exercise of a Warrant and the
number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be obligated to issue by reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock.
-----------------------
The Company hereby agrees to use best efforts to maintain the listing of the
Common Stock on a Principal Market, and if required by the rules of the
Principal Market, to list the Common Stock, the Conversion Shares and the
Warrant Shares on the Principal Market. 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 Common Stock, the Conversion Shares and
the Warrant Shares, and will take such other action as is necessary or desirable
in the opinion of any Investor to cause the Common Stock to be listed on such
other Principal Market as promptly as possible. The foregoing sentence shall not
be construed to require the Company to seek to list its Common Stock on any
market other than the OTC Bulletin Board. The Company will use best efforts to
take all action to continue the listing and trading of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will use best efforts to 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 each Investor with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) Trading Days of the Company's
receipt thereof, until each Investor has disposed of all of its Registrable
Securities.
Section 6.4. Exchange Act Registration.
-------------------------
The Company will cause its Common Stock to continue to be registered under
Section 12(b) or (g) of the Exchange Act, will use its best efforts to comply in
all material 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 the 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 until each Investor has disposed of all of its
Registrable Securities.
Section 6.5. Legends.
-------
The certificates evidencing the Registrable Securities shall be free of
legends, except as set forth in Article IX.
Section 6.6. Corporate Existence.
-------------------
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company.
Section 6.7. 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 Investors are entitled to
receive pursuant to this Agreement.
Section 6.8. Private Offering Exemption.
--------------------------
The sale of the Convertible Preferred, the Common Stock and the Warrants and
the issuance of the Warrant Shares pursuant to exercise of the Warrant and the
Conversion Shares upon conversion of the Convertible Preferred shall be made in
reliance upon the provisions and requirements of Section 4(2) of the Securities
Act and any applicable state securities law. The Company shall make all
necessary SEC and "blue sky" filings required to be made by the Company in
connection with the sale of the Securities to the Investors as required by all
applicable Laws, and shall provide a copy thereof to the Investors promptly
after such filing.
Section 6.9. Limitation on Future Financing.
------------------------------
The Company agrees that it will not enter into any sale of its securities
until the Convertible Preferred has been fully converted or redeemed, without
the Investors' prior written consent, except (x) pursuant to any (i) presently
existing employee benefit plan which plan has been approved by the Company's
shareholders, (ii) compensatory plan for a full-time employee or key consultant,
or (iii) strategic partnership or other business transaction, the principal
purpose of which is not simply to raise money; (y) if the Market Price of the
Common Stock is less than $1.00 for 30 out of 45 consecutive Trading Days, and
the Investor does not agree in writing to provide financing to the Company on
terms offered by a bona fide third party within three (3) Trading Days of notice
from the Company setting forth the terms of such proposed financing or (z) up to
$1,900,000 of Series C Preferred Stock privately placed through ▇▇▇▇▇ & ▇▇▇▇▇
and Company, Inc. and an unlimited amount of equity securities in a firm
commitment
underwritten offering through one or more of ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and/or
▇▇▇▇▇▇ ▇▇▇▇ (and/or another investment banking firm of comparable size). If the
Company should breach this provision and enter into a financing arrangement on
terms which are, in the commercially reasonable judgment of the Investor, more
favorable to the subsequent investors than those contained in the Convertible
Preferred and Warrants provided for herein, then the Investor shall have, as its
sole remedy, the right, but not the obligation, to exchange its unconverted
shares of Convertible Preferred for an equal purchase price amount of such new
securities, and to exchange its unexercised Warrants for any new warrants issued
as part of such new financing.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival.
--------
The representations, warranties and covenants made by each of the Company and
the Investor in this Agreement, the annexes, schedules and exhibits hereto and
in each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the Closing and the consummation of
the transactions contemplated hereby. In the event of a breach or violation of
any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Section 7.2. Indemnity.
---------
(a) The Company hereby agrees to indemnify and hold harmless the Investor,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Investor Indemnitees"), from and against any and all
Damages, in each case promptly as incurred by the Investor Indemnitees and to
the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant
to this Agreement.
(b) The Investor hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Damages,
and agrees to reimburse the Company Indemnitees for reasonable all out-of-pocket
expenses (including the reasonable fees and expenses of legal counsel), in each
case promptly as incurred by the Company Indemnitees and to the extent arising
out of or in connection with:
(i) any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this
Agreement; or
(ii) any failure by the Investor to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement or any instrument, certificate or agreement entered into or
delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice.
------
Promptly after receipt by either party hereto seeking indemnification pursuant
to Section 7.2 (an "Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being
sought (each, a "Claim"), the Indemnified Party promptly shall notify the party
against whom indemnification pursuant to Section 7.2 is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission to so notify
the Indemnifying Party shall not relieve it from any liability that it otherwise
may have to the Indemnified Party, except to the extent that the Indemnifying
Party is materially prejudiced and forfeits substantive rights and defenses by
reason of such failure. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
and the Indemnifying Party reasonably shall have concluded that representation
of the Indemnified Party and the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims.
-------------
In the event one party hereunder should have a claim for indemnification that
does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered
in any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1. Due Diligence Review.
--------------------
Subject to Section 8.2, 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 an Investor pursuant to the Registration
Statement, any such registration statement or amendment or supplement thereto or
any blue sky, Nasdaq 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 an 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 such 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 8.2. Non-Disclosure of Non-Public Information.
----------------------------------------
(a) The Company shall not disclose material 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 Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such non-
public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, and as
required by Section 6.3, the Company may, as a condition to disclosing any non-
public information hereunder, require the Investors' advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors. '
(b) Nothing herein shall require the Company to disclose material non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate material 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,
promptly 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 material 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
Legends; Transfer Agent Instructions
Section 9.1. Legends.
-------
Unless otherwise provided below, each certificate representing Registrable
Securities will bear the following legend or equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions.
---------------------------
Upon the execution and delivery hereof, the Company is issuing 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 in substantially the form of Exhibit F
hereto. Such instructions shall be irrevocable by the Company from and after the
date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be. It is the intent and purpose of
such instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time upon transfer of Registrable Securities by the
Investor to issue certificates evidencing such Registrable Securities free of
the Legend during the following periods and under the following circumstances
and without consultation by the transfer agent with the Company or its
counsel and without the need for any further advice or instruction or
documentation to the transfer agent by or from the Company or its counsel or the
Investor:
(a) at any time after the Effective Date, upon surrender of one or more
certificates evidencing Common Stock that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor confirms to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (iii) the Investor
confirms to the transfer agent that the Investor has complied with the
prospectus delivery requirement.
(b) at any time upon any surrender of one or more certificates evidencing
Registrable Securities that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered and containing representations that (i) the Investor is
permitted to dispose of such Registrable Securities without limitation as to
amount or manner of sale pursuant to Rule 144(k) under the Securities Act or
(ii) the Investor has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Registrable Securities in compliance with Rule
144.
Any of the notices referred to above in this Section 9.2 may be sent by
facsimile to the Company's transfer agent.
Section 9.3. No Other Legend or Stock Transfer Restrictions.
----------------------------------------------
No legend other than the one specified in Section 9.1 has been or shall be
placed on the share certificates representing the Registrable Securities 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 other than as expressly set forth in this Article IX.
Section 9.4. 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 Common Stock.
ARTICLE X
Choice of Law
Section 10.1. 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. 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 non-prevailing party to any arbitration (as
determined by the Board of Arbitration) shall pay the expenses of the prevailing
party including reasonable attorney's fees, in connection with such arbitration.
ARTICLE XI
Assignment; Entire Agreement
Section 11.1. Assignment.
----------
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 makes the representations and warranties contained in Article III
and who agrees to be bound by the covenants of Article V.
ARTICLE XII
Notices
Section 12.1. 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 the Company: SkyLynx Communications, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (941) ______-__________
with a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Stone, LLC
(shall not constitute notice) ▇▇▇▇▇▇-▇▇▇▇▇▇ House
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Investor:
as set forth on the signature page hereto.
with a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
(shall not constitute notice) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Green, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. 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.
Section 13.2. Entire Agreement.
----------------
This Agreement, the agreements attached as Exhibits hereto, which include, but
are not limited to the Certificate of Designation for the Convertible Preferred,
the Warrant, 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.
Section 13.3. Severability.
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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.
Section 13.4. Headings.
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The headings used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
Section 13.5. 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.
Section 13.6. 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 Common
Stock, the Convertible Preferred or any Conversion Shares or Warrant or any
Warrant 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.
Section 13.7. Fees and Expenses.
-----------------
Each of the Company and the Investor 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 Investor's counsel in the amount of
$15,000.
Section 13.8. Brokerage.
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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, other than ▇▇▇▇▇ & Hatch
and Company, Inc., whose fee of 6% of the purchase price of the Convertible
Preferred and a Warrant to purchase 50,000 shares of the Company's Common Stock,
identical in all other respects to the Warrant set forth as Exhibit B. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by the undersigned, thereunto duly authorized, as of the date first
set forth above.
SKYLYNX COMMUNICATIONS, INC.
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
INVESTOR:
Address: AMRO International, S.A.
c/o Ultra Finance
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ By:
Switzerland ▇. ▇. ▇▇▇▇▇▇▇▇, Director
Facsimile: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
Amount subscribed for:
600 shares of Convertible Preferred at $1,000 per share.