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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-24687
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SkyLynx Communications, Inc.
(Name of small business issuer in its charter)
Delaware 84-1360029
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
600 South Cherry Street, Suite 400
Denver, Colorado 80246
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 316-0400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended December 31, 1999 were
$_____.
The aggregate market value of the issuer's common stock held by non-
affiliates of the issuer, based upon the average bid and asked price of such
common stock as quoted on the OTC Electronic Bulletin Board as of March 22,
2000, was $56,743,673.
As of April 10, 2000, 19,862,524 shares of the issuer's common stock were
outstanding.
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Documents Incorporated by Reference
The following documents are incorporated by reference into Item 13 of this
Report:
1. The Company's Registration Statement on Form 10-SB, as filed with the
Commission on July 27, 1998.
2. The Company's Registration Statement on Form 10-SB/A-1, as filed with
the Commission on September 18, 1998.
3. The Company's Registration Statement on Form 10-SB/A-3, as filed with
the Commission on October 26, 1998.
4. The Company's Current Report on Form 8-K, as filed with the Commission
on January 6, 1999.
5. The Company's Current Report on Form 8-K, as filed with the Commission
on February 16, 1999.
6. The Company's Current Report on Form 8-K, as filed with the Commission
on March 2, 1999.
7. The Company's Current Report on Form 8-K, as filed with the Commission
on April 7, 1999.
8. The Company's Current Report on Form 8-K, as filed with the Commission
on May 12, 1999.
9. The Company's Current Report on Form 8-K, as filed with the Commission
on May 14, 1999.
10. The Company's Current Report on Form 8-K, as filed with the Commission
on May 21, 1999.
11. The Company's Current Report on Form 8-K, as filed with the Commission
on July 28, 1999.
12. The Company's Current Report on Form 8-K, as filed with the Commission
on August 10, 1999.
13. The Company's Current Report on Form 8-K, as filed with the Commission
on December 20, 1999.
14. The Company's Registration Statement on Form S-8, Registration No.
333-30152, as filed with the Commission on February 11, 2000.
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Forward-Looking Statements
Certain statements made in this Annual Report are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These risks, uncertainties and other
factors include, among other things: the speculative nature of an investment in
our Common Stock, our history of operating at a loss, competition from other
providers of high-speed Internet access and other advanced Internet services,
our ability to successfully integrate our Internet service providers and acquire
or partner with Internet-related product and service providers that complement
or augment our existing business, our ability to raise funds for working capital
and other risk factors described from time to time in our reports filed with the
Securities and Exchange Commission. The forward-looking statements made in this
Report are based on current expectations that involve numerous risks and
uncertainties. Our plans and objectives are based, in part, on assumptions
involving the growth and expansion of business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond our control. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements made in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements made in
this Report, particularly in view of our early stage of operations, the
inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be achieved.
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PART I
Item 1. Description of Business
Overview
Our strategy is to become a leading provider of high-speed Internet access
and advanced Internet services to small and medium-sized businesses. Subject to
our ability to obtain additional capital, we plan to acquire or partner with
Internet-related product and service providers that complement or augment our
existing business. We currently have networks providing Internet services in
Tampa, Florida; Fresno, California; Eugene, Oregon; San Diego, California;
Seattle, Washington; Las Vegas, Nevada; Sacramento, California; and Phoenix,
Arizona and we have recently completed the acquisition of Internet service
providers located in Seattle, Washington and Placerville, California. We
currently have approximately 42,000 subscribers.
Our company was incorporated in Colorado in 1996 under the name Allied
Wireless, Inc. In December 1997, we merged with SkyLynx Express Holdings, Inc.,
and in February 1998 we changed our name to SkyLynx Communications, Inc. In
December 1999, we changed our state of incorporation to Delaware through a
merger of SkyLynx Communications, Inc., a Colorado corporation, with and into
SkyLynx Communications, Inc., a Delaware corporation.
Industry Background
We believe that the provision of Internet connection and advanced Internet
products and services are two of the fastest growing segments of the
telecommunications services market. According to International Data Corporation,
total Internet service provider revenues in the United States are projected to
grow from $10.7 billion in 1998 to $37.4 billion in 2003. The availability of
Internet connectivity and advancements in technologies required to navigate the
Internet have fostered the growth of Internet content and application
development. These factors have contributed to the exponential growth in the
number of commercial and residential Internet users. Businesses are increasingly
recognizing that the Internet can significantly enhance communications among
geographically distributed offices and employees as well as with customers and
suppliers. In addition, the Internet helps businesses reduce operating costs,
access valuable information and reach new markets. As a result, we believe
businesses increasingly are using the Internet to enhance certain operations
such as their sales, customer service and project coordination. International
Data Corporation estimates that U.S. revenues for corporate access to the
Internet will grow from $2.9 billion in 1998 to $12.0 billion in 2003.
In addition to Internet connectivity, we believe business customers
increasingly are seeking a variety of advanced products and services to take
full advantage of the Internet. The principal advanced services currently being
offered by business-oriented Internet service providers include:
. hosting world wide web sites;
. Internet and computer network security;
. commerce, including marketing and sales, known as "electronic
commerce";
. networks among computer users within a business, or at several
different locations, sometimes known as "intranets" or "extranets";
. voice and facsimile transmission;
. data storage and retrieval; and
. application services provision.
According to International Data Corporation, the provision of advanced Internet
services is the fastest growing segment of the Internet services market and is
expected to grow from $3.0 billion in 1998 to over $12.9 billion in 2003.
The rapid development and growth of the Internet has resulted in a highly
fragmented industry. According to CS First Boston, there are approximately 5,000
national and local Internet service providers in the
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United States, and no dominant Internet service provider serves the needs of
small and medium-sized businesses. We believe that large national Internet
service providers and hosting service providers have primarily focused on large
businesses or consumers and lack the local presence to provide the customized
services required by small and medium-sized businesses. According to CS First
Boston, less than half of small and medium-sized businesses receive services
from an Internet service provider, and those that do are generally served by
independent regional and local Internet service providers.
Business Strategy
The key elements of our business strategy are outlined below.
We intend to continue to identify additional Internet access and enhanced
Internet-related product and service providers for acquisition, investment and
strategic opportunity. We will look to leverage our knowledge base and
experience to focus on providing Internet access and enhanced services to the
small and medium size business community. We also intend to broaden our product
and service offerings by developing certain key technologies and by establishing
strategic relationships with outside companies that offer specific, business-
driven solutions to our target market sectors. The development efforts for these
new technologies and services come from a combination of internal
entrepreneurial initiatives and from selected market trials of outside vendor
solutions with our customer base. We believe that our experience as an Internet
related service provider for clients in both the business and consumer market
segments is a critical component of our ability to assess market demand and
eventual customer acceptance.
All of the Company's efforts with respect to acquiring additional
properties, developing new technology solutions and establishing joint ventures
are subject to our existing financial resource base and our ability to obtain
additional financing. As we continue to identify additional Internet access and
enhanced service providers for acquisition, investment and strategic opportunity
we will look to develop a series of narrowly focused products and services.
These include, but are not limited to, wholesale and retail connectivity
offerings, with a key emphasis on the resale of leased capacity and
digital-subscriber-line (DSL) technology, Internet related security and security
software, business-to-business electronic commerce applications and Web-based
productivity applications and infrastructure. We will look to expand our market
presence in each of these areas and will develop both internally and as a result
of strategic relationships, advanced products and services to our customers.
We plan to integrate the operations of our acquired Internet service
providers in part by connecting them to a single, high-speed network and by
consolidating their accounting, customer billing, purchasing and other financial
operations at our headquarters. If we acquire several Internet service providers
in a single market, we plan to consolidate their marketing, sales, customer
service and technical operations, and intend to adopt the best ideas and
practices of each Internet service provider in that market. Additionally, we
plan to offer to our installed customer base a series of new products and
services that are designed to improve connectivity, security, productivity and
cost-effective acquisition of key goods and services.
Small and medium-size businesses are purchasing an increasing number of
advanced Internet products and services. We believe SkyLynx and its affiliated
companies and partners will be able to derive additional revenue from both new
and existing customers by selling an expanding array of products and services,
including:
. enhanced retail broadband Internet access - with an emphasis on
DSL;
. reliable and cost effective wholesale connectivity;
. web site hosting;
. Internet security and security related products and services;
. electronic commerce applications - with a focus of
business-to-business solutions;
. business productivity applications and infrastructure - with Web
based productivity solutions, such as enhanced access for mobile
workforces, as the key target area;
. application services provision for cost-effective, efficient
Web-based access to mission critical and other software; and
. voice services over the Internet.
We intend to encourage our regional operating locations to share their
ideas and knowledge of innovative Internet services among each other and to our
affiliated companies and strategic partners. We believe this practice will allow
us to further understand our target market segments and continue to foster
development of new technology product and service offerings designed to meet
customer demand.
Current Markets and Acquisitions
Listed below are certain of the markets in which we currently operate, and
certain of the acquisitions we have made in these markets:
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Tampa, Florida. On February 2, 1999, we acquired substantially all of the
assets of InterAccess Corp., an Internet service provider operating in the Tampa
area serving approximately 250 customers, the majority of which are businesses.
The aggregate purchase price for this acquisition was $390,770, consisting of
$195,385 in cash and 35,164 shares of our common stock.
Eugene, Oregon. On March 24, 1999, we completed the acquisition of
ContiNet, LLC, an Internet service provider serving approximately 1,100
customers in the Eugene area. The aggregate purchase price for this acquisition
$497,541, consisting of $343,379 in cash, and the assumption of $50,000 of debt
and 19,160 shares of our common stock. We retained the services of seven
employees of ContiNet, including the general manager and co-founder of the
business.
Fresno, California. We have acquired leases for two wireless channels in
the Fresno, California market. We have completed construction of these channels
and have begun operating the Fresno network. On April 29, 1999, we acquired
substantially all of the assets of Net Asset, LLC, an Internet service provider
operating in the Fresno area serving approximately 450 customers, the majority
of which are businesses. The purchase price for this acquisition was
approximately $1,175,000 in cash. We have initiated the integration of the Net
Asset acquisition into the Fresno system. Prior to the acquisition, we were
serving approximately 50 customers in the Fresno market.
San Diego, California. On April 28, 1999, we acquired substantially all of
the assets of Simply Internet, Inc., an Internet service provider operating in
the San Diego, California area serving approximately 6,000 customers. The
purchase price for this acquisition was approximately $2,123,775 in cash. We
retained the services of the general manager and co-founder of Simply Internet.
Seattle, Washington. On May 7, 1999, we completed the acquisition of
substantially all of the assets of SeaTac.Net, Inc., an Internet service
provider operating in the Seattle, Washington area serving approximately 900
customers. The aggregate purchase price for this acquisition was approximately
$400,000, consisting of $200,000 in cash and 19,865 shares of our common stock.
We retained the services of three key employees of SeaTac.Net, including the
general manager and co-founder of the business. On February 11, 2000, we
completed the acquisition of Alternate Access Inc., an Internet service provider
operating in the Seattle, Washington area serving approximately 7,000 customers.
The aggregate purchase price for this acquisition was approximately $4.1
million, consisting of $1.95 million in cash and 684,430 shares of our common
stock. We entered into a consulting agreement with the founder of Alternate
Access under which he will provide consulting services to us until May 11, 2000.
In connection with this acquisition we entered into an agreement to purchase 30%
of the outstanding capital stock of PDGT.COM, INC., a provider of wholesale
Internet connectivity to Internet service providers located in the Seattle area.
PDGT.COM, INC. is qualified as a competitive local exchange carrier (CLEC) in
Washington, Oregon, Idaho and Montana. The aggregate purchase price for this
transaction will be $1,150,000 in cash. The owner of PDGT.COM is the former
owner of Alternate Access. As of February 11, 2000, we purchased approximately
21.8% of PDGT.COM's outstanding capital stock for $750,000 in cash. The closing
of our purchase of the remaining 8.2% of common stock is subject to certain
conditions, including PDGT.COM's attainment of prescribed revenue levels, and is
expected to close by February 2001.
Sarasota, Florida. On June 4, 1999, we obtained a 25 year lease for 12
wireless channels in the Sarasota-Bradenton area. The lease gives us coverage
over six Florida counties: Sarasota, Manatee, Charlotte, DeSoto, Pasco and
Pinellas. We have begun the process of applying to the Federal Communications
Commission to upgrade the system to a two-way licensed frequency system.
Las Vegas, Nevada. On July 16, 1999, we completed the acquisition of
substantially all of the assets of Network Training and Consulting d/b/a
ISAT Network, an Internet service provider operating in the Las Vegas, Nevada
area serving approximately 3,100 customers. The aggregate purchase price for
this acquisition was approximately $900,000, consisting of $450,000 in cash and
56,250 shares of our common stock.
Sacramento, California. On July 27, 1999 we acquired all of the capital
stock of CalWeb Internet Services, Inc., an Internet service provider operating
in the Sacramento, California area serving approximately 7,800 customers. The
aggregate purchase price for this acquisition was approximately $4.3 million,
consisting of approximately $2.6 million in cash and 255,639 shares of our
common stock. We retained the services of the two former owners of CalWeb. On
February 11, 2000, we acquired substantially all of the assets of Planetlink
Communications, Inc. d/b/a Inforum Communications, an Internet service provider
operating in the Sacramento - Placerville, California area serving approximately
1,600 customers. The aggregate purchase price for this acquisition was
approximately $474,900, consisting of approximately $237,450 in cash and
74,494 shares of our common stock.
Phoenix, Arizona. On July 29, 1999 we acquired substantially all of the
assets of Inficad Computing and Design, L.L.C., an Internet service provider
operating in the Phoenix, Arizona area serving approximately 9,100 customers.
The aggregate purchase price for this acquisition was approximately $2.6
million, consisting of approximately $1.1 million in cash and approximately
216,620 shares of our common stock.
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Products and Services
We offer, through our regional Internet service provider operations and
strategic partnerships, a comprehensive range of Internet connection and
advanced Internet services. In addition to key products and services that are
not limited by geographic boundaries, the specific services we offer in each
market are determined based on the needs of the market and local competitive
conditions.
The following is a description of the services we currently offer, or
intend to offer in the future.
Basic Internet services. We offer customers several high-speed Internet
services including local access connection, full service high-speed Internet
access and a variety of intranet/extranet connection services. We provide all
of our subscribers Internet access, allowing customers to access the world wide
web to receive and send data, video and audio. Our subscribers can search the
Internet for data, download large files and exchange Internet mail. Our
Internet services also include interactive news services as well as connections
to other corporate computer networks outside the customer's local area.
Advanced Internet products and services. We believe that our small and
medium-sized business customers will continue to increase their use of the
Internet as a business tool and, as a result, will require an expanding range of
advanced products and services. Our product development and marketing groups
will focus on developing new advanced products and services through internal
development, acquisitions and strategic relationships with software, hardware
and Internet content businesses. Below is a description of each service we
offer:
Web hosting services. Web hosting is performed by computers known as
web servers, which carry or "host" Internet web sites on their systems.
The web server enables anyone with access to the Internet to view the web
site. We offer our customers web hosting services through a combination of
internal efforts and the use of third party partners. We also provide our
customers web hosting services that will connect their corporate computer
networks to the Internet. In the future, we plan to administer and
maintain Internet web sites at our local operating centers.
Web site management services. We offer web site management services
that maintain and update our customers' web sites on an ongoing basis.
Additionally, we provide our customers with statistics and analysis of the
use of their web sites by others.
Web site co-location. We also offer web site co-location, pursuant to
which a customer-owned web server is located at one of our network
locations for higher reliability and security. This allows the customer to
own its own web server without having to maintain and manage the data
center for the web site. Our network supports high performance corporate
servers, and our network engineers administer and maintain our customers'
hardware and software in a secure and protected environment.
E-mail services. We provide and support Internet mail services. We
support customer's e-mail service with domain names (i.e., name@abc-
company.com), as well as without a domain (i.e.,
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[email protected]). Mail services may operate on customers' servers or on
servers we provide at each of our local operating centers.
Electronic commerce. Electronic commerce provides customers with the
ability to market and sell products and services on the Internet. We
provide e-commerce services through strategic partnerships. We also intend
to provide advanced e-commerce hosting environments and to form
partnerships with software developers to provide certain e-commerce
services, such as online catalogs.
Domain name services. We provide domain name service, which is a
general purpose data service used on the Internet for translating web host
names, like "www.yourname.com," into numeric Internet addresses. On behalf
of our customers, we register and administer Internet domain names. Our
customers retain ownership of each domain, although we act as the
administrative contact for the domain. We provide support services for
these domains including electronic mail services, file transfer programs,
world wide web services and electronic commerce.
Web site development services. An Internet homepage or a web site
consists of the graphics and text viewed on the Internet which is
associated with a specific world wide web address. We provide Internet
homepage and web site development services to our customers both directly
and through relationships with third party vendors.
System integration services. We provide system integration services
to our customers, specifically in the area of high-speed Internet and
intranet/extranet connections and gateways. Our services also include the
installation and configuration of routers, web servers, proxy servers and
Internet firewalls.
Security services. Security is vital to most businesses connected to
the Internet. Through a combination of internal initiatives and strategic
partnerships, we offer a comprehensive set of network-based security
products, including firewall maintenance and management, authentication of
network users and data encryption services. Moreover, we have developed a
series of host-based security solutions designed to prevent, rather than
simply detect, Internet-based security breaches and exploitation of our
clients' systems. We intend to develop and commercialize these products in
the coming months.
Consulting services. We offer a full set of consulting services
to our customers, including network and system design, security system
needs analysis and implementation, and other Internet-related consulting
services. We intend to invest in additional consulting service
capabilities or form partnerships with technology leaders to provide
customers with additional consulting services.
In addition to the services described above, we intend to offer our
customers voice over the Internet services. Voice over the Internet allows
customers to make telephone calls using the Internet, potentially lowering the
cost of some calls, including international calls. We are currently developing
and testing this service with the assistance of some of our technology partners
and non-paying customers.
Target Market
Our plan is to focus our service offerings on the needs of small and
medium-sized businesses. We believe that these businesses are becoming
increasingly reliant on Internet access to significantly enhance communications
with other offices, employees, customers and suppliers. We also believe that
the Internet enables such businesses to reduce operating costs, access valuable
information and reach new markets. As a result, we believe that small and
medium-sized businesses increasingly are utilizing the Internet for crucial
business needs such as sales, customer service and project coordination.
According to CS First Boston, small and medium-sized businesses represent a
potential market of over 7,000,000 customers in the U.S., and Internet use by
this market segment is expected to grow at over 40% per year. We believe that
small and medium-
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sized businesses generally seek an Internet service provider with locally-based
personnel who are readily available to respond in person to technical issues,
who can assist in developing and implementing the customer's effective use of
the Internet, and with whom the customer can establish a stable and long-term
relationship.
Sales and Marketing
We offer our products and services through a direct sales force, resellers
and other indirect sales channels. We also use the world wide web to market our
products and services.
Direct sales. We currently employ a direct sales force to focus on our
target customers. We plan to continue to hire sales representatives who
have strong Internet-related backgrounds and who understand the needs of
their local businesses. These representatives are based in the local
communities in which they will sell our products and services. We also plan
to use direct marketing techniques including direct mail, telemarketing,
seminars and trade-show participation.
Resellers and indirect sales. We will continue to employ and further
develop reseller and referral programs to market and distribute our
services. Resellers are persons or entities not directly employed or
affiliated with us who agree to market and sell our products. Our reseller
programs offer resellers an up-front bonus for each new customer and the
ability to share in revenues from customers they bring to us. We have
established reseller arrangements with several Internet-related companies.
Referral partners receive a fee or some other form of compensation for
referring customers or customer leads to us. We expect that referral
partners will include organizations such as local computer companies,
information technology consultants, web page designers, advertising
agencies or other entities that do not generally sell Internet services
directly.
Web based sales and marketing. We will continue to employ and further
develop an Internet-based sales and marketing channel for certain of our
products and services that can be sold and distributed over the world wide
web. We will use our existing knowledge of web transactions and our ongoing
vendor relationships to capitalize on targeted e-commerce sales and
marketing opportunities.
Operations
Network management. We currently manage our local network full-time using
management, monitoring and tracking systems at each of our local operations
centers. Our local operations centers monitor the local networks delivering
Internet services to our customers.
Support services. In addition to our monitoring capabilities, we plan to
offer in the future the following support services to increase the quality and
consistency of our services:
. Customer technical support. We intend to establish a central customer
support center to enable us to respond on a 24 hour basis to customer
needs. We also plan to maintain local customer support personnel to
provide installation assistance at customer sites, system maintenance
and troubleshooting services.
. Financial information management. We plan to employ a centralized
financial reporting and payroll/human resources system to provide a
central, standardized accounting system for all Internet service
providers we have and may acquire.
. Billing and collections. We also plan to implement a centralized
billing and collections system for all Internet service providers we
have and may acquire.
Competition
The market for Internet access and related services is extremely
competitive. We expect competition to increase as Internet use grows and
established national Internet service providers, telecommunications and
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computer related vendors expand their traditional products and services and new
start-up businesses emerge. Our competitors may include:
. national and regional commercial Internet service providers such as
Verio, UUNet, GTE Internetworking, PSINet, Concentric Networks and
DIGEX;
. established online commercial information providers like AOL, MSN and
Prodigy;
. local Internet service providers in our target market areas who
provide services similar to ours;
. cable television operators like @Home and Roadrunner;
. national long distance telecommunications carriers like AT&T, MCI
Worldcom and Sprint;
. regional telephone operating companies like US West, SBC
Communications and Bell South;
. Providers of wholesale and retail advanced connectivity services
including competitive local exchange carriers such as ICG and TCG and
data local exchange carriers such as Covad and Northpoint;
. Emerging and established enhanced Internet-related product and service
providers in specific areas including application service providers
such as Future Link and USInternetworking and providers of business-
to-business e-commence platforms such as Purchase Pro and Vertical
Net; and
. Companies providing network and host-based security applications and
products like Tripwire, McAfee and Checkpoint.
We also believe that new competitors will continue to enter the Internet
access and related Internet markets. These new competitors may include large
computer hardware and software companies, media and telecommunications entities
and companies that provide direct service to residential customers, including
cable television operators, wireless communication companies, local and long
distance telephone companies and electric utility companies.
Almost all of our competitors are larger than us and have greater
financial, technical and operating resources than we do. We cannot assure you of
our survival in this intensely competitive environment. We believe that we will
need to distinguish ourselves by our technical knowledge, our responsiveness to
our target customers, our ability to market and sell customized combinations of
services within our markets and our capacity to offer diverse Internet services.
Employees
As of March 30, 2000, we employed approximately 154 people, including 141
full-time and 13 part-time employees. We consider our employee relations to be
good. None of our employees are covered by a collective bargaining
agreement.
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Item 2. Description of Property
We lease all of our facilities and do not own any real property. Our
corporate headquarters is located at 600 South Cherry Street, Suite 400, Denver,
Colorado, where we lease approximately 6,000 square feet of office space. Our
lease agreement commenced February 1, 1999, and has a term of two years. We also
lease the following office spaces: Fresno, California, 4,000 square feet; San
Diego, California, 2,347 square feet; Tampa, Florida, 2,500 square feet; Eugene,
Oregon, 1,800 square feet; Washington, D.C., 500 square feet; Seattle,
Washington, 505 square feet and 3,650 square feet; Sacramento, California, 4,000
square feet; Placerville, California, 1,200 square feet; Las Vegas, Nevada,
1,000 square feet; Phoenix, Arizona, 7,000 square feet and 2,873 square feet;
and San Francisco, California, 1,700 square feet. We believe that our existing
facilities are adequately covered by insurance and are adequate for the
foreseeable future.
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Item 3. Legal Proceedings
We are a party to the following material legal proceedings:
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1. In re: Cable Corporation of America d/b/a Paradise Cable (United States
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Bankruptcy Court, Middle District of Florida, Tampa Division).
On May 12, 1999, the United States Bankruptcy Court for the Middle District
of Florida confirmed a plan of reorganization involving Cable Corporation of
America, which does business under the name Paradise Cable Corporation. The plan
of reorganization provided for the transfer to us of substantially all of Cable
Corporation's assets, including wireless cable licenses issued by the Federal
Communications Commission (FCC) to a subsidiary of Cable Corporation. The
consideration we will pay in this transaction will be 220,000 shares of our
common stock and our assumption of approximately $891,000 of indebtedness, plus
accrued interest, previously owed by Paradise to the FCC. On June 3, 1999, the
effective date of the plan of reorganization, we delivered 120,000 shares of
common stock to the disbursing agent in the bankruptcy.
On October 8, 1999, E. Paul Hansen, the Former Chairman of the Board of
Cable Corporation and a creditor in the bankruptcy proceeding, filed a complaint
in the United States Bankruptcy Court, Middle District of Florida, seeking to
revoke the confirmation order. The complaint alleged that we failed to disclose
material facts during the bankruptcy and reorganization process and that this
failure was an intentional omission that constituted fraud on the court.
In response to Mr. Hansen's complaint, we filed a motion for summary
judgment with the bankruptcy court on October 15, 1999, asserting that there
were no issues of material fact in the proceeding and that we were entitled to
judgment as a matter of law. On January 7, 2000, the bankruptcy court granted
our motion for summary judgment on all issues, and ruled that we were entitled
to recover any costs incurred in the action from Mr. Hansen. Mr. Hansen has
appealed the bankruptcy court's ruling to the United States District Court for
the Middle District of Florida. The appeal is still pending.
On February 16, 2000, Morse, Berman & Gomez P.A., the disbursing agent in
the bankruptcy proceeding, filed a complaint with the United States Bankruptcy
Court for the Middle District of Florida seeking a declaration that we are in
breach of the terms of the bankruptcy plan and confirmation order for failing
to pay a portion of the consideration for the Cable Corporation assets. In the
complaint, the disbursing agent seeks damages and rescission of the
transactions already consummated under the bankruptcy plan. We believe this
complaint is without legal merit and intend to defend it vigorously.
2. Investment Management of America, Inc. v. SkyLynx Communications, Inc.,
-----------------------------------------------------------------------
(Circuit Court in and for Sarasota County, Florida, Case No. 9915657 CA). On
November 29, 1999 Investment Management of America Inc. filed suit against us in
the Sarasota County Circuit Court, alleging that we had breached a purported
agreement for services to be rendered by Investment Management. The complaint
demanded that we issue 300,000 shares of our common stock to Investment
Management pursuant to the purported agreement. On December 30, 1999, we filed
an answer to Investment Management's complaint, denying all of Investment
Management's claims and asserting affirmative defenses, including the lack of an
enforceable agreement between the parties. On January 11, 2000, Investment
Management filed a reply to our answer which denied our affirmative defenses. We
have begun discovery in this case and intend to defend it vigorously.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year
ended December 31, 1999 to a vote of security holders.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Our common stock is traded over-the-counter and quoted on the OTC
Electronic Bulletin Board on a limited and sporadic basis under the symbol
"SKYK." Our common stock began trading over-the-counter on July 31, 1998.
There is no assurance that our common stock will continue to be quoted or that
any liquidity exists or will exist for our common stock.
The reported high and low bid and asked prices are shown below for the
period from July 31, 1998 through December 31, 1999, as reported on the OTC
Electronic Bulletin Board. The prices presented are bid and asked prices,
rounded to the nearest one-thousandth, which represent prices between broker-
dealers and do not include retail mark-ups or mark-downs or any commission to
the broker-dealer. The prices may not necessarily reflect actual transactions:
<TABLE>
<CAPTION>
BID ASKED
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
1998:
Third Quarter (from 7/31/98) $ 5.250 $2.500 $ 6.000 $3.000
Fourth Quarter $ 4.250 $2.125 $ 4.500 $2.375
1999:
First Quarter $ 7.340 $2.500 $ 8.000 $2.750
Second Quarter $11.500 $6.875 $13.250 $7.250
Third Quarter $ 8.938 $2.750 $ 9.125 $2.750
Fourth Quarter $ 5.406 $2.000 $ 5.438 $2.125
</TABLE>
As of April 10, 2000, there were approximately 216 stockholders of
record of our common stock.
The Securities Enforcement and Penny Stock Reform Act of 1990
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure, relating to the market for penny stocks, in connection
with trades in any stock defined as a "penny stock." The Commission recently
adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such exceptions include any equity security listed on
NASDAQ and any equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such
<PAGE>
issuer has been in continuous operation for three years, (ii) net tangible
assets of at least $5,000,000, if such issuer has been in continuous operation
for less than three years, or (iii) average annual revenue of at least
$6,000,000, if such issuer has been in continuous operation for less than three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
Our common stock is subject to the rules adopted by the Commission
regulating broker-dealer practices in connection with transactions in penny
stocks. Those disclosure rules applicable to penny stocks require a broker-
dealer, prior to a transaction in a penny stock not otherwise exempt from the
rules, to deliver a standardized list disclosure document prepared by the
Commission. That disclosure document advises an investor that investments in
penny stocks can be very risky and that the investor's salesperson or broker is
not an impartial advisor but rather paid to sell the shares. It contains an
explanation and disclosure of the bid and offer prices of the security, any
retail charges added by the dealer to those prices ("markup" or "markdown"), and
the amount of compensation or profit to be paid to or received by the
salesperson in connection with the transaction. The disclosure contains further
admonitions for the investor to exercise caution in connection with an
investment in penny stocks, to independently investigate the security as well as
the salesperson with whom the investor is working, and to understand the risky
nature of an investment in the security. Further, the disclosure includes
information regarding the market for penny stocks, explanations regarding the
influence that market makers may have upon the market for penny stocks and the
risk that one or two dealers may exercise domination over the market for such
security and therefore control and set prices for the security not based upon
competitive forces. The broker-dealer must also provide the customer with
certain other information and must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. Following the proposed
transaction, the broker must provide the customer with monthly account
statements containing market information about the prices of the securities.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that is subject to the
penny stock rules. Many brokers may be unwilling to engage in transactions in
our common stock because of these added disclosure requirements, thereby making
it more difficult for security holders to dispose of their securities.
Dividends
Since inception, we have not paid or declared any cash dividends on
our common stock. Our Board of Directors does not currently intend to pay any
cash dividends on our common stock in the future. In addition, provisions of
our outstanding preferred stock restrict our ability to pay dividends on our
common stock.
Recent Sales of Unregistered Securities
<PAGE>
Between September 1999 and December 1999, we issued an aggregate of
1,000,000 shares of our common stock to holders of our series E convertible
preferred stock upon their conversion of an aggregate of 3,000 shares of our
series E convertible preferred stock. The shares of common stock were issued
exclusively to persons who qualified as "accredited investors" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. The shares,
which were taken for investment and were subject to appropriate transfer
restrictions, were issued without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
In November 1999 we issued $1,950,000 aggregate principal amount of
convertible promissory notes and warrants exercisable to purchase certain shares
of our common stock, determined based upon a formula which takes into account,
among other things, the date of the closing of our Series F convertible
preferred stock. The securities were issued exclusively to persons who qualified
as "accredited investors" within the meaning of Rule 501(a) of Regulation D
under the Securities Act. The securities, which were taken for investment and
were subject to appropriate transfer restrictions, were issued without
registration under the Securities Act in reliance upon the exemption provided by
Section 4(2) of the Securities Act and Rule 506 thereunder.
In December 1999 we issued an aggregate of 345,406 shares of our common
stock to the holder of our series B convertible preferred stock upon its
conversion of 600 shares of series B convertible preferred stock. The shares of
common stock were issued exclusively to an entity that qualified as an
"accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The shares, which were taken for investment and were subject
to appropriate transfer restrictions, were issued without registration under the
Securities Act in reliance upon the exemption provided by Section 4(2) of the
Securities Act.
Between August 24, 1999 and January 6, 2000, we issued an aggregate of
1,908,299 shares of our common stock to holders of our series D convertible
preferred stock upon their conversion of an aggregate of 5,560 shares of our
series D convertible preferred stock. The shares of common stock were issued
exclusively to persons who qualified as "accredited investors" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. The shares,
which were taken for investment and were subject to appropriate transfer
restrictions, were issued without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
On February 2, 2000, we issued 1,950 shares of our series F convertible
preferred stock and warrants exercisable to purchase an aggregate of 749,666
shares of our common stock at an exercise price of $1.50 per share to 18
investors upon their conversion of $1,950,000 aggregate principal amount of our
convertible promissory notes. The securities were issued exclusively to persons
who qualified as "accredited investors" within the meaning of Rule 501(a) of
Regulation D under the Securities Act. The securities, which were taken for
investment and were subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act and Rule 506 thereunder.
On February 2, 2000, we issued a warrant to purchase 1,000,000 shares
of our common stock at an exercise price of $.01 per share to one investor in
connection with our offering of series F convertible preferred stock. The
security was issued to a person who qualified as an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act. The
security, which was taken for investment and was subject to appropriate transfer
restrictions, was issued without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 506 thereunder.
On February 7, 2000, we issued a warrant to purchase 100,000 shares of
our common stock at exercise prices ranging from $6.25 to $10.00 per share to
one investor in consideration for services rendered. The security was issued to
a person who qualified as an "accredited investor" within the meaning of Rule
501(a) of Regulation D under the Securities Act. The security, which was taken
for investment and was subject to appropriate transfer restrictions, was issued
without registration under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act and Rule 506 thereunder.
Between February 2 and March 10, 2000, we issued an aggregate of
13,366 shares of our series F convertible preferred stock to 65 investors for an
aggregate purchase price of $13,366,000. The securities were sold exclusively
to persons who qualified as "accredited investors" within the meaning of Rule
501(a) of Regulation D under the Securities Act. The securities, which were
taken for investment and were subject to appropriate transfer restrictions, were
issued without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act and Rule 506
thereunder.
On February 11, 2000, we issued an aggregate of 684,431 shares of our
common stock in connection with our acquisition of Alternate Access, Inc. The
securities were issued exclusively to persons who qualified as "accredited
investors" within the meaning of Rule 501(a) of Regulation D under the
Securities Act. The shares, which were taken for investment and were subject to
appropriate transfer restrictions were issued without registration under the
Securities Act in reliance upon the exemption provided by Section 4(2) of the
Securities Act and Rule 506 thereunder.
On February 11, 2000, we issued an aggregate of 74,494 shares of our
common stock in connection with our acquisition of Planetlink Communications,
Inc. d/b/a Inforum Communications. The securities were issued exclusively to
persons who qualified as "accredited investors" within the meaning of Rule
501(a) of Regulation D under the Securities Act. The shares, which were taken
for investment and were subject to appropriate transfer restrictions, were
issued without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act and Rule 506
thereunder.
On February 11, 2000, we issued two warrants exercisable to purchase an
aggregate of 500,000 shares of our common stock to one investor in exchange for
services rendered to us in connection with our series F convertible preferred
stock offering. The first warrant is exercisable to acquire 400,000 shares of
our common stock at an exercise price of $0.01 per share and the second warrant
is exercisable to acquire 100,000 shares of our common stock at an exercise
price of $3.00 per share. The securities were issued to a person who qualified
as an "accredited investor" within the meaning of Rule 501(a) of Regulation D
under the Securities Act. The securities which were taken for investment and
were subject to appropriate transfer restrictions, were issued without
registration under the Securities Act in reliance upon the exemption provided by
Section 4(2) of the Securities Act.
Between March 7, 2000 and March 31, 2000, we issued an aggregate of
4,440 shares of our series D-1 convertible preferred stock to holders of our
series D convertible preferred stock upon their exchange of an aggregate of
4,440 shares of our series D convertible preferred stock. The securities which
were taken for investment and were subject to appropriate transfer restrictions,
were issued without registration under the Securities Act in reliance upon the
exemption provided by Section 3(a)(9) of the Securities Act.
Between March 7, 2000 and March 31, 2000, we issued an aggregate of
3,000,000 shares of our common stock to two holders of our series D-1
convertible preferred stock upon their conversion of an aggregate of 3,000
shares of our series D-1 convertible preferred stock. The shares were issued
exclusively to persons who qualified as "accredited investors" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. The securities,
which were taken for investment and were subject to appropriate transfer
restrictions, were issued without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
On March 10, 2000, we issued a warrant to purchase 526,316 shares of our
common stock to one investor in consideration of such investor having
participated in a private equity transaction in January 1999. The security was
issued to a person who qualified as an "accredited investor" within the meaning
of Rule 501(a) of Regulation D under the Securities Act. The security, which was
taken for investment and was subject to appropriate transfer restrictions, was
issued without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act and Rule 506
thereunder.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this
prospectus.
Overview
We provide a range of Internet access and Internet-related services
to small and medium-sized business and residential customers. The primary
services we offer include:
. broadband and dial-up Internet access;
. registration and administration of customers' Internet domain names;
. web site hosting services;
. web site development services; and
. Internet security services.
We earn revenue primarily from subscriptions from our customers for
Internet access. Subscription fees among our Internet service providers vary
between $15.00 and $200.00 per month, depending upon economic and competitive
conditions in their individual markets, and the billing plans each Internet
service provider offers. Most of our customers pay us on a monthly basis. We
earn additional revenue from hosting and developing commercial and individual
web sites, registration and administration of customers' Internet domain names,
and various Internet - related security services, such as penetration
assessments and network security consulting services. The rates we charge for
these services vary depending upon local competitive conditions, and, in some
cases, arrangements we have with third-party providers of these services.
Customers generally pay us directly on a per-service basis for these services.
Over time, the composition of our revenue may change as we develop our strategy
to provide additional Internet security services and web site hosting and
development services to our customers.
Our costs and expenses primarily fall into the following categories:
. telecommunications;
. selling, general and administrative; and
. amortization and depreciation.
Our telecommunications and operating expenses consist of our cost of non-
capital equipment and telecommunication costs associated with providing services
to subscribers, including the cost of local telephone lines and the costs of
leased lines connecting the Internet and our operations centers. We expect these
costs to increase over time to support our growing subscriber base. However, we
expect these costs to decrease as a percentage of revenues over time as we
utilize our increased size to negotiate more favorable rates with
telecommunication carriers.
Our selling, general and administrative expenses include employee salaries
and benefits, non-capital equipment costs, office rent and utilities, customer
service and technical support costs and the sales and marketing costs associated
with acquiring new subscribers, including bonuses, sales commissions and
advertising. We expect our general and administrative costs to increase
accordingly with our planned growth in our customer base. We also expect our
customer service, technical support and sales and marketing costs to increase
over time as we grow our business and add new subscribers. New subscribers tend
to be particularly heavy users of
<PAGE>
customer service and technical support.
Our amortization expenses primarily relate to the amortization of goodwill
and other intangible assets acquired in our purchases of Internet service
providers, and are based upon the useful lives of these intangibles. Our
amortization expenses are expected to increase as we make additional
acquisitions, and will vary according to purchase prices and the proportion of
intangible assets acquired.
Our depreciation expenses primarily relate to our equipment and are based
on the estimated useful lives of the assets ranging from three to five years
using the straight-line method. Depreciation expense is expected to increase as
our Internet service providers expand their networks to support new and existing
subscribers.
Between January 1, 1999 and February 11, 2000, we acquired ten Internet
service providers for aggregate consideration of approximately $10.4 million in
cash, 1,352,005 shares of our common stock and the assumption of approximately
$50,000 of indebtedness.
All of the acquisitions we have completed to date have been accounted for
using the purchase method of accounting. As a result, the amount by which the
fair value of the consideration we paid in these acquisitions exceeds the fair
value of the net assets we bought (approximately $ million), has been
recorded as goodwill. This goodwill will be amortized over its estimated useful
life of years as a non-cash charge to operating income.
We currently provide services to approximately 42,000 customers in six
states. At December 31, 1998, we served less than 300 customers. Our goal is to
become a leading provider of broadband Internet access and related Internet
services to small and medium-sized businesses. We plan to focus our future
growth on acquiring small and medium-sized business customers in the markets in
which we compete and on offering enhanced Internet services, such as security
services and website hosting services, to both our existing customers and to new
customers.
Reverse Split
Unless otherwise stated, all share and per share information contained in
this report gives retroactive effect to a 1-for-13 reverse split of all
outstanding shares of our common stock which was effected on January 23, 1998.
<PAGE>
Results of Operations
The discussion of our historical results set forth below addresses our
historical results of operations and financial condition as shown on our
Consolidated Financial Statements for the year ended December 31, 1999 as
compared to the year ended December 31, 1998. The historical results for the
year ended December 31, 1999 include the results of the eight businesses we
acquired prior to December 31, 1999 from their respective dates of acquisition.
Historical Results for the Year Ended December 31, 1999 as Compared to the Year
Ended December 31, 1998.
Revenue. For the year ended December 31, 1999, our revenues from operations
increased to $4,726,589 from $7,898 for the year ended December 31, 1998. The
increase was primarily the result of our acquisition of eight Internet service
providers between January 1, 1999 and July 29, 1999 and the customer and
revenue growth experienced by those businesses from the dates on which they were
acquired through December 31, 1999. Our revenues from operations consisted
primarily of customer revenues received for Internet access services, equipment
set-up and installations, web hosting services and security related services. We
earn access revenues primarily from subscriptions from our customers for
Internet connection and access. The subscription fees paid by our customers vary
among our Internet service providers and by the billing plans offered by a
particular Internet service provider.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1999 increased to
$31,256,220 from $5,300,834 for the year ended December 31, 1998 an increase of
490%. The increase was due primarily to the costs associated with acquiring our
Internet service providers, the ongoing operating costs associated with the
existing customer bases of these Internet service providers as well as the costs
associated with growth of our customer base, the amortization of goodwill
associated with our acquired businesses and non-cash compensation expense
relating to the vesting of options granted to certain of our directors and
officers. Our selling, general and administrative expenses consist primarily of
telecommunications expenses and other selling, general and administrative
expenses.
Our telecommunications expenses consist of our cost of non-capital equipment and
telecommunications costs associated with providing services to subscribers,
including the cost of local telephone lines and the costs of leased lines
connecting to the Internet and our operations centers. Telecommunications
expenses for the year ended December 31, 1999 were $2,021,293. We had no
telecommunications expenses for the year ended December 31, 1998.
Our other selling, general and administrative expenses include employee salaries
and benefits, non-capital equipment costs, office rent and utilities, customer
service and technical support costs and the sales and marketing costs associated
with acquiring new subscribers, including bonuses, sales commissions and
advertising. Selling, general and administrative expenses for the year ended
December 31, 1999 were $26,236,781 up from $5,300,834 for the year ended
December 31, 1998.
Our amortization expenses primarily relate to the amortization of goodwill and
other intangible assets acquired in our purchases of Internet service providers,
and are based upon the expected useful lives of these intangibles. Our
amortization expenses for the year ended December 31, 1999 were $2,160,990, up
from $6,938 for the year ended December 31, 1998.
Net Loss. Our activities for the year ended December 31, 1999 resulted in a net
loss of $26,762,816, as compared to a net loss of $5,274,832 for the year ended
December 31, 1998.
Assets, Liabilities and Shareholders' Equity
Assets. Our total assets at December 31, 1999 and December 31, 1998 were
$16,532,181 and $2,407,603, respectively. Our assets at December 31, 1999
consisted principally of cash of $1,947,982, net accounts receivable of 710,878,
prepaid expenses and other current assets of $734,569, net property and
equipment of $3,566,045 and net intangible assets of $9,572,707.
Liabilities and Shareholder's Equity. Our total liabilities at December 31, 1999
and December 31, 1998 were $6,935,463 and $1,139,479 respectively. Our
liabilities at December 31, 1999 consisted primarily of accounts payable and
accrued liabilities of $2,359,897, short term notes payable of $1,975,541,
deferred revenue of $998,230, short term capital lease obligations of $584,186,
dividends payable on preferred stock of $720,082, long term capital lease
obligations of $290,776 and long term notes payable of $6,751. Our shareholders'
equity at December 31, 1999 and December 31, 1998 was $9,596,718 and $1,237,129,
respectively.
Liquidity and Capital Resources
Since our inception, we have relied principally upon the proceeds of
private equity financings to fund our working capital requirements. While our
Internet service provider operations generate operating cash flow, that cash
flow is not sufficient to cover our operating expenses.
During the year ended December 31, 1998, we completed a private offering of
units, each unit consisting of one share of our series A convertible preferred
stock and a warrant to purchase two shares of common stock. In this offering, we
sold an aggregate of 988,750 units and received proceeds of approximately
$3,740,407, net of offering costs.
In January 1999, we issued and sold to one accredited investor 263,158
units at a price of $1.90 per unit, for aggregate consideration of $500,000.
Each unit sold in this offering consisted of one share of our common stock and a
warrant to purchase two additional shares of our common stock.
In January 1999, we issued and sold to one accredited investor 600 shares
of our series B convertible preferred stock, 15,000 shares of common stock and
warrants to purchase 120,000 shares of common stock. The aggregate purchase
price for these securities was $600,000.
In April 1999, we completed a private offering of 697,500 shares of our
series C convertible preferred stock at a price of $4.00 per share. We received
aggregate gross proceeds of $2,790,000 from this offering.
In May 1999, we completed a private offering of 10,000 shares of our series
D convertible preferred stock at a price of $1,000 per share. Series D investors
also received warrants to purchase an aggregate of 405,880 shares of common
stock. We received aggregate gross proceeds of $10,000,000 from this
offering.
In May 1999, we also completed a private offering of 3,000 shares of our
series E convertible preferred stock at a price of $1,000 per share. Series E
investors also received warrants to purchase an aggregate of 91,764 shares of
common stock. We received aggregate gross proceeds of $3,000,000 from this
offering.
In November 1999 we issued $1,950,000 in convertible promissory notes to 18
accredited investors in a private placement transaction. In connection with our
February 2000 sale of series F convertible preferred stock, all of the
convertible promissory notes automatically converted into 1,950 shares of series
F convertible preferred stock and warrants exercisable for three years to
purchase an aggregate of 749,666 shares of our common stock at an exercise price
of $1.50 per share.
Between February 2, 2000 and March 10, 2000 we issued and sold to private
investors an aggregate of 13,366 shares of our series convertible preferred
stock at a price of $1,000 per share. We received aggregate gross proceeds of
$13,366,000 from these sales.
Between January 1, 1999 and February 11, 2000, we acquired ten Internet
service providers for aggregate consideration of approximately $10.4 million in
cash, 1,352,005 shares of our common stock and the assumption of approximately
$50,000 of indebtedness. We funded the cash portion of these acquisitions
through proceeds from our private placements of our convertible preferred
stock.
<PAGE>
At December 31, 1999, we had cash of $1,987,982. Net cash used by
operating activities for the year ended December 31, 1999 was $34,047,078. Net
cash used for investing activities was $14,571,078, primarily as a result of
our acquisition of eight Internet service providers during the year. Net cash
provided by financing activities was $20,911,057, primarily as a result of the
private equity financings and the promissory note financing undertaken during
the year ended December 31, 1999.
We expect our capital expenditures to increase as our operations continue
to expand. We anticipate that we will use our financial resources to acquire
additional communications equipment and improvements in our network technology
to better support our existing and new customers and facilitate the integration
of our financial reporting systems.
At April 10, 2000, we had cash of approximately $8.2 million. We anticipate
that our current cash on hand plus the cash flow from our Internet service
providers will be sufficient to fund existing operations through the remainder
of the fiscal year. However, we intend to continue to pursue additional
acquisitions and to expand the range of Internet related services we offer, such
as security services and web hosting and design services, to more
comprehensively address the needs of small and medium-sized business customers.
These activities will likely require the use of our cash on hand, cash from our
Internet service provider operations and the issuance of additional equity, debt
or both. There can be no assurance that such equity or debt financing will be
available to us at all, or on terms acceptable to us. Any additional equity
financing we undertake may be dilutive to our existing shareholders and any debt
financing may involve pledging some or all of our assets and may contain
restrictive covenants with respect to raising future capital and other financial
and operational matters. If we are unable to obtain necessary additional
capital, we may not be able to fully execute our business strategy or may be
required to reduce our operations, which could have a material adverse affect on
our business, financial condition or results of operations.
<PAGE>
Year 2000 Issues
Many existing computer systems and applications currently use two-digit
date fields to designate a particular year. Date sensitive systems and
applications may recognize the year 2000 as 1900 or not at all. The inability to
recognize or properly treat the year 2000 issue may cause computer systems and
applications to incorrectly process critical information and operational
information. During 1999, we undertook an effort to identify and correct any
potential year 2000 issues that may have existed with our information systems,
suppliers and facilities. As of the date of this report, our business has not
been materially affected by the year 2000 issue. We intend to continue to
monitor the impact of the year 2000 issue on our business throughout the year
ending December 31, 2000. There can be no assurance that the year 2000 issue
will not adversely affect our business, financial condition or results of
operations in future periods.
<PAGE>
The foregoing constitutes a Year 2000 statement and readiness disclosure
subject to the protections afforded it by the Year 2000 Information Readiness
Disclosure Act of 1998.
<PAGE>
Item 7. Financial Statements
Our consolidated financial statements included in this Report
beginning at page F-1 are incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following table sets forth the name, age and position of our directors
and executive officers:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jeffery A. Mathias 40 President, Chief Executive Officer and Director
Francis P. Ragano 70 Chairman of the Board
J. Samuel Ridley 50 Director, Vice Chairman of the Board
Robert J. Smith 42 Director
James E. Maurer 39 Chief Financial Officer and Director
Steven R. Jesson 51 Vice President, Integration
Ned Abell 45 Vice President, Mergers and Acquisitions
and Secretary
David H. Roberts 32 Vice President, Business Development
Jenny J. Kim 32 Vice President, Legal Affairs/General Counsel
</TABLE>
JEFFERY A. MATHIAS has been a director and our Chief Executive Officer
since October 1998 and has served as our President since July 1998. From June
1997 to June 1998, Mr. Mathias was the Vice President of Business Development of
Network System Technologies Inc., a provider of wireless Internet service. From
August 1995 to May 1997, Mr. Mathias was Chairman and Chief Executive Officer of
Wireless Holdings International, a start-up venture pursuing wireless cable
television projects in Europe. From December 1993 to August 1995, Mr. Mathias
was the Director of International Development and a director of American
Telecasting, Inc., a leading wireless cable provider in the U.S.
FRANCIS P. RAGANO, Major General, U.S. Army (RET), has been a director
since February 1998 and has been our Chairman of the Board since July 1999. From
1988 until June 1999, Mr. Ragano was President and CEO of CMS, Inc., a wholly-
owned subsidiary of Daimler-Benz GmbH. He is currently a director of Irvine
Sensors, a manufacturer of infra-red sensors.
ROBERT J. SMITH has been a director since August 1999. From 1993 to 1998,
Mr. Smith held various management positions at America Online, Inc., including
Founder, Senior Vice President and General Manager of AOL's Digital Cities
network, Vice President of Affiliate Development, General Manager of AOL's
Lifestyles and Interests Channel and Manager of Business Development. Since
January 2000, Mr. Smith has been the Managing Director and Chief Executive
Officer of Vector Development, LLC, which develops and supports early stage
Internet companies.
J. SAMUEL RIDLEY has been a director since August 1999, and has been Vice
Chairman of our Board since December 29, 1999. Since March 2000, Mr. Ridley has
been the President of telX Communications Corporation, a full service provider
of colocation and value-added telecommunications services to Internet service
providers and telecommunications carriers. Since January 2000, Mr. Ridley has
also been a member of the Advisory Board of Intralinks Inc., which provides
software solutions for secure business information transfer. From 1998 to 1999,
Mr. Ridley was Senior Vice President and Head of Corporate Development for US.
West. From 1986 to 1998, Mr. Ridley served as Senior Vice President and was a
member of the management committee of Polaroid Corporation. From 1993 to 1996,
Mr. Ridley was Senior Vice President, Strategic Development and Acquisitions for
Lane Industries, Inc., which conducted business in the office products,
hospitality, radio and protection services industries.
JAMES E. MAURER has been our Chief Financial Officer since December 1998,
and has been a director since July 1999. From August 1997 to December 1998, Mr.
Maurer was the Director of Finance for Formus Communications, Inc., an Internet
access and data transport business serving international markets. Mr. Maurer
served as a consultant to Formus Communications from April 1997 to August 1997.
From September 1995 to April 1997, Mr. Maurer was Vice President of Finance for
Wireless Holdings International, a startup venture pursuing wireless cable
television projects in Europe. From June 1994 to April 1995, Mr. Maurer worked
for American Telecasting, Inc. as its Director of Financial Planning and
Analysis.
STEVEN R. JESSON has served as our Vice President, Integration since
January 1999. Mr. Jesson worked with Wedbush Morgan Securities as Vice
President/Sales Office Manager for the San Francisco Bay Area from September
1997 to September 1998. From March 1986 to July 1997, Mr. Jesson worked in
various positions at Fidelity Brokerage Services, Inc., a wholly owned division
of Fidelity Investments, most recently as Regional Vice President with
responsibility for over 19 offices and over 300 employees.
NED ABELL has served as our Vice President, Mergers and Acquisitions since
September 1998. From August 1994 to August 1998, Mr. Abell was Director of
Corporate Development of American Telecasting, Inc., with responsibility for
merger and acquisition activities.
DAVID H. ROBERTS has served as our Vice President, Business Development
since January 1999. From October 1997 until January 1999, Mr. Roberts served as
Managing Director of The Hunter Group, a Washington, D.C. based consulting firm
advising developmental stage and medium-sized businesses. From October 1993 to
September 1997, Mr. Roberts was Vice President of Adelphi Group, a consulting
firm specializing in corporate development in the telecommunications and
transportation industries.
JENNY J. KIM has been our General Counsel and Vice President, Legal Affairs
since July 1999. From December 1997 until July 1999, Ms. Kim was a corporate
transactional attorney with the Silicon Valley office of McDermott, Will &
Emery. From May 1996 to December 1997, Ms. Kim was associated with the law firm
of Graham & James LLP and from December 1994 to May 1996 Ms. Kim was associated
with the law firm of King, Shapiro, Mittelman & Buchman.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's
directors, its executive officers (and certain other officers) and persons
holding more than 10% of our common stock are required to report their ownership
in the Company's securities and any changes in that ownership to the Securities
and Exchange Commission. Specific due dates for these reports have been
established and the Company is required to report any failure to file by these
dates during fiscal year 1998. To our knowledge, based solely on the Company's
reliance upon the written representations of its directors and officers or
copies of the reports that they have filed with the Commission, all Section
16(a) filing requirements applicable to our officers, directors and 10%
stockholders were satisfied in a timely manner during the fiscal year ended
December 31, 1999, except for the following: Mr. Mathias, Mr. Maurer, Ms. Kim,
Mr. Roberts, Mr. Abell, Mr. Ridley and Mr. Smith were each late in filing their
respective Form 3; Mr. Jesson was late in filing a Form 4 with respect to one
transaction, which was subsequently reported on a Form 5; and Mr. Ragano was
late in filing a Form 4 with respect to two transactions, each of which was
subsequently recorded on a Form 5. In addition, Mr. Mathias, Mr. Maurer, Mr.
Abell, Mr. Jesson and Mr. Ragano each failed to file a required Form 5 with
respect to option grants in 1998 and, instead, reported the transactions on
subsequent Section 16 filings.
<PAGE>
Item 10. Executive Compensation
Summary Compensation Table
The following table presents summary information concerning compensation of
the Chief Executive Officer and each of the other four most highly compensated
executive officers as of December 31, 1999 (together, the "Named Executive
Officers") for the periods indicated for services rendered to the Company and
its subsidiaries.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Restricted Securities
------------------- Stock Underlying
Name and Principal Position Year Salary Bonus Other Awards ($) Options
--------------------------- ---- ------ ----- ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Jeffery A. Mathias............ 1999 $141,176 $75,000(1) $27,000(2) $747,500 --
President and Chief 1998 53,877 65,000(3) -- -- 1,211,400
Executive Officer
James E. Maurer(4)............ 1999 120,599 65,000(1) 5,500(5) 172,500 --
Chief Financial Officer 1998 -- -- -- -- 847,000
David H. Roberts(6)........... 1999 107,692 55,000(1) 4,800(5) 149,100 680,000
Vice President--Business 1998 -- -- -- -- --
Development
Ned Abell..................... 1999 117,175 40,000(1) 4,800(5) 115,000 230,000
Chief Operating Officer-- 1998 32,000 15,000(3) -- -- 418,800
ISP Services
Steven R. Jesson(7)........... 1999 116,692 40,000(1) -- -- 195,000
Executive Vice President-- 1998 -- -- -- -- 130,434
ISP Services
</TABLE>
- --------------------
(1) This amount was paid during 2000 based upon the Named Executive Officer's
performance during 1999.
(2) Includes a housing allowance of $19,200 and an automobile allowance of
$7,800.
(3) $20,000 of this amount was paid in 1998 and the remaining $45,000 of this
amount was paid during 1999 based upon the Named Executive Officer's
performance during 1998.
(4) Mr. Maurer's employment with the Company began as of December 23, 1998.
(5) Consists of an automobile allowance paid during the calendar year 1999.
(6) Mr. Roberts' employment with the Company began as of January 7, 1999.
<PAGE>
(7) Mr. Jesson's employment with the Company began as of January 1, 1999.
Equity Incentive Plan
Our Board of Directors and shareholders have adopted and approved our 1998
Equity Incentive Plan, as amended. Pursuant to the plan, stock options granted
to eligible participants may take the form of incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended, or options which
do not qualify as incentive stock options, known as non-qualified stock options.
As required by Section 422 of the Internal Revenue Code, the aggregate fair
market value of our common stock with respect to our incentive stock options
granted to an employee exercisable for the first time in any calendar year may
not exceed $100,000. This limitation does not apply to non-qualified stock
options. The exercise price of an incentive stock option may not be less than
100% of the fair market value of the shares of common stock on the date of
grant. An option is not transferable, except by will or the laws of descent and
distribution. If the employment of an optionee who has been granted incentive
stock options terminates for any reason, other than for cause, or by reason of
death, disability, or retirement, the optionee may exercise his incentive stock
options within a ninety day period following such termination to the extent he
was entitled to exercise the options at the date of termination. Either our
Board of Directors can administer the plan, provided that a majority of
directors are "disinterested," or the Board of Directors may designate a
committee comprised of directors meeting certain requirements to administer the
plan. The plan administrator will decide when and to whom to make grants, the
number of shares to be covered by the grants, the vesting schedule, the type of
award and the terms and provisions relating to the exercise of the awards. An
aggregate of 8,000,000 shares of common stock is currently reserved for issuance
under the plan.
As of April 10, 2000, we had granted stock options under the plan
exercisable to purchase an aggregate of 6,692,128 shares of common stock at a
weighted average exercise price of $2.42 per share to our directors, officers,
employees and consultants. Of these options, we granted options exercisable to
purchase 1,211,400 shares to Mr. Mathias, 644,800 shares to Mr. Abell, 325,434
shares to Mr. Jesson, 680,000 shares to Mr. Roberts, 847,000 shares to Mr.
Maurer, 200,000 shares to Mr. Ragano, 75,000 shares to Mr. Ridley and 75,000
shares to Mr. Smith. Of the total number of options we had granted as of April
10, 2000, options to purchase an aggregate of 3,121,737 shares of common stock
are currently vested.
Option Grants in 1999
The following table sets forth information concerning the grant of stock
options during 1999 to the Named Executive Officers:
<TABLE>
<CAPTION>
Percentage
Number of of Total
Shares Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(1) Fiscal 1999 (per share) Date
---- ---------- ----------- ----------- ----
<S> <C> <C> <C> <C>
Jeffery A. Mathias..... -- -- -- --
James E. Maurer........ -- -- -- --
Ned Abell.............. 230,000(2) 6.9% $4.99 4/28/2009
Steven R. Jesson....... 195,000(3) 5.8% 2.34 12/29/2004
David H. Roberts....... 560,000(4) 16.7% 2.13 1/07/2009
120,000(5) 3.6% 2.75 12/29/2004
</TABLE>
- --------------------
(1) All of such options were granted pursuant to the Company's 1998 Equity
Incentive Plan, as amended, and, except as otherwise indicated, terminate
ten years after the grant date.
(2) The indicated option vests in accordance with a vesting schedule based on
the Company's annualized gross revenues.
(3) The indicated option vests 25% on March 31, 2000, and 1/48 of the remainder
per month thereafter.
(4) The indicated option vests in accordance with a vesting schedule based on
the Company's achievement of certain performance-based criteria, including
number of subscribers, funding commitments, number of internet service
providers and annualized gross revenues.
(5) The indicated option vests 25% on March 31, 2000, and 1/48 of the remainder
per month thereafter. The indicated option terminates five years after the
grant date.
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
No options were exercised during 1999 by the Named Executive Officers. The
following table sets forth information concerning fiscal year-end option
values:
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Options at In-the-Money Options at
December 31, 1999 December 31, 1999(1)
----------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Jeffery A. Mathias 611,209 600,191 $1,212,134 $1,236,394
James E. Maurer 449,137 397,863 878,266 819,598
Ned Abell 414,800 230,000 807,532 --
Steven R. Jesson 130,434 195,000 221,738 323,700
David H. Roberts 249,068 430,932 465,757 731,443
</TABLE>
- --------------------
(1) Calculated as the difference between the aggregate fair market value of
such options based on the last reported sale price of the Common Stock as
of December 31, 1999 ($4.00 per share) and the aggregate exercise
price.
Compensation of Directors
Each of our non-employee directors is entitled to receive cash compensation
of $1,000 for each meeting of our Board of Directors they attend. Our Chairman
of the Board is entitled to receive an additional $5,000 annually for his
services. In addition to cash compensation, each of our non-employee directors
is entitled to receive an initial grant of non-qualified stock options to
purchase 75,000 shares of our Common Stock, and additional annual grants of non-
qualified stock options to purchase 25,000 shares of common stock. Each of the
options granted to our non-employee directors is fully vested as of its date of
grant and has an exercise price equal to the market value of our common stock on
the date of grant. Our directors are also reimbursed for expenses incurred in
attending meetings of our Board of Directors.
Employment Agreements
We have an employment agreement with Mr. Jeffery A. Mathias effective as of
December 1, 1998, amended as of April 20, 1999 and amended and restated as of
August 23, 1999. Mr. Mathias' employment agreement has an initial term ending on
October 1, 2000 with automatic one year extensions each year after the initial
term unless either we or Mr. Mathias gives two months' notice of termination.
Pursuant to his employment agreement, Mr. Mathias is entitled to receive an
annual salary of not less than $144,000 and a salary increase each year of not
less than 10% of his prior year's salary. Upon the completion of an initial or
secondary public offering of our common stock, the agreement requires us to
grant such stock options to Mr. Mathias, or cancel such stock options belonging
to him, as is required for Mr. Mathias to hold an equity interest equal to 7% of
our issued and outstanding common stock. If the agreement is terminated by us
without cause, by Mr. Mathias for adequate reason or by either party upon or
after a change in control of our company, we are obligated to pay Mr. Mathias a
lump sum amount equal to the aggregate of one-half of his then annual base
salary plus the pro rata portion of any bonus amounts paid by us in the prior
year as bonuses. In addition, in the event of a change in control of our
company, all of Mr. Mathias' stock options shall immediately become fully
vested. The agreement also contains covenants requiring Mr. Mathias to maintain
certain confidentiality requirements during his employment period and for a
period of two
<PAGE>
years thereafter, prohibiting Mr. Mathias from soliciting employees during the
term of the agreement and for a period of one year thereafter, and prohibiting
Mr. Mathias from competing with us during his employment period. The agreement
requires us to indemnify and defend Mr. Mathias in the event that he is involved
in certain litigation. The agreement also provides for customary benefits and
perquisites.
We have an employment agreement with Mr. James E. Maurer effective as of
December 23, 1998 and amended and restated as of August 23, 1999. The employment
agreement has an initial term of two years with automatic one year extensions
each year after the initial terms unless either we or Mr. Maurer gives two
months' notice of termination. Pursuant to his employment agreement, Mr. Maurer
is entitled to receive an annual salary of not less than $120,000 and a salary
increase each year of not less than 10% of his prior year's salary. Upon the
completion of an initial or secondary public offering of our common stock, the
agreement requires us to grant such stock options to Mr. Maurer, or cancel such
stock options belonging to him, as is required for Mr. Maurer to hold an equity
interest equal to 4% of our issued and outstanding common stock. If the
agreement is terminated by us without cause, by Mr. Maurer for adequate reason
or by either party upon or after a change in control of the Company, we are
obligated to pay Mr. Maurer a lump sum amount equal to the aggregate of one-half
of his then annual base salary plus the pro rata portion of any bonus amounts
paid by us in the prior year as bonuses. In addition, in the event of a change
in control of our company or the termination of Mr. Mathias' employment
agreement with us, all of Mr. Maurer's stock options shall immediately vest in
full. The agreement also contains covenants requiring Mr. Maurer to maintain
certain confidentiality requirements during his employment period and for a
period of two years thereafter, prohibiting Mr. Maurer from soliciting employees
during the term of the agreement and for a period of one year thereafter, and
prohibiting Mr. Maurer from competing with us during his employment period. The
agreement requires us to indemnify and defend Mr. Maurer in the event that he is
involved in certain litigation. The agreement also provides for customary
benefits and perquisites.
We have an employment agreement with Mr. Ned Abell effective as of December
1, 1998. The employment agreement has an initial term of two years with
automatic one year extensions each year after the initial term unless either we
or Mr. Abell gives two months' notice of termination. Pursuant to his employment
agreement, Mr. Abell is entitled to receive an annual salary of not less than
$108,000 and a salary increase each year of not less than 10% of his prior
year's salary. If the agreement is terminated without cause by us or with cause
by Mr. Abell, we are obligated to pay Mr. Abell six months of his then-current
base salary and any earned, prorated bonus under the agreement that is fully
accrued at the time of termination. The agreement also contains covenants
requiring Mr. Abell to maintain certain confidentiality requirements during the
term of the agreement, prohibiting Mr. Abell from soliciting employees during
the term of the agreement and for a period of one year thereafter, and
prohibiting Mr. Abell from competing with us during the term of the agreement.
The agreement requires us to indemnify and defend Mr. Abell in the event that he
is involved in certain litigation. The agreement also provides for customary
benefits and perquisites.
<PAGE>
We have an employment agreement with Mr. Steven R. Jesson effective as of
July 9, 1998, as modified in August 1998. As amended, the employment agreement
has an initial term from January 1, 1999, to August 31, 2000. Pursuant to his
employment agreement, Mr. Jesson is entitled to receive an annual salary of
$144,000 during 1999 and $156,000 during 2000. In the event that Mr. Jesson is
terminated without cause, or upon a change in control of our company, certain of
the stock options held by Mr. Jesson will immediately vest in full. The
agreement contains covenants prohibiting Mr. Jesson from competing with us
during the employment term or disclosing confidential information for a period
of five years after any termination of his employment. The agreement also
provides for customary benefits and perquisites. Mr Jesson's employment
agreement was modified in August 1998 such that his base salary is commensurate
with our other vice presidents. Notwithstanding his written agreement, pursuant
to a verbal agreement between us and Mr. Jesson, Mr Jesson's annual salary
during 1999 was $120,000.
We have an employment agreement with Mr. David H. Roberts effective as of
January 7, 1999 and amended and restated as of August 23, 1999. The employment
agreement has an initial term of two years with automatic one year extensions
each year after the initial term unless either we or Mr. Roberts gives two
months' notice of termination. Pursuant to his employment agreement, Mr. Roberts
is entitled to receive an annual salary of not less than $120,000 and a salary
increase each year of not less than 10% of his prior year's salary. Upon the
completion of an initial or secondary public offering of our common stock, the
agreement requires us to award such stock options to Mr. Roberts, or cancel such
stock options belonging to him, as is required for Mr. Roberts to hold an equity
interest equal to 3% of our issued and outstanding common stock. If the
agreement is terminated by us without cause, by Mr. Roberts for adequate reason
or by either party upon or after a change in control of our company, we are
obligated to pay Mr. Roberts a lump sum amount equal to the aggregate of one-
half of his then annual base salary plus the pro rata portion of any bonus
amounts paid by us in the prior year as bonuses. In addition, in the event of a
change in control of our company or the termination of Mr. Mathias' employment
agreement with us, all of Mr. Roberts' stock options shall immediately become
fully vested. The agreement also contains covenants requiring Mr. Roberts to
maintain certain confidentiality requirements during his employment period and
for a period of two years thereafter, prohibiting Mr. Roberts from soliciting
employees during the term of the agreement and for a period of one year
thereafter, and prohibiting Mr. Roberts from competing with us during his
employment period. The agreement requires us to indemnify and defend Mr. Roberts
in the event that he is involved in certain litigation. The agreement also
provides for customary benefits and perquisites.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table lists the number of shares of our common stock
beneficially owned by:
. each person who owned of record, or was known to own beneficially,
more than five percent (5%) of our outstanding shares of common stock;
. each of our directors, our chief executive officer and our four other
most highly compensated executive officers during 1999; and
. all of our current directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percent of
Name and Address of Beneficial Owner (1) (2) Owned Class (3)
<S> <C> <C>
Jeffery A. Mathias 995,601(4) 4.8%
James E. Maurer 703,948(4) 3.4%
Frank P. Ragano 325,128(5) 1.6%
J. Samuel Ridley 75,000(4) *
Robert Smith 75,000(4) *
David H. Roberts 480,079(4) 2.4%
Ned Abell 414,800(4) 2.1%
Steven R. Jesson 207,231(6) 1.0%
Gary L. Brown 1,488,439(7) 7.5%
718 Siesta Key Circle
Sarasota, FL 34242
Network System Technologies, Inc. 1,495,985(8) 7.6%
55 South Market Street
Suite 240
San Jose, CA 95431
Bess Holdings Ltd. 1,830,000(9) 8.5%
c/o Parker Chapin Flattau & Kimpl
1211 Avenue of the Americas
New York, NY 10036
Carlow Investments IV LLC 1,830,000(10) 8.5%
c/o Parker Chapin Flattau & Kimpl
1211 Avenue of the Americas
New York, NY 10036
Leyton Investments, Ltd. 1,830,000(11) 8.5%
c/o Parker Chapin Flattau & Kimpl
1211 Avenue of the Americas
New York, NY 10036
Eugene S. Tuma 1,337,374(12) 6.6%
All directors and executive officers as a group
(9 persons) 3,592,020 15.5%
</TABLE>
- -------------------
* less than one percent
(1) Unless otherwise noted, each stockholder's address is c/o SkyLynx
Communications, Inc., 600 South Cherry Street, Suite 400, Denver, Co 80246.
(2) Unless otherwise noted, each stockholder exercises sole investment and
voting power with respect to the share listed.
(3) The applicable percentage is based on 19,804,498 shares outstanding as of
March 22, 2000.
(4) Consists entirely of shares issuable pursuant to options exercisable within
60 days.
(5) Includes 200,000 shares issuable pursuant to options exercisable within
60 days, 10,000 shares issuable upon exercise of warrants and 5,000
shares issuable upon conversion of our series A convertible preferred
stock held by Mr. Ragano.
(6) Includes 182,231 shares issuable pursuant to options exercisable within
60 days.
(7) Includes 1,013,442 shares held in joint tenancy with Mr. Brown's wife,
204,000 shares held in the name of Mr. Brown's wife, 100,000 shares held by
Mr. Brown's daughter, 28,000 shares held by Mr. Brown's son and 60,000
shares held by Lineshark Communications, Inc., an entity controlled by Mr.
Brown.
(8) Network System Technologies, Inc., a California corporation, is the record
owner of these shares. Voting and investment power with respect to these
shares is exercised by Network System's Board of Directors, which is
comprised solely of Eduardo J. Moura, Tony Coelho and J.R. Gallucci.
Messrs. Moura, Coelho and Gallucci disclaim beneficial ownership with
respect to these shares for purposes of Section 16 under the Securities and
Exchange Act of 1934, as amended.
(9) Consists entirely of shares issuable upon conversion of shares of our
series F convertible preferred stock.
(10) Consists entirely of shares issuable upon conversion of shares of our
series F convertible preferred stock.
(11) Consists entirely of shares issuable upon conversion of shares of our
series F convertible preferred stock.
(12) Includes 7,500 shares issuable upon conversion of shares of our series C
convertible preferred stock held by Eugene Tuma & Associates, Inc., a
corporation controlled by Mr. Tuma, 67,500 shares issuable upon conversion
of shares of our series C convertible preferred stock held by Mr. Tuma and
526,316 shares issuable upon exercise of a warrant we have issued to
Mr. Tuma.
<PAGE>
Item 12. Certain Relationships and Related Transactions
Settlement Agreement with Network System Technologies, Inc.
In January 1999, we entered into a settlement agreement with Network System
Technologies, Inc., and Eduardo Moura, Network System's founder and chief
executive officer, regarding two lawsuits: SkyLynx Communications, Inc., v.
-------------------------------
Network System Technologies, Inc., and Eduardo Moura (United States District
- ----------------------------------------------------
Court, Middle District of Florida, Tampa Division), and Network System
--------------
Technologies Inc. v. SkyLynx Communications, Inc., et al., (Superior Court for
- ----------------------------------------------------------
the State of California in and for Santa Clara County). In the
settlement agreement, all of the parties to the two cases agreed to dismiss
all claims against each other, and to mutually release each other from any
further liability in connection with the subject matter of the suits. In
addition, we agreed to purchase all rights and title to two Internet domain
names from Network System. Network System is a beneficial owner of more than
5% of our common stock.
Agreements with Gary L. Brown
<PAGE>
In July 1999, we entered into an agreement with Gary L. Brown, a beneficial
holder of more than 5% of our common stock in connection with Mr. Brown's
resignation from our Board of Directors. Under this agreement we are obligated
to issue to Mr. Brown a non-qualified stock option under our 1998 Equity
Incentive Plan to purchase 50,000 shares of our common stock at an exercise
price of $2.30 per share. Mr. Brown has agreed to transfer the options to a new
corporation he controls, and has also agreed that the corporation will not sell
more than 10,000 shares per month of the shares issued upon the new
corporation's exercise of the options. In addition, Mr. Brown agreed to be bound
by any lock-up restrictions imposed on other members of our senior management in
connection with any future public offering of our common stock.
On July 29, 1999, we and Gary Brown entered into a settlement agreement
with James F. Gordon with respect to Mr. Gordon's claims against us and Mr.
Brown in James Gordon v. Gary Brown and SkyLynx Communications, Inc. (Circuit
----------------------------------------------------------
Court for the Twelfth Judiciary Circuit in and for Sarasota County, Florida,
Case No. 98-6394-cc). Under this agreement, we have transferred 115,000 shares
of our common stock to Mr. Gordon and Mr. Brown has transferred 20,000 shares of
our common stock held by him to Mr. Gordon.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Title
- ----------- -----
2.1 Agreement and Plan of Reorganization, dated as of August 5, 1997,
by and among SkyLynx Express Holdings, Inc., Network System
Technologies, Inc. and Allied Wireless, Inc. (incorporated by
reference to the same-numbered Exhibit to the Company's
Registration Statement on Form 10-SB, filed with the SEC on July
27, 1998).
2.2 Amendment No. 1, dated as of December 16, 1997, to Agreement and
Plan of Reorganization by and among SkyLynx Express Holdings,
Inc., Network System Technologies, Inc. and Allied Wireless, Inc.
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form 10-SB, filed with the
SEC on July 27, 1998).
2.3 Agreement and Plan of Merger, dated as of December 13, 1999, by
and between SkyLynx Communications, Inc., a Colorado corporation,
and SkyLynx Communications, Inc., a Delaware corporation
(incorporated by reference to Exhibit 1.2 to the Company's
Current Report on Form 8-K dated December 14, 1999 and filed with
the SEC on December 20, 1999).
3.1 [Reserved]
3.2 [Reserved]
3.3 [Reserved]
3.4 [Reserved]
3.5 Amended Bylaws of the Company (filed herewith).
3.6
3.7 [Reserved]
3.8 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 1.3 to the Company's
Current Report on Form 8-K dated December 14, 1999 and filed with
the SEC on December 20, 1999).
4.1 Certificate of Designation of Rights and Preferences of the
Company's Series A Convertible Preferred Stock (included in
Exhibit 3.8).
4.2 Specimen Common Stock Certificate (filed herewith).
4.3 Specimen Series A Convertible Preferred Stock Certificate
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form 10-SB, filed with the
SEC on July 27, 1998).
4.4 Specimen Class A Warrant Certificate (incorporated by reference
to the same-numbered Exhibit to the Company's Registration
Statement on Form 10-SB, filed with the SEC on July 27, 1998).
4.5 Specimen Class B Warrant Certificate (incorporated by reference
to the same-numbered Exhibit to the Company's Registration
Statement on Form 10-SB, filed with the SEC on July 27, 1998).
4.6 Certificate of Designation and Rights and Preferences of the
Company's Series B Convertible Preferred Stock (included in
Exhibit 3.8).
4.7 Certificate of Designation and Rights and Preferences of the
Company's Series C Convertible Preferred Stock (included in
Exhibit 3.8).
4.8 Certificate of Designation and Rights and Preferences of the
Company's Series D Convertible Preferred Stock (included in
Exhibit 3.8).
4.9 Certificate of Designation and Rights and Preferences of the
Company's Series E Convertible Preferred Stock (included in
Exhibit 3.8).
4.10 Form of Warrant issued to the holder of the Company's Series B
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-83705)).
4.11 Form of Warrant issued to the holders of the Company's Series D
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-83705)).
4.12 Form of Warrant issued to the holders of the Company's Series E
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-83705)).
4.13 Form of Warrant issued to certain of the holders of the Company's
Series F Convertible Preferred Stock in connection with the
Company's private placement in November 1999 (filed herewith).
4.14 Form of Warrant, dated as of February 11, 2000, issued by the
Company to Wainwright & Co., Inc. (filed herewith).
4.15 Form of Warrant, dated as of February 7, 2000, issued by the
Company to Continental Capital & Equity Corporation (filed
herewith).
4.16 Form of Warrant, dated as of February 2, 2000, issued by the
Company to Bulk Trade Inc. (filed herewith).
4.17 Form of Warrant, dated as of March 10, 2000, issued by the
Company to Eugene S. Tuma (filed herewith).
4.18 Amended Certificate of Designation and Rights and Preferences of
the Company's Series F Convertible Preferred Stock (filed
herewith).
10.1 SkyLynx Communications, Inc. 1998 Equity Incentive Plan, as
amended (incorporated by reference to the same-numbered Exhibit
to the Company's Registration Statement on Form S-8/A-1, filed
with the SEC on December 6, 1999).*
10.2 Asset Purchase and Sale Agreement, dated as of May 11, 1998,
between the Company and Nadex West, Inc. (incorporated by
reference to the same-numbered Exhibit to Amendment No. 1 to the
Company's Registration Statement on Form 10-SB, filed with the
SEC on September 18, 1998).
10.3 License Agreement, dated as of December 16, 1997, between SkyLynx
Express Holdings, Inc. and Network System Technologies, Inc.
(incorporated by reference to the same-numbered Exhibit to
Amendment No. 3 to the Company's Registration Statement on Form
10-SB, filed with the SEC on October 26, 1998).
10.4 [Reserved]
10.5 [Reserved]
10.6 Asset Purchase Agreement, dated as of February 2, 1999, by and
among the Company, InterAccess Corporation, Allen Cohen and
Mark Dranoff (incorporated by reference to Exhibit 1.1 to the
Company's Current Report on Form 8-K dated February 2, 1999 and
filed with the SEC on February 16, 1999).
10.7 Asset Purchase Agreement, dated as of March 24, 1999, between the
Company, ContiNet, LLC and the members thereof (incorporated by
reference to Exhibit 1.1 to the Company's Current Report on Form
8-K dated March 24, 1999 and filed with the SEC on April 7,
1999).
10.8 [Reserved]
10.9 Asset Purchase Agreement, dated as of April 26, 1999, by and
among the Company, Simply Internet, Inc. and Jay P. and
Sherilynne Lacny (incorporated by reference to Exhibit 1.1 to the
Company's Current Report on Form 8-K dated April 28, 1999 and
filed with the SEC on May 12, 1999).
10.10 Asset Purchase Agreement, dated as of April 23, 1999, by and
among the Company, SkyLynx Communications of California, Inc.,
Net Asset, LLC and the members thereof (incorporated by reference
to Exhibit 1.1 to the Company's Current Report on Form 8-K dated
April 29, 1999 and filed with the SEC on May 14, 1999).
10.11 Asset Purchase Agreement, dated as of May 6, 1999, by and among
the Company, SkyLynx Communications of Pacific Northwest, Inc.,
SeaTac.Net, Inc. and the stockholders thereof (incorporated by
reference to Exhibit 1.1 to the Company's Current Report on Form
8-K dated May 7, 1999 and filed with the SEC on May 21, 1999).
10.12 Purchase Agreement, dated as of January 18, 1999, by and between
the Company and the holder of the Company's Series B Convertible
Preferred Stock (incorporated by reference to the same-numbered
Exhibit to the Company's Registration Statement on Form SB-2
(Registration No. 333-83705)).
10.13 Registration Rights Agreement, dated as of January 18, 1999, by
and between the Company and the holder of the Company's Series B
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement
on Form SB-2 (Registration No. 333-83705)).
10.14 Form of Purchase Agreement by and between the Company and the
holders of the Company's Series D Convertible Preferred Stock
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form SB-2 (Registration No.
333-83705)).
10.15 Form of Registration Rights Agreement by and between the Company
and the holders of the Company's Series D Convertible Preferred
Stock (incorporated by reference to the same-numbered Exhibit to
the Company's Registration Statement on Form SB-2 (Registration
No. 333-83705)).
10.16 Purchase Agreement, dated as of May 6, 1999, by and between the
Company and the holders of the Company's Series E Convertible
Preferred Stock (incorporated to reference to the same-numbered
Exhibit by the Company's Registration Statement on Form SB-2
(Registration No. 333-83705)).
10.17 Form of Registration Rights Agreement by and between the Company
and the holders of the Company's Series E Convertible Preferred
Stock (incorporated to reference to the same-numbered Exhibit to
the Company's Registration Statement on Form SB-2 (Registration
No. 333-83705)).
10.18 [Reserved]
10.19 Stock Purchase Agreement, dated as of July 27, 1999, by and among
the Company, SkyLynx Communications of California, Inc., CalWeb
Internet Services, Inc., Robert DuGaue and Gloria DuGaue
(incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K, dated July 27, 1999 and filed with the SEC on
July 28, 1999).
10.20 Asset Purchase Agreement, dated as of July 29, 1999, by and among
the Company, Skylynx Communications MST Inc., Inficad Computing
and Design, L.L.C. and the members of Inficad (incorporated by
reference to Exhibit 1.1 to the Company's Current Report on Form
8-K, dated July 29, 1999 and filed with the SEC on August 10,
1999).
10.21 Form of Convertible Loan and Warrant Agreement, by and among the
Company and certain investors (filed herewith).
10.22 Agreement and Plan of Merger, dated as of December 10, 1999, by
and among the Company, Alternate Access, Inc., Skylynx
Communications of Pacific Northwest, Inc., Joseph Portman III and
Sammie L. Portman (incorporated by reference to Exhibit 1.1 to
the Company's Current Report on Form 8-K, dated February 11, 2000
and filed with the SEC on March 2, 2000).
10.23 Amendment, dated as of February 11, 2000, to Agreement
and Plan of Merger by and among the Company, Alternate Access,
Inc., Skylynx Communications of Pacific Northwest, Inc., Joseph
Portman III and Sammie L. Portman (incorporated by reference to
Exhibit 1.2 to the Company's Current Report on Form 8-K, dated
February 11, 2000 and filed with the SEC on March 2, 2000).
10.24 Form of Series F Preferred Stock Purchase Agreement, dated as of
February 2, 2000, by and between the Company and the holders of
the Company's Series F Convertible Preferred Stock (filed
herewith).
10.25 Form of Registration Rights Agreement, dated as of February 2,
2000, by and between the Company and the holders of the Company's
Series F Convertible Preferred Stock (filed herewith).
10.26 Amendment No.2 to Financial Services Agreement, dated as of
December 22, 1999, between the Company and H.C. Wainwright & Co.,
Inc. (filed herewith).
10.27 Amended and Restated Employment Agreement, dated as of August 23,
1999, between the Company and Jeffery A. Mathias (incorporated
by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-8 (Registration No. 333-30152)).*
10.28 Amended and Restated Employment Agreement, dated as of August 23,
1999, between the Company and James E. Maurer (incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement
on Form S-8 (Registration No. 333-30152)).*
10.29 Amended and Restated Employment Agreement, dated as of August 23,
1999, between the Company and David H. Roberts (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement
on Form S-8 (Registration No. 333-30152)).*
10.30 Employment Agreement, dated as of December 1, 1998, between the
Company and Ned Abell (incorporated by reference to Exhibit 10.4
to the Company's Registration Statement on Form S-8 (Registration
No. 333-30152)).*
10.31 Employment Agreement, effective as of July 15, 1999, between the
Company and Jenny J. Kim (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-8
(Registration No. 333-30152)).*
10.32 Employment Agreement, dated as of July 9, 1998, between the
Company and Steven R. Jesson (filed herewith).*
10.33 Modification Agreement, dated as of August 26, 1998, between
the Company and Steven R. Jesson (filed herewith).*
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule (filed herewith).
- ---------------
* Management contract or compensatory plan or arrangement.
Reports on Form 8-K
The Company filed the following reports on Form 8-K during the
quarter ended December 31, 1999:
1. Amended Form 8-K, filed October 12, 1999, reporting under Item 7
the financial statements of Inficad, Computing and Design, LLC, an acquired
entity.
2. Form 8-K, filed December 20, 1999, reporting under Item 5 the
Company's redomestication in Delaware.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SKYLYNX COMMUNICATIONS, INC.
By: /s/ Jeffery A. Mathias
----------------------
Jeffery A. Mathias
President
Date: April 14, 2000
The undersigned directors and officers of SkyLynx Communications, Inc.
hereby appoint Jeffery A. Mathias and James Maurer, or either of them
individually, as attorney-in-fact for the undersigned, with full power of
substitution for, and in the name, place and stead of the undersigned, to sign
and file with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, any and all amendments to this Report on Form
10-KSB, and Exhibits to this Report on Form 10-KSB, with full power and
authority to do and perform any and all acts and things whatsoever requisite and
necessary or desirable, hereby ratifying and confirming all that said attorneys-
in-fact, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------------------- --------------
<S> <C> <C>
/s/ Jeffery A. Mathias President, Chief Executive April 13, 2000
- ------------------------- Officer and Director
Jeffery A. Mathias
/s/ James Maurer Chief Financial Officer, April 13, 2000
- ------------------------- Chief Accounting Officer and Director
James Maurer
/s/ J. Samuel Ridley Director and Vice Chairman of April 13, 2000
- ------------------------- the Board
J. Samuel Ridley
/s/ Francis P. Ragano Chairman of the Board April 13, 2000
- -------------------------
Francis P. Ragano
/s/ Robert J. Smith Director April 13, 2000
- -------------------------
Robert J. Smith
</TABLE>
<PAGE>
Exhibit Index
Exhibit No. Title
- ----------- -----
2.1 Agreement and Plan of Reorganization, dated as of August 5, 1997,
by and among SkyLynx Express Holdings, Inc., Network System
Technologies, Inc. and Allied Wireless, Inc. (incorporated by
reference to the same-numbered Exhibit to the Company's
Registration Statement on Form 10-SB, filed with the SEC on July
27, 1998).
2.2 Amendment No. 1, dated as of December 16, 1997, to Agreement and
Plan of Reorganization by and among SkyLynx Express Holdings,
Inc., Network System Technologies, Inc. and Allied Wireless, Inc.
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form 10-SB, filed with the
SEC on July 27, 1998).
2.3 Agreement and Plan of Merger, dated as of December 13, 1999, by
and between SkyLynx Communications, Inc., a Colorado corporation,
and SkyLynx Communications, Inc., a Delaware corporation
(incorporated by reference to Exhibit 1.2 to the Company's
Current Report on Form 8-K dated December 14, 1999 and filed with
the SEC on December 20, 1999).
3.1 [Reserved]
3.2 [Reserved]
3.3 [Reserved]
3.4 [Reserved]
3.5 Amended Bylaws of the Company (filed herewith).
3.6
3.7 [Reserved]
3.8 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 1.3 to the Company's
Current Report on Form 8-K dated December 14, 1999 and filed with
the SEC on December 20, 1999).
4.1 Certificate of Designation of Rights and Preferences of the
Company's Series A Convertible Preferred Stock (included in
Exhibit 3.8).
4.2 Specimen Common Stock Certificate (filed herewith).
4.3 Specimen Series A Convertible Preferred Stock Certificate
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form 10-SB, filed with the
SEC on July 27, 1998).
4.4 Specimen Class A Warrant Certificate (incorporated by reference
to the same-numbered Exhibit to the Company's Registration
Statement on Form 10-SB, filed with the SEC on July 27, 1998).
4.5 Specimen Class B Warrant Certificate (incorporated by reference
to the same-numbered Exhibit to the Company's Registration
Statement on Form 10-SB, filed with the SEC on July 27, 1998).
4.6 Certificate of Designation and Rights and Preferences of the
Company's Series B Convertible Preferred Stock (included in
Exhibit 3.8).
4.7 Certificate of Designation and Rights and Preferences of the
Company's Series C Convertible Preferred Stock (included in
Exhibit 3.8).
4.8 Certificate of Designation and Rights and Preferences of the
Company's Series D Convertible Preferred Stock (included in
Exhibit 3.8).
4.9 Certificate of Designation and Rights and Preferences of the
Company's Series E Convertible Preferred Stock (included in
Exhibit 3.8).
4.10 Form of Warrant issued to the holder of the Company's Series B
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-83705)).
4.11 Form of Warrant issued to the holders of the Company's Series D
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-83705)).
4.12 Form of Warrant issued to the holders of the Company's Series E
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-83705)).
4.13 Form of Warrant issued to certain of the holders of the Company's
Series F Convertible Preferred Stock in connection with the
Company's private placement in November 1999. (filed
herewith)
4.14 Form of Warrant, dated as of February 11, 2000, issued by the
Company to Wainright & Co., Inc. (filed herewith).
4.15 Form of Warrant, dated as of February 7, 2000, issued by the
Company to Continental Capital & Equity Corporation (filed
herewith).
4.16 Form of Warrant, dated as of February 2, 2000, issued by the
Company to Bulk Trade Inc. (filed herewith).
4.17 Form of Warrant, dated as of March 10, 2000, issued by the
Company to Eugene S. Tuma (filed herewith).
4.18 Amended Certificate of Designation and Rights and Preferences of
the Company's Series F Convertible Preferred Stock (filed
herewith).
10.1 SkyLynx Communications, Inc. 1998 Equity Incentive Plan, as
amended (incorporated by reference to the same-numbered Exhibit
to the Company's Registration Statement on Form S-8/A-1, filed
with the SEC on December 9, 1999).*
10.2 Asset Purchase and Sale Agreement, dated as of May 11, 1998,
between the Company and Nadex West, Inc. (incorporated by
reference to the same-numbered Exhibit to Amendment No. 1 to the
Company's Registration Statement on Form 10-SB, filed with the
SEC on September 18, 1998).
10.3 License Agreement, dated as of December 16, 1997, between SkyLynx
Express Holdings, Inc. and Network System Technologies, Inc.
(incorporated by reference to the same-numbered Exhibit to
Amendment No. 3 to the Company's Registration Statement on Form
10-SB, filed with the SEC on October 26, 1998).
10.4 [Reserved]
10.5 [Reserved]
10.6 Asset Purchase Agreement, dated as of February 2, 1999, by and
among the Company, InterAccess Corporation, Allen Cohen and
Mark Dranoff (incorporated by reference to Exhibit 1.1 to the
Company's Current Report on Form 8-K dated February 2, 1999 and
filed with the SEC on February 16, 1999).
10.7 Asset Purchase Agreement, dated as of March 24, 1999, between the
Company, ContiNet, LLC and the members thereof (incorporated by
reference to Exhibit 1.1 to the Company's Current Report on Form
8-K dated March 24, 1999 and filed with the SEC on April 7,
1999).
10.8 [Reserved]
10.9 Asset Purchase Agreement, dated as of April 26, 1999, by and
among the Company, Simply Internet, Inc. and Jay P. and
Sherilynne Lacny (incorporated by reference to Exhibit 1.1 to the
Company's Current Report on Form 8-K dated April 28, 1999 and
filed with the SEC on May 12, 1999).
10.10 Asset Purchase Agreement, dated as of April 23, 1999, by and
among the Company, SkyLynx Communications of California, Inc.,
Net Asset, LLC and the members thereof (incorporated by reference
to Exhibit 1.1 to the Company's Current Report on Form 8-K dated
April 29, 1999 and filed with the SEC on May 14, 1999).
10.11 Asset Purchase Agreement, dated as of May 6, 1999, by and among
the Company, SkyLynx Communications of Pacific Northwest, Inc.,
SeaTac.Net, Inc. and the stockholders thereof (incorporated by
reference to Exhibit 1.1 to the Company's Current Report on Form
8-K dated May 7, 1999 and filed with the SEC on May 21, 1999).
10.12 Purchase Agreement, dated as of January 18, 1999, by and between
the Company and the holder of the Company's Series B Convertible
Preferred Stock (incorporated by reference to the same-numbered
Exhibit to the Company's Registration Statement on Form SB-2
(Registration No. 333-83705)).
10.13 Registration Rights Agreement, dated as of January 18, 1999, by
and between the Company and the holder of the Company's Series B
Convertible Preferred Stock (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement
on Form SB-2 (Registration No. 333-83705)).
10.14 Form of Purchase Agreement by and between the Company and the
holders of the Company's Series D Convertible Preferred Stock
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form SB-2 (Registration No.
333-83705)).
10.15 Form of Registration Rights Agreement by and between the Company
and the holders of the Company's Series D Convertible Preferred
Stock (incorporated by reference to the same-numbered Exhibit to
the Company's Registration Statement on Form SB-2 (Registration
No. 333-83705)).
10.16 Purchase Agreement, dated as of May 6, 1999, by and between the
Company and the holders of the Company's Series E Convertible
Preferred Stock (incorporated to reference to the same-numbered
Exhibit by the Company's Registration Statement on Form SB-2
(Registration No. 333-83705)).
10.17 Form of Registration Rights Agreement by and between the Company
and the holders of the Company's Series E Convertible Preferred
Stock (incorporated to reference to the same-numbered Exhibit to
the Company's Registration Statement on Form SB-2 (Registration
No. 333-83705)).
10.18 [Reserved]
10.19 Stock Purchase Agreement, dated as of July 27, 1999, by and among
the Company, SkyLynx Communications of California, Inc., CalWeb
Internet Services, Inc., Robert DuGaue and Gloria DuGaue
(incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K, dated July 27, 1999 and filed with the SEC on
July 28, 1999).
10.20 Asset Purchase Agreement, dated as of July 29, 1999, by and among
the Company, Skylynx Communications MST Inc., Inficad Computing
and Design, L.L.C. and the members of Inficad (incorporated by
reference to Exhibit 1.1 to the Company's Current Report on Form
8-K, dated July 29, 1999 and filed with the SEC on August 10,
1999).
10.21 Form of Convertible Loan and Warrant Agreement, by and among the
Company and certain investors (filed herewith).
10.22 Agreement and Plan of Merger, dated as of December 10, 1999, by
and among the Company, Alternate Access, Inc., Skylynx
Communications of Pacific Northwest, Inc., Joseph Portman III and
Sammie L. Portman (incorporated by reference to Exhibit 1.1 to
the Company's Current Report on Form 8-K, dated February 11, 2000
and filed with the SEC on March 2, 2000).
10.23 Amendment, dated as of February 11, 2000, to Agreement
and Plan of Merger by and among the Company, Alternate Access,
Inc., Skylynx Communications of Pacific Northwest, Inc., Joseph
Portman III and Sammie L. Portman (incorporated by reference to
Exhibit 1.2 to the Company's Current Report on Form 8-K, dated
February 11, 2000 and filed with the SEC on March 2, 2000).
10.24 Form of Series F Preferred Stock Purchase Agreement, dated as of
February 2, 2000, by and between the Company and the holders of
the Company's Series F Convertible Preferred Stock (filed
herewith).
10.25 Form of Registration Rights Agreement, dated as of February 2,
2000, by and between the Company and the holders of the Company's
Series F Convertible Preferred Stock (filed herewith).
10.26 Amendment No. 2 to Financial Services Agreement, dated as of
December 22, 1999, between the Company and H.C. Wainwright & Co.,
Inc. (filed herewith).
10.27 Amended and Restated Employment Agreement, dated as of August 23,
1999, between the Company and Jeffery A. Mathias (incorporated
by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-8 (Registration No. 333-30152)).*
10.28 Amended and Restated Employment Agreement, dated as of August 23,
1999, between the Company and James E. Maurer (incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement
on Form S-8 (Registration No. 333-30152)).*
10.29 Amended and Restated Employment Agreement, dated as of August 23,
1999, between the Company and David H. Roberts (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement
on Form S-8 (Registration No. 333-30152)).*
10.30 Employment Agreement, dated as of December 1, 1998, between the
Company and Ned Abell (incorporated by reference to Exhibit 10.4
to the Company's Registration Statement on Form S-8 (Registration
No. 333-30152)).*
10.31 Employment Agreement, effective as of July 15, 1999, between the
Company and Jenny J. Kim (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-8
(Registration No. 333-30152)).*
10.32 Employment Agreement, dated as of July 9, 1998 between the
Company and Steven R. Jesson (filed herewith).
10.33 Modification Agreement, dated as of August 26, 1998, between the
Company and Steven R. Jesson (filed herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule (filed herewith).
- ---------------
* Management contract or compensatory plan or arrangement.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
SkyLynx Communications, Inc.:
We have audited the accompanying consolidated balance sheets of SkyLynx
Communications, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SkyLynx Communications, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has incurred significant losses
since inception. The factors discussed in Note 2 to the consolidated financial
statements raise a substantial doubt about the ability of the Company to
continue as a going concern. Management's plans in regards to those matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
April 11, 2000
F-1
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1999 and 1998
---------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,947,982 $ 512,925
Accounts receivable, net 710,878
Prepaid expenses and other current assets 734,569 20,135
------------ -----------
Total current assets 3,393,429 533,060
PROPERTY AND EQUIPMENT, net 3,566,045 1,632,370
Goodwill and INTANGIBLE ASSETS, net of accumulated amortization for
1999 and 1998 respectively of $2,160,990 and $6,938 9,572,707 89,195
OTHER ASSETS -- 152,978
------------ -----------
Total assets $ 16,532,181 $ 2,407,603
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable, current and accrued liabilities $ 2,359,897 $ 360,176
Notes payable and convertible debt, current 1,529,529 363,138
Deferred revenue 998,230 --
Obligations under capital leases, current 584,186 --
Dividends payable on preferred stock 720,082 39,759
Deposits on unissued shares of common stock and preferred stock -- 411,160
------------ -----------
Total current liabilities 6,191,924 1,174,233
------------ -----------
Obligations under capital leases 290,776 --
Notes Payable 6,751 --
------------ -----------
Total liabilities 6,489,451 1,174,233
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 150,000,000 shares authorized,
15,194,255 shares issued and outstanding at 1999 and 9,531,186
issued and outstanding at 1998 15,194 9,531
Additional paid-in capital 48,725,112 4,171,356
Preferred stock, Series A, $.01 par value; 5,000,000 shares authorized,
379,941 shares issued and outstanding at 1999 and 988,750 shares
issued and outstanding at 1998 1,058,378 2,606,069
Preferred stock, Series C, $.01 par value; 2,000,000 shares authorized,
696,419 shares issued and outstanding at 1999 and no shares issued
and outstanding at 1998 1,814,019 -
Preferred stock, Series D, $.01 par value; 12,000 shares authorized,
5,590 shares issued and outstanding at 1999 and no shares issued
and outstanding at 1998 4,420,737 -
Retained Deficit (45,990,710) (5,553,586)
------------ -----------
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C> <C>
Total stockholders' equity 10,042,730 1,233,370
------------ -----------
Total liabilities and stockholders' equity $16,532,181 $ 2,407,603
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
----------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES $ 4,726,589 $ 7,898
COST OF SERVICES 2,021,293 0
DEPRECIATION & AMORTIZATION 2,998,146 266,206
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 26,236,781 5,034,628
---------- -----------
OPERATING LOSS (26,529,631) (5,292,936)
NET INTEREST INCOME (EXPENSE) (446,013) 18,104
---------- -----------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (26,975,644) (5,274,832)
PROVISION FOR INCOME TAXES - -
---------- -----------
NET LOSS (26,975,644) (5,274,832)
PREFERRED STOCK DIVIDENDS (1,297,203) (39,759)
ACCRETION OF BENEFICIAL CONVERSION FEATURE
OF PREFERRED STOCK (12,164,277) (73,209)
---------- -----------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $(40,437,124) $(5,387,800)
========== ===========
NET LOSS PER SHARE-BASIC $ (3.44) $ (0.60)
NET LOSS PER SHARE-DILUTED $ (3.44) $ (0.60)
SHARES USED IN COMPUTING NET LOSS PER SHARE-BASIC 11,763,251 8,946,874
SHARES USED IN COMPUTING NET LOSS PER SHARE-DILUTED 11,763,251 8,946,874
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
-------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 - $ - -- -- -- --
Net loss
Proceeds from issuance of preferred stock,
Series A with 1,977,500 warrants on various
dates, net of offering costs of $214,593 988,750 2,533,040 -- -- -- --
Common stock issued for acquired assets on
August 20, 1998 - - -- -- -- --
Common stock issued for services on June 12,
1998, at fair value - - -- -- -- --
Common stock issued for services on
September 23, 1998, at fair value - - -- -- -- --
Preferred stock dividend - -- -- -- --
Accretion of beneficial conversion feature
of preferred stock - 73,029 -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
BALANCE, December 31, 1998 988,750 2,645,828 -- -- -- --
------------ ------------ ------------ ----------- ------------ -----------
Net loss - - -- -- -- --
Proceeds from issuance of preferred stock,
Series A with 141,682 warrants,
net of offering costs of $185,365 70,841 81,110 -- -- -- --
<CAPTION>
Preferred Stock, Series D Preferred Stock, Series E Common Stock
------------------------- ------------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------------ ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 -- -- -- -- 8,772,189 $ 8,772
Net loss
Proceeds from issuance of preferred
stock, Series A with 1,977,500 warrants on
various dates, net of offering costs of
$214,593 -- -- -- -- -- --
Common stock issued for acquired assets on
August 20, 1998 -- -- -- -- -- --
Common stock issued for services on June 12,
1998, at fair value -- -- -- -- -- --
Common stock issued for services on
September 23, 1998, at fair value -- -- -- -- -- --
Preferred stock dividend -- -- -- -- -- --
Accretion of beneficial conversion feature
of preferred stock -- -- -- -- -- --
------------ ---------- ------------ ---------- ---------- ----------
BALANCE, December 31, 1998 -- -- -- -- 9,531,186 9,531
------------ ---------- ------------ ---------- ---------- ----------
Net loss -- -- -- -- -- --
Proceeds from issuance of preferred stock,
Series A with 141,682 warrants,
net of offering costs of $185,365 -- -- -- -- -- --
<CAPTION>
Additional
Paid-in Retained
Capital Deficit Total
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1997 981,918 $ (278,754) $ 711,936
Net loss ---- (5,274,832) (5,274,832)
Proceeds from issuance of preferred stock,
Series A with 1,977,500 warrants on various
dates, net of offering costs of $214,593 -- -- --
Common stock issued for acquired assets on
August 20, 1998 -- -- --
Common stock issued for services on June 12,
1998, at fair value -- -- --
Common stock issued for services on
September 23, 1998, at fair value -- -- --
Preferred stock dividend (39,759) - -
Accretion of beneficial conversion feature
of preferred stock -- -- --
----------- ----------- -----------
BALANCE, December 31, 1998 4,171,356 (5,553,586) 1,273,129
----------- ----------- -----------
Net loss -- (26,975,644) (26,975,644)
Proceeds from issuance of preferred stock,
Series A with 141,682 warrants,
net of offering costs of $185,365 -- 16,869
</TABLE>
F-5
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999,
------------------------------------------------
AND THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
(continued)
<TABLE>
<CAPTION>
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
-------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from issuance of preferred stock,
Series B with 120,000 warrants and 15,000
shares of common stock on January 19,
1999, net of offering costs of $159,015 -- -- 600 141,563 -- --
Proceeds from issuance of preferred stock, -- -- -- -- 721,419 423,716
Series C on various dates, net of
offering costs of $379,344
Proceeds from issuance of preferred stock, -- -- -- -- -- --
Series D with 305,880 warrants, net of
offering costs of $777,198
Proceeds from issuance of preferred stock, -- -- -- -- -- --
Series E with 91,764 warrants, net of
offering costs of $218,430
Exercise of options and warrants -- -- -- -- -- --
Warrants issued in connection with promissory
notes -- -- -- -- -- --
Proceeds from issuance of common stock and
warrants -- -- -- -- -- --
Stock based compensation -- -- -- -- -- --
Proceeds from issuance of common stock,
with 526,316 warrants. -- -- -- -- -- --
Common stock issued for acquired assets -- -- -- -- -- --
Common stock issued for services -- -- -- -- -- --
Common stock issued for litigation settlement -- -- -- -- -- --
Conversion of Preferred Stock (679,650) (1,898,260) (600) (291,050) (25,000) (89,076)
Preferred stock dividends -- -- -- -- -- --
Accretion of beneficial conversion feature
of preferred stock -- 264,459 -- 149,487 -- 1,479,379
------------ ------------ ------------ ----------- ------------ -----------
BALANCE, December 31, 1999 379,941 1,058,378 - $ - 696,419 $ 1,814,019
============ ============ ============ =========== ============ ===========
<CAPTION>
Preferred Stock, Series D Preferred Stock, Series E Common Stock
--------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from issuance of preferred stock,
Series B with 120,000 warrants and 15,000
shares of common stock on January 19,
1999, net of offering costs of $159,015 -- -- -- -- 15,000 15
Proceeds from issuance of preferred stock,
Series C on various dates, net of
offering costs of $379,344 -- -- -- -- -- --
Proceeds from issuance of preferred stock, 10,000 -- -- -- -- --
Series D with 305,880 warrants, net of
offering costs of $777,198
Proceeds from issuance of preferred stock, -- -- 3,000 -- -- --
Series E with 91,764 warrants, net of
offering costs of $218,430
Exercise of options and warrants -- -- -- -- 351,820 352
Warrants issued in connection with promissory
notes -- -- -- -- -- --
Proceeds from issuance of common stock and
warrants. -- -- -- -- 263,158 263
Stock based compensation -- -- -- -- -- --
Proceeds from issuance of common stock,
with 526,316 warrants -- -- -- -- -- --
Common stock issued for acquired assets -- -- -- -- 479,405 479
Common stock issued for services -- -- -- -- 850,274 850
Common stock issued for litigation settlement -- -- -- -- 115,000 115
Conversion of Preferred Stock (4,410) (3,487,557) -- -- 3,497,514 3,498
Preferred stock dividends -- -- -- -- 90,898 91
Accretion of beneficial conversion feature
of preferred stock -- 7,908,294 -- 2,364,335 -- --
------------ ----------- --------- ---------- ---------- ----------
BALANCE, December 31, 1999 5,590 $ 4,420,737 -- -- 15,194,255 15,194
============ =========== ========= ========== ========== ==========
<CAPTION>
Additional
paid-in Retained
Capital Deficit
------- -------
<S> <C> <C>
Proceeds from issuance of preferred stock,
Series B with 120,000 warrants and 15,000
shares of common stock on January 19,
1999, net of offering costs of $159,015 407,497 --
Proceeds from issuance of preferred stock,
Series C on various dates, net of
offering costs of $379,344 2,082,616 --
Proceeds from issuance of preferred stock,
Series D with 305,880 warrants, net of
offering costs of $777,198 9,222,802 --
Proceeds from issuance of preferred stock,
Series E with 91,764 warrants, net of
offering costs of $218,430 2,781,570 --
Proceeds from issuance of common stock,
with 526,316 warrants 499,737 --
Exercise of options and warrants 732,510 --
Warrants issued in connection with promissory
notes 892,025 --
Proceeds from issuance of common stock and
warrants 499,737 --
Stock based compensation 13,077,278 --
Common stock issued for acquired assets 3,274,406 --
Common stock issued for services 2,216,971 --
Common stock issued for litigation settlement 732,510 --
Conversion of Preferred Stock 8,185,787 --
Preferred stock dividends 320,616 (1,297,203)
Accretion of beneficial conversion featured-in
of preferred stock (12,165,954)
------------ ------------
BALANCE, December 31, 1999 $ 48,725,112 $(45,990,710)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (26,975,644) $(5,274,832)
Adjustments to reconcile net loss to net cash used in
operating activities-
Common stock issued for intellectual property
contributed by stockholders - -
Common stock issued for services - 1,771,618
Depreciation and amortization 2,998,146 266,206
Changes in operating assets and liabilities-
Prepaid expenses and other current assets (20,135)
Other assets (714,434) 91,772
Accounts payable 152,978 301,370
Accounts payable, related party 1,999,721 (391,299)
Accrued liabilities - 360,012
Other current liabilities 998,230 (1,375)
Stock based compensation (13,077,278)
Write off of fixed assets 155,745
Dividends 680,323
---------------- ------------------
Net cash used in operating activities (34,047,078) (2,896,633)
---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets 2,721,135 (1,270,089)
Purchase of subsidiary 11,849,943
---------------- ------------------
Net cash used in investing activities 14,571,078 (1,270,089)
---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Recapitalization - -
Proceeds from the issuance of preferred stock, net of offering costs 8,530,668 3,740,407
Advances on unissued shares (411,160) 411,160
Principal debt payments (380,846) (100,000)
Accretion of beneficial conversion feature 12,165,954
Addition to notes payable 1,982,937
Dividends (976,496)
---------------- ------------------
Net cash provided by financing activities 20,911,057 4,051,567
---------------- ------------------
NET INCREASE IN CASH 1,435,057 (115,185)
CASH, beginning of period 512,925 628,110
---------------- ------------------
CASH, end of period 1,947,982 $ 512,925
================ ==================
</TABLE>
F-7
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
(continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest 4,043
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Debt assumed in exchanged for license rights -
Debt assumed in acquiring equipment -
Issuance of common stock for property and equipment 117,750
Common stock issued for acquired assets 206,250
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
SKYLYNX COMMUNICATIONS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------------
Description of Business
- -----------------------
SkyLynx Communications, Inc. ("the Company") provides dial-up and high-speed
Internet connectivity and other advanced Internet services to both business and
residential customers. The Company's primary service and product offerings
include dial-up and high-speed Internet access, web site development and hosting
services and Internet and network security consulting services and security
related products. To date, the Company's primary geographical area of focus has
been the western United States. The majority of the Company's customers are
located in the states of California, Oregon, Washington, Nevada and Arizona.
Organization
- ------------
The Company is the surviving company of a reverse acquisition between Allied
Wireless, Inc. (AWI) and SkyLynx Express Holdings, Inc. (SEHI) effective
December 31, 1997.
AWI was incorporated in Colorado on September 23, 1996. SEHI was incorporated
in Delaware on July 29, 1997. On December 16, 1997, AWI acquired all of the
outstanding common stock of SEHI. For accounting purposes, the reverse
acquisition has been treated as a recapitalization of SEHI with AWI the legal
surviving entity. The accompanying consolidated financial statements have been
prepared as if the recapitalization took place on December 31, 1997. Subsequent
to the merger, AWI changed its name to SkyLynx Communications, Inc.
On December 14, 1999, SkyLynx Communications, Inc., a Colorado corporation,
culminated a tax-free reorganization pursuant to which it completed a
redomestication as a corporation formed and organized under the laws of the
state of Delaware by way of a merger by and between SkyLynx Communications,
Inc., a Colorado corporation and the Company, after which the Company emerged as
the surviving entity.
1 for 13 Reverse Stock Split
- ----------------------------
On January 23, 1998, the stockholders of the Company approved a 1 for 13 reverse
stock split. The accompanying consolidated financial statements have been
retroactively restated to give effect to the reverse stock split.
Prior to June 30, 1999, the condensed consolidated financial statements were
presented in the accordance with Statement of Financial Accounting Standards No.
7, "Accounting and Reporting by Development Stage Enterprises."
F-9
<PAGE>
Principles of Consolidation
- ---------------------------
The Company's consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of financial instruments on the accompanying consolidated
balance sheets approximates their fair value.
Reclassifications
- -----------------
Certain prior balances have been reclassified to conform to the current year
presentation.
Property and Equipment
- ----------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Property and equipment under capital lease are
depreciated using the straight-line method over the lesser of the estimated
useful lives of the assets or the term of the related lease.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the consolidated statements of operations.
Goodwill and Intangible Assets
- ------------------------------
Goodwill and Intangible assets are stated net of accumulated amortization.
Amortization is provided using the straight-line method over three years. The
Company evaluates on a regular basis whether events and circumstances have
occurred that indicate that the carrying amount of goodwill and intangible
assets may warrant revision. Amortization of goodwill and intangibles for the
years ended December 31, 1999 and 1998 was 2,160,990 and 6,938.
F-10
<PAGE>
Management believes that there has been no impairment of the goodwill and
intangible assets as reflected in the Company's consolidated financial
statements as of December 31, 1999.
Revenue Recognition and Deferred Revenue
- ----------------------------------------
Revenue, composed primarily of billings on internet services, is recognized as
the services are provided.
Amounts collected are reflected as deferred revenue until the service is
rendered.
Income Taxes
- ------------
Provision for income taxes includes federal and state income taxes payable for
the current period and the change during the period in deferred tax assets and
liabilities.
Research and Development
- ------------------------
Research and development costs are expensed as incurred.
Loss Per Share
- --------------
Net loss per share-basic excludes dilution and is determined by dividing loss
available to common stockholders by the weighted average number of common shares
outstanding during the period. Net loss per share-diluted reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock.
As of December 31, 1999, there were 6,473,870 stock options, preferred stock
convertible into 2,939,693 shares of common stock, and 2,122,526 common stock
purchase warrants outstanding which were not included in the calculation net
loss per share - diluted because they were antidilutive. As of December 31,
1998, there were 3,579,736 stock options, preferred stock convertible into
988,750 shares of common stock, and 1,977,500 stock purchase warrants
outstanding which were not included in the calculation net loss per share -
diluted because they were antidilutive.
F-11
<PAGE>
2. LIQUIDITY:
----------
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company has incurred losses of
$26,762,816 and $5,274,832 for the years ended December 31, 1999 and 1998,
respectively. This factor among others raises substantial doubt about the
Company's ability to continue as a going concern for a reasonable period of
time.
At April 10, 2000, the Company had cash on hand of approximately $8 million.
The Company believes that its current cash on hand plus the cash flow generated
by it Internet service providers will be sufficient to fund existing operations
through the remainder of the fiscal year. However, if the Company chooses to
pursue additional acquisitions or to expand the range of Internet related
services it offers, it will likely be required to issue additional equity or
debt. There can be no assurance that such equity or debt financing will be
available to the Company, or that it will be available on terms acceptable to
the Company. Further, any additional equity financing may be dilutive to
existing shareholders, and any debt financing may involve pledging all or some
of the Company's existing assets and may contain restrictive covenants with
respect to raising future capital and other financial and operational matters.
3. PURCHASE OF ASSETS:
-------------------
In 1998, the Company purchased certain assets of Nadex West, Inc. (Nadex West).
The assets purchased included property and equipment, including leases covering
two Multipoint Distribution Service channels granted under licenses issued by
the Federal Communications Commission (FCC) within the Fresno, California,
geographical area. This acquisition was accounted for as a purchase and has been
reflected in the Company's consolidated financial statements from the date of
acquisition. The consideration paid in this transaction was 50,000 shares of
common stock with a fair value of $206,250.
On February 2, 1999, the Company purchased certain assets of InterAccess
Corporation, an Internet service provider. This acquisition was accounted for as
a purchase and has been reflected in the Company's condensed consolidated
financial statements from the date of acquisition. The consideration paid in
this transaction was $390,770, consisting of $195,385 in cash and 35,164 shares
of the Company's common stock with a fair value of $195,385. Intangible assets
resulting from the asset purchase are stated net of accumulated amortization,
and amortization is provided using the straight-line method over three years.
On March 24, 1999, the Company purchased certain assets of ContiNet, LLC, and
Internet service provider. The assets purchased included accounts receivable,
inventory, property and equipment, goodwill and a covenant not- to-compete.
Liabilities assumed were accounts payable and deferred income. This acquisition
was accounted for as a purchase and has been reflected in the Company's
condensed consolidated financial statements from the date of acquisition. The
consideration paid in this transaction consisted of $343,379 in cash, a
promissory note in the amount of $50,000, and 10,173 shares of the Company's
common stock with a fair value of $104,162 and an additional 8,987 shares that
have been escrowed for one year from the purchase date to secure any obligations
of the seller. Intangible assets resulting from the asset purchase are stated
net of accumulated amortization, and amortization is provided using the
straight-line method over three years.
On April 28, 1999, the Company acquired substantially all of the assets of
Simply Internet, Inc., an Internet service provider. This acquisition was
accounted for as a purchase and has been reflected in the Company's condensed
consolidated financial statements from the date of acquisition. The
consideration paid in this transaction was $2,123,775 in cash. Intangible assets
resulting from the asset purchase are stated net of accumulated amortization,
and amortization is provided using the straight-line method over three years.
On April 29, 1999, the Company acquired substantially all of the assets of Net
Asset, LLC, an Internet service provider. This acquisition was accounted for as
a purchase and has been reflected in the Company's condensed consolidated
financial statements
F-12
<PAGE>
from the date of acquisition. The consideration paid in this transaction was
$1,100,000 in cash and an additional $75,000 in escrow at December 31, 1999, to
secure any obligations of the seller. Intangible assets resulting from the asset
purchase are stated net of accumulated amortization, and amortization is
provided using the straight-line method over three years.
On April 28, 1999, the Company acquired substantially all of the assets of
Simply Internet, Inc., an Internet service provider. This acquisition was
accounted for as a purchase and has been reflected in the Company's condensed
consolidated financial statements from the date of acquisition. The
consideration paid in this transaction was $2,123,775 in cash. Intangible assets
resulting from the asset purchase are stated net of accumulated amortization,
and amortization is provided using the straight-line method over three years.
On May 7, 1999, the Company acquired substantially all of the assets of
SeaTac.Net, Inc., an Internet service provider. This acquisition was accounted
for as a purchase and has been reflected in the Company's condensed consolidated
financial statements from the date of acquisition. The consideration paid in
this transaction was $400,000, consisting of $200,000 in cash and 19,865 shares
of the Company's common stock with a fair value of $200,000. Intangible assets
resulting from the asset purchase are stated net of accumulated amortization,
and amortization is provided using the straight-line method over three years.
On July 16, 1999, the Company acquired substantially all of the assets of
Network Training and Consulting d/b/a ISAT Network, an Internet service
provider. This acquisition was accounted for as a purchase and has been
reflected in the Company's condensed consolidated financial statements from the
date of acquisition. The consideration paid in this transaction consisted of
$450,000 in cash, 45,000 shares of the Company's common stock with a fair value
of $360,000, and an additional 11,250 shares that have been escrowed for one
year from the purchase date to secure any obligations of the seller. Intangible
assets resulting from the asset purchase are stated net of accumulated
amortization, and amortization is provided using the straight-line method over
three years.
On July 27, 1999, the Company acquired all of the capital stock of CalWeb
Internet Services, Inc, an Internet service provider. This acquisition was
accounted for as a purchase and has been reflected in the Company's condensed
consolidated financial statements from the date of acquisition. The
consideration paid for this transaction consisted of $2.6 million in cash,
190,977 shares of the Company's common stock with a fair value of $1,270,000 and
an additional 64,442 shares that have been escrowed for one year from the
purchase date to secure any obligations of the seller. Intangible assets
resulting from the asset purchase are stated net of accumulated amortization,
and amortization is provided using the straight-line method over three years.
On July 29, 1999, the Company acquired substantially all of the assets of
InfiCad Computing and Design, LLC, an Internet service provider. This
F-13
<PAGE>
acquisition was accounted for as a purchase and has been reflected in the
Company's condensed consolidated financial statements from the date of
acquisition. The consideration paid for this transaction consisted of
approximately $1,125,000 in cash, 216,620 shares of the Company's common stock
with a fair value of $1,193,000 and additional 38,394 shares that have been
escrowed for one year from the purchase date to secure any obligations of the
seller. Intangible assets resulting from the asset purchase are stated net of
accumulated amortization, and amortization is provided using the straight-line
method over three years.
The Company has agreed to buy substantially all the assets of Cable Corporation
of America, which is in bankruptcy. 120,000 shares of the Company's stock has
been placed in escrow pending the resolution of certain complaints filed in the
bankruptcy proceeding.
4. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consisted of the following as of December 31, 1999 and
1998:
<TABLE>
<CAPTION>
Useful Lives
in Years 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Communications and computer equipment 5 $ 3,712,541 $ 1,637,719
Furniture and fixtures 5 240,503 110,253
Leasehold improvements 5 166,342 143,666
Software 5 316,961 -
------------ ------------
Less- Accumulated depreciation
and amortization (870,302) (259,268)
------------ ------------
Property and equipment, net $ 3,566,045 $ 1,632,370
============ ============
</TABLE>
5. NOTES PAYABLE AND CONVERTIBLE DEBT
As part of the purchase agreement with Continet, LLC, the Company signed a
promissory note for $50,000. Principal and interest is payable monthly through
March 2001 with an annual interest rate of 9%. Principal payments to be made
in 2000 and 2001 are 25,541 and 6,751, respectively.
In November 1999, the Company issued an aggregate principal amount of $1,950,000
convertible promissory notes and 749,666 warrants exercisable at $1.50 for four
years to purchase certain shares of the Company's common stock (determined based
upon a formula which takes into account the first completion of the Company's
Series F convertible preferred stock). The $1,950,000 convertible promissory
notes converted into 1,950 shares of the Company's Series F convertible
preferred stock simultaneously with the first closing of the Company's Series F
convertible preferred stock in February 2, 2000 and prior to February 14, 2000,
the repayment date for the notes.
6. INCOME TAXES:
-------------
F-14
<PAGE>
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes" (SFAS 109). Under
SFAS 109, deferred income taxes are recorded based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the underlying
assets are received and liabilities are settled. At December 31, 1999 and 1998
the Company had net operating loss (NOL) carryforwards of $25,852,969 and
$5,283,770, respectively, that can reduce future federal income taxes.
Realization of the future tax benefits related to the deferred tax asset is
dependent on many factors, including the Company's ability to generate taxable
income within the NOL carryforward period. If not utilized, the NOL
carryforwards will expire in 2018 and 2019.
Due to uncertainties regarding the Company's ability to realize the benefits of
its deferred tax assets through future operations, a valuation allowance has
been established.
The income tax effect of temporary differences comprising the deferred tax asset
on the accompanying consolidated balance sheet is a result of the following as
of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 14,010
Accrued liabilities 40,984
Net operating loss carryforward 9,727,218 1,932,034
------------ ------------
Deferred income tax asset 9,727,218 1,987,028
------------ ------------
Valuation allowance (9,727,218) (1,987,028)
------------ ------------
Net deferred income tax asset - $ -
============ ============
</TABLE>
The change in the valuation allowance from December 31, 1998, through December
31, 1999, was $7,740,190.
A reconciliation between the statutory federal income tax rate (34 percent) and
the effective rate of income tax for the years ended December 31, 1999 and 1998,
is as follows:
1999 1998
------ ------
F-15
<PAGE>
Statutory income tax rate (34)% (34)%
Increase (decrease) in taxes resulting from:
State taxes, net of U.S. Federal tax benefit (3.6) (3.6)
Increase in valuation allowance 28.7 35.6
Other 8.9 2.0
------ ------
-- --
------ ------
6. COMMITMENTS AND CONTINGENCIES:
------------------------------
Litigation
- ----------
The Company is involved in various legal proceedings that have arisen in the
ordinary course of business. While it is not possible to predict the outcome of
such proceedings with certainty, in the opinion of the Company's management, all
such proceedings are adequately covered by insurance or, if not so covered,
should not materially result in any liability, which would have a material
adverse effect on the financial position, liquidity or results of operations of
the Company.
F-16
<PAGE>
Lease Commitments
- -----------------
The Company leases real estate and other equipment under operating leases and
capital leases. Certain real estate leases require the Company to pay
maintenance, insurance, taxes and certain other expenses in addition to the
stated rentals.
Future minimum lease payments under noncancellable operating leases and capital
leases as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
December 31, Leases Leases
-------------- ---------- ----------
<S> <C> <C>
2000 $ 704,035 $ 740,388
2001 361,508 691,085
2002 46,913 400,684
2003 -- 110,010
2004 -- 0
---------- ----------
Total minimum lease payments 1,112,456 1,942,167
========== ==========
Less: Amount representing interest
(at rates ranging from 2.5% to 58.5%) 159,986
----------
Present value of minimum capital lease payments 952,470
Less: Current maturities of obligations
under capital leases 584,186
----------
Obligations under capital leases,
less current maturities $ 368,284
==========
</TABLE>
Rent expense under operating leases was $464,790 and $90,292 for the years ended
December 31, 1999 and 1998, respectively.
Employment Agreements
- ---------------------
The Company has entered into employment agreements with certain Company officers
and management. The remaining minimum commitment under the terms of these
agreements as of December 31, 1999, is approximately $818,400, all of which is
payable in 2000. These employment agreements expire on various dates through
December 2000. In addition, under these employment contracts, 3,454,398 non-
qualified stock options have been granted.
7. COMMON STOCK:
-------------
During 1998, the Board approved the issuance of 708,997 shares of common stock
in exchange for services. The shares were issued without registration under the
federal securities laws in reliance upon an exemption from registration
requirements contained in the Securities Act of 1933, as amended.
During the year ended December 31, 1999, the Board of Directors of the Company
(Board) approved the issuance of 850,274 shares of common stock to employees and
others in exchange for services. The shares were issued without registration
under the federal securities laws in reliance upon an exemption from
registration requirements contained in the Securities Act of 1933, as amended.
F-17
<PAGE>
On January 31, 1999, the Company issued and sold 263,158 units to one investor
at a price of $1.90 per unit, for aggregate consideration of $500,000. Each unit
sold in this offering consisted of one share of the Company's common stock, one
warrant exercisable for three years to purchase one additional share of common
stock at a price of $6.00 per share, and one warrant exercisable for three years
to purchase an additional share of common stock at an exercise price of $8.00
per share. Both warrants associated with the unit purchase made by the investor
in January 31, 1999 were subsequently cancelled in 2000 and re-issued by the
Company as a warrant to purchase 526,316 shares of common stock of the Company
at an exercise price of $4.00, which expires three years from the date of the
initial purchase of the units described above.
On July 29, 1999, the Company entered into a settlement agreement with James
Gordon, where the Company transferred 115,000 shares of common stock to James
Gordon.
The Company has issued from time to time during the fiscal year 1999 common
stock in connection with its acquisitions of Internet-related businesses, as
described in Note 3.
The Company has also issued common stock during the fiscal year 1999 in
connection with exercise of option grants by its employees, consultants, or
directors, as described in Note 9.
8. PREFERRED STOCK:
----------------
Unit Offerings
- --------------
Series A
During 1998, the Company, through a private placement offering, sold 988,750
units to qualified investors for $4.00 per unit. Each unit consisted of one
share of Series A convertible preferred stock, one Class A warrant, and one
Class B warrant.
In January 1999, the Company, through a private placement offering, sold 70,841
units to qualified investors for $4.00 per unit. Each unit consisted of one
share of Series A convertible preferred stock, one Class A warrant and one Class
B warrant.
F-18
<PAGE>
The Company's Series A convertible preferred stock has a par value of $0.01 per
share and a dividend rate of 10 percent, which is cumulative. Each share of
preferred stock is convertible into one share of the Company's $.001 par value
common stock at the option of the stockholder. The option may be exercised
after one year from the date of issue, upon effective registration of the
underlying common shares, or automatically upon the earlier of (1) the third
anniversary of the date of issue, or (2) once the Company's common stock
publicly trades above $6.00 per share for 10 consecutive trading days. The
preferred stock has a liquidation preference of $4.00 per share.
Each Class A warrant entitles the holder to purchase one share of common stock
at $7.50 per share beginning one year from the date of issuance or beginning on
the effective date of registration of the underlying common shares, whichever
comes first. Each Class B warrant entitles the holder to purchase one share of
common stock at $10.00 per share, beginning one year from the date of issuance
or beginning on the effective date of registration of the underlying common
shares, whichever comes first. Both the Class A and Class B warrants expire
three years from the date of issuance. The Company may, under certain
circumstances, redeem all of the outstanding Class A and Class B warrants upon
30 days written notice at $.01 per warrant.
In February 1999, the Company offered to all investors who purchased units in
the 1998 Private Offering, the opportunity to exercise all Class A warrants to
purchase shares of the Company's common stock at a reduced exercise price of
$2.00 per share upon the surrender to the Company for cancellation of all Class
B warrants.
Series B
In January 1999, the Company completed the sale to one accredited investor of
600 shares of Series B convertible preferred stock, 15,000 shares of common
stock and warrants exercisable to purchase 120,000 shares of common stock at an
exercise price of $3.00 per share. The aggregate purchase price for the
securities was $600,000.
The Company's Series B convertible preferred stock has a par value of $0.01 per
share and a dividend rate of 8 percent, which is cumulative and payable in cash
or common stock. Each share of preferred stock is convertible into shares of
common stock at a rate of 80% of the market price of the common stock, as
defined. Each warrant entitles the holder to purchase one share of common stock
at $3.00 per share, beginning on the date of issuance and the warrants expire
three years from the date of issuance. The preferred stock has a liquidation
preference of $1,000 per share.
Series C
During 1999, the Company, through a private placement offering, sold 721,419
Series C convertible preferred stock to qualified investors at a price of
F-19
<PAGE>
$4.00 per share. The total proceeds of the Series C convertible preferred stock
offering was $2,885,676.
The Company's Series C convertible preferred stock has a par value of $0.01 per
share and a dividend rate of 10 percent, which is cumulative and payable in
preferred stock. Series C investors are also entitled to participate, on a pro
rata basis, in any dividends paid on the outstanding shares of common stock,
after payment of dividends on the preferred stock. Each share of preferred
stock is convertible into one share of the Company's common stock. The
preferred stock may be converted, at the option of the Series C investor, after
one year from the date of issue or upon effective registration of the underlying
common shares, or it will automatically convert on the third anniversary of the
date of issue. The preferred stock has a liquidation preference of $4.00 per
share.
Series D
In April 1999, the Company, through a private placement offering, sold 10,000
shares of its Series D convertible preferred stock to qualified investors at a
price of $1,000 per share. The total proceeds of the Series D convertible
preferred stock offering was $10,000,000. In connection with said offering, the
Company issued warrants to acquire a total of 305,880 shares of the Company's
common stock at $8.17 per share.
The Company's Series D convertible preferred stock has a par value of $0.01 per
share and a dividend rate of 5 percent, which is cumulative and payable in cash
or preferred stock at the option of the Series D investor. Each share of
preferred stock is convertible into 333 shares of the Company's common stock.
The preferred stock may be converted at the option of the Series D investor or
it will automatically convert upon the third anniversary of the date of issue.
If, after April 16, 2000, the Company's common stock is trading at less than
$3.00 per share, the Company may redeem the preferred stock at $1,200 per share
plus any unpaid dividends. The preferred stock has a liquidation preference of
$1,000 per share.
Series E
In May 1999, the Company, through a private placement offering, sold 3,000
shares of the Company's Series E convertible preferred stock to qualified
investors at a price of $1,000 per share. The total proceeds for the Series E
convertible preferred stock offering was $3,000,000. In connection with said
offering, the Company issued warrants to acquire a total of 91,764 shares of
common stock at $8.17 per share.
The Company's Series E convertible preferred stock has a par value of $0.01 per
share and a dividend rate of 5 percent per share, which is cumulative and
payable in cash or preferred stock at the option of the Series E investor. Each
share of preferred stock is convertible into
F-20
<PAGE>
333 shares of the Company's common stock, subject to adjustments. The preferred
stock may be converted at the option of the Series E investor or it will
automatically convert upon the third anniversary of the date of issue. If, after
May 6, 2000, the Company's common stock is trading at less than $3.00 per share,
the Company may redeem the preferred stock at $1,200 per share plus any unpaid
dividends. The preferred stock has a liquidation preference of $1,000 per share.
As of December 31, 1999, the Company had accrued unpaid dividends on preferred
stock of $720,082.
Beneficial Conversion Feature
- -----------------------------
Series A
The Company recorded a beneficial conversion feature of $337,488 related to its
Series A convertible preferred stock, which was fully accreted as of
December 31, 1999.
Series B
The Company recorded a beneficial conversion feature of $149,487 related to its
Series B convertible preferred stock, which was fully accreted as of December
31, 1999.
Series C
The Company recorded a beneficial conversion feature of $2,076,616 related to
its Series C convertible preferred stock, which is being accreted over one year.
Series D
The Company recorded a beneficial conversion feature of $7,908,294 related to
its Series D convertible preferred stock, which was fully accreted as of
December 31, 1999. The total excess of fair value over the conversion price at
the date of grant was $24,849,998.
Series E
The Company recorded a beneficial conversion feature of $2,364,335 related to
its Series E convertible preferred stock, which was fully accreted as of
December 31, 1999. The total excess of fair value over the conversion price at
the date of grant was $9,449,991.
9. STOCK-BASED COMPENSATION:
-------------------------
Effective January 23, 1998, the Company adopted the 1998 Equity Incentive Plan
under which 1,750,000 shares of common stock of the Company were authorized and
reserved for use in
F-21
<PAGE>
the Plan. Effective August 23, 1999, the Company's board of directors and
stockholders adopted an amendment whereby the total shares subject to the plan
was increased to 8,000,000 shares. The Plan allows the issuance of incentive
stock options, nonqualified stock options, stock bonuses, rights to purchase
restricted stock, and stock appreciation rights. Incentive stock options granted
during 1999 become exercisable over either three or 4 year vesting schedules,
depending on the specific option grant, and expire five years from the date of
grant.
In addition to the incentive stock options granted under the Plan, the Company
also granted 2,350,630 non-qualified stock options outside of the Plan to
certain officers, directors, and other employees. Of the non-qualified options
granted, 200,000 became exercisable immediately and expire five years from the
date of grant, and 68,732 become exercisable at the rate of 4,166 options per
month and expire five years from the date of grant. The remaining 2,081,898
options vest based on certain performance criteria and expire five years from
the date of grant.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Average
Outstanding as of Remaining Weighted Average Exercisable as of Weighted Average
---------------- ----------------- ----------------
Range of Exercise Price 31-Dec-99 Contractual Life Exercise Price 31-Dec-99 Exercise Price
- ----------------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
1.94-2.13 2,641,898 9.60 1.98 1,083,844 1.94
2.30-2.75 3,601,972 5.50 2.53 1,699,840 2.26
4.99 230,000 5.00 4.99
</TABLE>
F-22
<PAGE>
Stock option activity for the years ended December 31, 1999 and 1998, was as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- ------------------------------
Number Weighted Number Weighted
Of Average of Average
Shares Exercise Price Shares Exercise Price
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 3,579,236 2.12 --- ---
Granted 3,628,000 2.43 3,579,736 2.12
Exercised (97,420) 2.30 --- ---
Canceled or expired (636,446) 2.52 --- ---
---------- ---------- ---------- ----------
Outstanding, end of period 6,473,870 2.39 3,579,736 2.12
========== ========== ========== ==========
Options vested at year-end 2,753,684 2.15 670,720 2.43
========== ========== ========== ==========
</TABLE>
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), under which no compensation expense has been recognized for option grants.
Compensation expense of $12,197,071 and $2,001,618 was recognized for stock
grants under APB 25 for the years ended December 31, 1999 and 1998. In October
1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), which allows companies to continue following the accounting guidance
of APB 25, but requires disclosure of net income and earnings per share for the
effects on compensation expense had the accounting guidance of SFAS 123 been
adopted.
The Company has elected SFAS 123 for disclosure purposes. Under SFAS 123, the
fair value of each option granted has been estimated as of the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for 1999 and 1998: risk-free interest rate of 4.46 to 5.63 percent,
expected volatility of 80 percent, expected life of four years, and no expected
dividends for 1998 and risk-free interest rate of 4.43 to 6.32 percent, expected
volatility of 80 percent, expected life of _____ years, and no expected
dividends for 1999. Had compensation expense been determined based on the fair
value at the grant date consistent with the provisions of SFAS 123, the
Company's net loss and net loss per share would have increased to the pro forma
amounts indicated below:
1999 1998
-------- --------
As reported:
Net loss (40,437,124) (5,274,832)
Net loss per share - basic and diluted $(3.44) $(0.60)
Pro Forma:
F-23
<PAGE>
Net loss (51,570,998) (6,215,209)
Net loss per share - basic and diluted (4.38) (.71)
10. RELATED-PARTY TRANSACTIONS:
---------------------------
During 1999, despite suspension of agreement with Network System Technologies,
Inc. (NST), NST billed the Company $735,256 for the construction of wireless
data transmission plants in Fresno, California, and in Tampa, Florida. Both
transmission plants were completed and this amount was paid during the year
ended December 31, 1998.
During 1998, the Company issued 708,997 shares of common stock to affiliates in
exchange for services. The services were valued by management at the fair value
of the common stock on the date of issuance.
11. SUBSEQUENT EVENTS:
------------------
Effective February 2, 2000, the Company issued a warrant to purchase 1,000,000
shares of the Company's common stock at an exercise price of $.01 per share to
one investor as consideration for such investor having participated as the lead
investor in the Company Series F convertible preferred stock financing.
As of February 11, 2000, the Company completed an offering of 15,316 shares of
Series F convertible preferred stock for an aggregate purchase price of
$15,316,000, which includes, the issuance of 1,950 shares of Series F
convertible preferred stock to associated with the conversion of an aggregate
principal amount of $1,950,000 convertible promissory notes issued by the
Company in November, 1999. The Company's Series F convertible preferred stock
has a par value of $0.01 per share. Each share of preferred stock is convertible
into 1,000 share of the Company's $0.01 par value common stock at the option of
the stockholder, or automatically upon the third anniversary date of issue. The
preferred stock has a liquidation preference of $1,000 per share.
Effective February 11, 2000, the Company acquired substantially all of the
assets of Alternate Access, Inc. for a total purchase price of $4,131,624, of
which $1,950,000 in cash and 684,430 shares of the Company's common stock. In
connection with said transaction, the Company also obtained has the right to
acquire up to 30% equity ownership in PDGT.COM, Inc. The Company has currently
acquired a 21.8% interest for a cash consideration of $750,000.
Effective February 11, 2000, the Company acquired substantially all of the
assets of Planetlink Corporation, Inc. d/b/a Inforum Communications for $237,450
in cash and 74,494 shares of the Company's common stock.
Effective February 11, 2000, the Company issued two warrants to H. C.
Wainwright, exercisable to purchase an aggregate of 500,000 shares of the
Company's common stock at the following
F-24
<PAGE>
exercise prices: (i) with respect to 400,000 shares, an exercise price of $.01,
in connection with their role as placement agent in the Series F convertible
preferred stock financing; and (ii) with respect to 100,000 shares, an exercise
price of $3.00 per share, in connection with their role as placement agent in
the November 1999 convertible loan transaction.
Between March 7, 2000 and March 31, 2000, the Company effected a 1 to 1 exchange
offer to its then Series D convertible preferred stockholders pursuant to which
the Company issued a total of 4,440 shares of the Company's D-1 convertible
preferred stock to holders of the Company's series D convertible preferred stock
upon their exchange of 4,400 shares of the Company's D convertible preferred
stock. The warrants that were issued in connection with the Series D
convertible preferred stock financing were not affected by the exchange offer.
The Company's Series D-1 convertible preferred stock has a par value of $0.01
per share and a dividend rate of 5 percent, which is cumulative and payable in
cash or preferred stock at the option of the Series D-1 investor. The
conversion price for each share of Series D-1 preferred convertible preferred
stock is $2.50 per share, subject to adjustments. The preferred stock may be
converted at the option of the Series D-1 investor or it will automatically
convert upon the third anniversary of the date of the initial issuance of the
Series D convertible preferred stock. The Series D-1 convertible preferred
stock has a liquidation preference of $1,000 per share.
FINANCIAL RESULTS OF OPERATIONS (UNAUDITED):
The following unaudited pro forma information for the year ended December 31,
1999, include the results of the Company and Interaccess Corporation, Simply
Internet, Inc., Net Asset, LLC, Calweb Internet Services, Inc. and InfiCad
Computing and Design, LLC as if the acquisitions had occurred as of January 1,
1999. The pro forma condensed consolidated statements of operations may not be
comparable to, and may not be indicative of, the Company's post-acquisition
results of operations.
Amount
(unaudited)
Revenues $ 7,721,148
=============
Net loss $ (29,392,196)
=============
Net loss applicable to common stockholders $ (42,970,645)
=============
Per share net loss applicable to common
stockholders-basic and diluted (359)
=============
Shares used in computing per share net
loss applicable to common stockholders-basic
and diluted 11,976,695
=============
F-25
<PAGE>
EXHIBIT 3.5
AMENDED BYLAWS
OF
SKYLYNX COMMUNICATIONS, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I CORPORATE OFFICES............................................ 1
1.1 Registered Office............................................ 1
1.2 Other Offices................................................ 1
ARTICLE II MEETINGS OF STOCKHOLDERS.................................... 1
2.1 Place of Meetings............................................ 1
2.2 Annual Meetings.............................................. 1
2.3 Special Meetings............................................. 1
2.4 Notice of Stockholders' Meetings............................. 2
2.5 Manner of Giving Notice; Affidavit of Notice................. 2
2.6 Quorum....................................................... 2
2.7 Adjourned Meeting; Notice.................................... 2
2.8 Conduct of Business.......................................... 2
2.9 Voting....................................................... 3
2.10 Waiver of Notice............................................. 3
2.11 Stockholder Action by Written Consent Without a Meeting...... 3
2.12 Record Date for Stockholder Notice; Voting; Giving Consents.. 3
2.13 Proxies...................................................... 4
2.14 List of Stockholders Entitled to Vote........................ 4
ARTICLE III DIRECTORS 5
3.1 Powers....................................................... 5
3.2 Number of Directors.......................................... 5
3.3 Election, Qualification and Term of Office of Directors...... 5
3.4 Resignation and Vacancies.................................... 5
3.5 Place of Meetings; Meetings by Telephone..................... 6
3.6 Regular Meetings............................................. 6
3.7 Special Meetings; Notice..................................... 6
3.8 Quorum....................................................... 7
3.9 Waiver of Notice............................................. 7
3.10 Board Action by Written Consent Without a Meeting............ 7
3.11 Fees and Compensation of Directors........................... 7
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<C> <S> <C>
3.12 Approval of Loans to Officers................................ 7
3.13 Removal of Directors......................................... 8
ARTICLE IV COMMITTEES.................................................. 8
4.1 Committees of Directors...................................... 8
4.2 Committee Minutes............................................ 9
4.3 Meetings and Action of Committees............................ 9
ARTICLE V OFFICERS..................................................... 9
5.1 Officers..................................................... 9
5.2 Appointment of Officers...................................... 9
5.3 Subordinate Officers......................................... 9
5.4 Removal and Resignation of Officers.......................... 10
5.5 Vacancies in Offices......................................... 10
5.6 Chairman of the Board........................................ 10
5.7 President.................................................... 10
5.8 Vice Presidents.............................................. 10
5.9 Secretary.................................................... 10
5.10 Chief Financial Officer...................................... 11
5.11 Chief Scientific Officer..................................... 11
5.12 Assistant Secretary.......................................... 11
5.13 Assistant Treasurer.......................................... 12
5.14 Representation of Shares of Other Corporations............... 12
5.15 Authority and Duties of Officers............................. 12
ARTICLE VI INDEMNITY................................................... 12
6.1 Third Party Actions.......................................... 12
6.2 Actions by or in the Right of the Corporation................ 13
6.3 Successful Defense........................................... 13
6.4 Determination of Conduct..................................... 13
6.5 Payment of Expenses in Advance............................... 14
6.6 Indemnity Not Exclusive...................................... 14
6.7 Insurance Indemnification.................................... 14
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<C> <S> <C>
6.8 The Corporation.............................................. 14
6.9 Employee Benefit Plans....................................... 14
6.10 Indemnity Fund............................................... 15
6.11 Indemnification of Other Persons............................. 15
6.12 Savings Clause............................................... 15
6.13 Continuation of Indemnification and Advancement of Expenses.. 15
ARTICLE VII RECORDS AND REPORTS........................................ 15
7.1 Maintenance and Inspection of Records........................ 15
7.2 Inspection by Directors...................................... 16
7.3 Annual Statement to Stockholders............................. 16
ARTICLE VIII GENERAL MATTERS........................................... 17
8.1 Checks....................................................... 17
8.2 Execution of Corporate Contracts and Instruments............. 17
8.3 Stock Certificates; Partly Paid Shares....................... 17
8.4 Special Designation on Certificates.......................... 18
8.5 Lost Certificates............................................ 18
8.6 Construction; Definitions.................................... 18
8.7 Dividends.................................................... 18
8.8 Fiscal Year.................................................. 18
8.9 Seal 19
8.10 Transfer of Stock............................................ 19
8.11 Stock Transfer Agreements.................................... 19
8.12 Registered Stockholders...................................... 19
ARTICLE IX AMENDMENTS.................................................. 19
</TABLE>
-iii-
<PAGE>
AMENDED BYLAWS
OF
SKYLYNX COMMUNICATIONS, INC.
A DELAWARE CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office. The registered office of the corporation
shall be in the City of Dover, County of Kent, State of Delaware. The name of
the registered agent of the corporation at such location is Incorporating
Services, Ltd.
1.2 Other Offices. The board of directors may at any time establish
other offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of stockholders shall be held at
any place, within or outside the State of Delaware, designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the registered office of the corporation.
2.2 Annual Meetings. The annual meeting of stockholders shall be
held each year on a date and at a time designated by the board of directors. At
the meeting, directors shall be elected and any other proper business may be
transacted.
2.3 Special Meetings. A special meeting of the stockholders may be
called at any time by the board of directors, or by the chairman of the board,
or by the president, or by one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president or the
secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of
<PAGE>
Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time
requested by the person or persons who called the meeting, not less than thirty-
five (35) nor more than sixty (60) days after the receipt of the request. If the
notice is not given within twenty (20) days after the receipt of the request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 2.3 shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the board of directors may be held.
2.4 Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be in writing and shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting to each stockholder entitled to
vote at such meeting. The notice shall specify the place, date, and hour of the
meeting, and in the case of a special meeting, the purpose or purposes for which
the meeting is called.
2.5 Manner of Giving Notice; Affidavit of Notice. Written notice of
any meeting of stockholders, if mailed, is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation. An affidavit of the secretary or an
assistant secretary or of the transfer agent of the corporation that the notice
has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
2.6 Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 Adjourned Meeting; Notice. When a meeting is adjourned to
another time or place, unless these bylaws otherwise require, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.8 Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
business.
2
<PAGE>
2.9 Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Except as provided in the last paragraph of this Section 2.9, or as
may be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
2.10 Waiver of Notice. Whenever notice is required to be given
under any provision of the General Corporation Law of Delaware or of the
certificate of incorporation or these bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
2.11 Stockholder Action by Written Consent Without a Meeting.
Unless otherwise provided in the certificate of incorporation, any action
required by this article to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 Record Date for Stockholder Notice; Voting; Giving Consents.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any
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rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by a
written proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
2.14 List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the corporation shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the
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time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. Such list shall presumptively
determine the identify of the stockholders entitled to vote at the meeting and
the number of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 Powers. Subject to the provisions of the General Corporation
Law of Delaware and any limitation in the certificate of incorporation or these
bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 Number of Directors. The board of directors shall consist of
not less than one (1) and not more than ten (10) persons until changed by a
proper amendment of this Section 3.2.
3.3 Election, Qualification and Term of Office of Directors. Except
as provided in Section 3.4 of these bylaws, directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
Directors need not be stockholders unless so required by the certificate of
incorporation or these bylaws, wherein other qualifications for directors may be
prescribed. Each director, including a director elected to fill a vacancy, shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies. Any director may resign at any time
upon written notice to the attention of the secretary of the corporation. When
one or more directors so resigns and the resignation is effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office as provided in this section in the
filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the
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certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or any executor, administrator, trust or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone. The board of
directors of the corporation may hold meetings, both regular and special, either
within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
3.7 Special Meetings; Notice. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board, the president, any vice president, the secretary or any two (2)
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
facsimile, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the
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notice is delivered personally or by telephone or by facsimile, it shall be
delivered personally or by telephone or to the facsimile telephone number at
least forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.8 Quorum. At all meetings of the board of directors, a majority
of the authorized number of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum is not present at any meeting of the
board of directors, then the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 Waiver of Notice. Whenever notice is required to be given
under any provision of the General Corporation Law of Delaware or of the
certificate of incorporation or these bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor other
purpose of, any regular or special meeting of the directors, or members of a
committee of directors, need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these bylaws.
3.10 Board Action by Written Consent Without a Meeting. Unless
otherwise restricted by the certificate of incorporation or these bylaws, any
action required or permitted to be taken at any meeting of the board of
directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11 Fees and Compensation of Directors. Unless otherwise
restricted by the certificate of incorporation or these bylaws, the board of
directors shall have the authority to fix the compensation of directors.
3.12 Approval of Loans to Officers. The corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or other
employee of
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the corporation or of its subsidiaries, including any officer or employee who is
a director of the corporation or its subsidiaries, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13 Removal of Directors. Unless otherwise restricted by statute,
by the certificate of incorporation or by these bylaws, any director or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors.
ARTICLE IV
COMMITTEES
4.1 Committees of Directors. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, with each committee to consist of one or more of the directors of
the corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors or
in the bylaws of the corporation, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (i) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designation and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing
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the committee, the bylaws or the certificate of incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
Delaware.
4.2 Committee Minutes. Each committee shall keep regular minutes of
its meetings and report the same to the board of directors when required.
4.3 Meetings and Action of Committees. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 Officers. The officers of the corporation shall be a president,
a secretary, and a chief financial officer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, one or more
vice presidents, one or more assistant vice presidents, one or more assistant
secretaries, and one or more assistant treasurers, and any such other officers
as may be appointed in accordance with the provisions of Section 5.3 of these
bylaws. Any number of offices may be held by the same person.
5.2 Appointment of Officers. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Sections 5.3 or 5.5 of these bylaws, shall be appointed by the board of
directors, subject to the rights, if any, of an officer under any contract of
employment.
5.3 Subordinate Officers. The board of directors may appoint, or
empower the president to appoint, such other officers and agents as the business
of the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these bylaws or
as the board of directors may from time to time determine.
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5.4 Removal and Resignation of Officers. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by an affirmative vote of the majority of the
board of directors at any regular or special meeting of the board or, except in
the case of an officer chosen by the board of directors, by any officer upon
whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices. Any vacancy occurring in any office of
the corporation shall be filled by the board of directors.
5.6 Chairman of the Board. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may from time
to time be assigned to him by the board of directors or as may be prescribed by
these bylaws. If there is no president, then the chairman of the board shall
also be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these bylaws.
5.7 President. Subject to such supervisory powers, if any, as may
be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence or nonexistence of a chairman of the board, at all meetings of the
board of directors. He shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 Vice Presidents. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these bylaws, the president or the chairman of the board.
5.9 Secretary. The secretary shall keep or cause to be kept, at the
principal executive office of the corporation or such other place as the board
of directors
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may direct, a book of minutes of all meetings and actions of directors,
committees of directors, and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all his transactions as chief financial officer and of the financial condition
of the corporation, and shall have other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
The chief financial officer shall be the treasurer of the corporation.
5.11 Chief Technology Officer. The Chief Technology Officer shall,
subject to the direction and control of the board of directors, be responsible
for all technological aspects of the Corporation's business including the
design, research, development, review and implementation of technologies. The
Chief Technology Officer shall be elected each year by the board of directors,
to serve until his or her successor is duly elected by the board of directors.
5.12 Assistant Secretary. The assistant secretary, or, if there is
more than one, the assistant secretaries in the order determined by the
stockholders or board
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of directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as may
be prescribed by the board of directors or these bylaws.
5.13 Assistant Treasurer. The assistant treasurer, or, if there is
more than one, the assistant treasurers, in the order determined by the
stockholders or board of directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the chief financial
officer or in the event of his or her inability or refusal to act, perform the
duties and exercise the powers of the chief financial officer and shall perform
such other duties and have such other powers as may be prescribed by the board
of directors or these bylaws.
5.14 Representation of Shares of Other Corporations. The chairman
of the board, the president, any vice president, the chief financial officer,
the secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.15 Authority and Duties of Officers. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively have
such authority and perform such duties in the management of the business of the
corporation as may be designated from time to time by the board of directors or
the stockholders.
ARTICLE VI
INDEMNITY
6.1 Third Party Actions. Subject to the provisions of this Article
VI, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement (if such settlement is approved in advance by the
corporation, which approval shall not be unreasonably withheld) actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or
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proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interest of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
6.2 Actions by or in the Right of the Corporation. Subject to the
provisions of this Article VI, the corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding any other
provision of this Article VI, no person shall be indemnified hereunder for any
expenses or amounts paid in settlement with respect to any action to recover
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934,
as amended.
6.3 Successful Defense. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
6.4 Determination of Conduct. Any indemnification under Sections
6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that the indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2.
Such determination shall be made (i) by the Board of Directors or the Executive
Committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (ii) if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. Notwithstanding the foregoing, a director, officer, employee or
agent of the corporation shall be entitled to contest any determination that
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the director, officer, employee or agent has not met the applicable standard of
conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent
jurisdiction.
6.5 Payment of Expenses in Advance. Expenses incurred in defending
a civil or criminal action, suit or proceeding, by an individual who may be
entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article VI.
6.6 Indemnity Not Exclusive. The indemnification and advancement of
expenses provided by or granted pursuant to the other sections of this Article
VI shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
6.7 Insurance Indemnification. The corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article VI.
6.8 The Corporation. For purposes of this Article VI, references to
the "corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors and officers, so that
any person who is or was a director, officer, employ or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under and subject to the provisions of this Article VI (including,
without limitation, the provisions of Section 6.4) with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
6.9 Employee Benefit Plans. For purposes of this Article VI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a
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person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article VI.
6.10 Indemnity Fund. Upon resolution passed by the Board, the
corporation may establish a trust or other designated account, grant a security
interest or use other means (including, without limitation, a letter of credit),
to ensure the payment of certain of its obligations arising under this Article
VI and/or agreements which may be entered into between the corporation and its
officers and directors from time to time.
6.11 Indemnification of Other Persons. The provisions of this
Article VI shall not be deemed to preclude the indemnification of any person who
is not a director or officer of the corporation or is not serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, but whom the
corporation has the power or obligation to indemnify under the provisions of the
General Corporation Law of the State of Delaware or otherwise. The corporation
may, in its sole discretion, indemnify an employee, trustee or other agent as
permitted by the General Corporation Law of the State of Delaware. The
corporation shall indemnify an employee, trustee or other agent where required
by law.
6.12 Savings Clause. If this Article VI or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each person entitled to
indemnification hereunder against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether internal or external, including a grand jury proceeding and an
action or suit brought by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated, or by any other applicable law.
6.13 Continuation of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Records. The corporation shall,
either at its principal executive office or at such place or places as
designated by the board of directors, keep a record of its stockholders listing
their names and addresses
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and the number and class of shares held by each stockholder, a copy of these
bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent in the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
7.2 Inspection by Directors. Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders, and its
other books and records for a purpose reasonably related to his position as a
director. The Court of Chancery is hereby vested with the exclusive jurisdiction
to determine whether a director is entitled to the inspection sought. The Court
may summarily order the corporation to permit the director to inspect any and
all books and records, the stock ledger, and the stock list and to make copies
or extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
7.3 Annual Statement to Stockholders. The board of directors shall
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
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ARTICLE VIII
GENERAL MATTERS
8.1 Checks. From time to time, the board of directors shall
determine by resolution which person or persons may sign or endorse all checks,
drafts, other orders for payment of money, notes or other evidences of
indebtedness that are issued in the name of or payable to the corporation, and
only the persons so authorized shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares. The shares of the
corporation shall be represented by certificates, provided that the board of
directors of the corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such a resolution by the board of directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the corporation by the chairman or vice-chairman of the board of
directors, or the president or vice president, and by the chief financial
officer or an assistant treasurer, or the secretary or an assistant secretary of
the corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
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8.4 Special Designation on Certificates. If the corporation is
authorized to issue more than one class of stock or more than one series of any
class, then the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face of back of
the certificate that the corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.5 Lost Certificates. Except as provided in this Section 8.5, no
new certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the corporation and cancelled at
the same time. The corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
8.6 Construction; Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of these bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
8.7 Dividends. The directors of the corporation, subject to any
restrictions contained in (i) the General Corporation Law of Delaware or (ii)
the corporation's certificate of incorporation, may declare and pay dividends
upon the shares of its capital stock. Dividends may be paid in cash, in
property, or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors and may be changed by the board of
directors.
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8.9 Seal. The corporation may adopt a corporate seal, which shall
be adopted and which may be altered by the board of directors, and may use the
same by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
8.10 Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 Stock Transfer Agreements. The corporation shall have power to
enter into and perform any agreement with any number of stockholders of any one
or more classes of stock of the corporation to restrict the transfer of shares
of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, shall be entitled to
hold liable for calls and assessments the person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of another person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
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CERTIFICATE OF ADOPTION OF AMENDED BYLAWS
OF
SKYLYNX COMMUNICATIONS, INC.
A DELAWARE CORPORATION
Certificate by Secretary of Adoption by Board of Directors
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of SkyLynx Communications, Inc., a Delaware
Corporation and that the foregoing bylaws, comprising twenty (20) pages,
including this page, were adopted as the Bylaws of the corporation as of March
1, 2000, by the Board of Directors of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and, if
available, affixed the corporate seal, as of the 1st day of March, 2000.
/s/
----------------------------------
Ned Abell, Secretary
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EXHIBIT 4.2
[LOGO]
SkyLynx
COMMUNICATIONS, INC.
NUMBER
SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
AUTHORIZED: 150,000,000 COMMON SHARES, $.001 PAR VALUE PER SHARE
CUSIP 830857 10 8
This Certifies That
is the owner of
SEE REVERSE FOR
CERTAIN DEFINITIONS
Fully Paid and Non-Assessable Common Shares, $.001 Par Value, of
SkyLynx Communications, Inc.
transferable on the books of the Corporation by the holder hereof, in person or
by authorized attorney, upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless duly countersigned by the Transfer Agent
and Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its
duly authorized officers and its facsimile seal to be hereunto affixed.
DATED:
[Ned A. Bell]
SECRETARY
[Seal]
[Jeffery A. Mathias]
PRESIDENT
COUNTERSIGNED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1596, Denver, Colorado 80201
By:
Transfer Agent - Authorized Signature
<PAGE>
SkyLynx Communications, Inc.
Transfer Fee: $20.00 Per New Certificate Issued
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with rights of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian for
(Cust.) (Minor)
under Uniform Gifts to Minors
Act of
(State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
Please print or type name and address of assignee
Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within named
Corporation, with full power of substitution in the premises.
Dated
SIGNATURE GUARANTEED:
X
X
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan
Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM PURSUANT TO RULE 17Ad-15 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
Exhibit 4.13
WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
SkyLynx Communications, Inc.
Subject to Section 1 hereof, expires the earlier of November 15, 2004
and a date six (6) months following an Offering (as defined below)
No.: W-BPF-________
Number of Shares: See Below Date of Issuance: November 15, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, SkyLynx Communications, Inc., a Colorado corporation (together with
its successors and assigns, the "Issuer"), hereby certifies that ____________,
an individual, located at c/o _______________________________________, or his
registered assigns is entitled to subscribe for and purchase, during the period
specified in this Warrant, up to the number of shares set forth below (subject
to adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 7 hereof.
The number of shares of Common Stock subject to this Warrant is as follows:
(a) In the event of a Qualified Financing occurring on or before December
15, 1999, the quotient obtained by dividing: (i) the product of (A) ______ times
(B) the number of days that the loan from Holder to the Issuer evidenced by a
promissory note of even date herewith is outstanding divided by thirty (30)
(provided that such fraction in (B) shall in no event exceed one); by (ii)
$1.50;
(b) In the event that a Qualified Financing does not occur on or before
December 15, 1999, the sum of the shares of Common Stock calculated in
subsection (a) above, plus the quotient obtained by dividing: (i) the product of
(A) ______ times (B) the number of days after the period specified in subsection
(a) above, that the loan from Holder to the Issuer evidenced by a promissory
note of even date herewith is outstanding divided by sixty (60) (provided that
such
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fraction in (B) shall in no event exceed one); by (ii) $1.50, in the event of a
Qualified Financing occurring on or before February 13, 2000; or
(c) In the event that a Qualified Financing does not occur on or before
February 13, 2000, the quotient obtained by dividing (i) ______ by (ii) $1.50.
1. Term. (a) Subject to subsection (b) below, the right to subscribe for
and purchase shares of Warrant Stock represented hereby shall commence on the
date of issuance of this Warrant and shall expire at the earlier of (i) 5:00
p.m., New York Time, on November 15, 2004; and (ii) a date six (6) months
following an underwritten public offering (an "Offering") of the Common Stock
(the "Initial Term"), provided, that, if at the date of the expiration of the
Initial Term, (A) the Warrant Stock shall not be listed on the OTC Bulletin
Board, the Nasdaq SmallCap Market, the Nasdaq National Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. or (B) the Issuer
shall not have sufficient shares of Warrant Stock issuable upon a full exercise
of this Warrant, then the Initial Term shall be extended until such date on
which none of the foregoing events shall exist (the Initial Term, as such may be
extended, being hereinafter called the "Term").
(b) Notwithstanding subsection (a) above, the Issuer shall have the right
to redeem this Warrant in full for a redemption price equal to $.10 per share of
Warrant Stock issuable upon a full exercise of this Warrant at any time
following the first date that the Per Share Market Value of the Common Stock
exceeds $10 per share for a period of thirty (30) consecutive Trading Days. The
Issuer shall notify the Holder of its election to redeem this Warrant by written
notice to the Holder in accordance with the terms of Section 11, which notice
shall specify the date, time and place of such redemption and the aggregate
redemption price. On such redemption date, the Issuer shall deliver the
redemption price to the Holder and the Holder shall deliver this Warrant, duly
endorsed for transfer, to the Issuer.
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at the Holder's election (i) in cash by certified or official
bank check, (ii) at any time on or after the Original Issue Date through the
date on or before the date any registration statement covering the resale of the
Warrant Stock has been declared effective by the Securities and Exchange
Commission by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
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<PAGE>
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to the provisions of subsection
(e) of this Section 2, this Warrant may be transferred by the Holder without the
consent of the Issuer. If transferred pursuant to this paragraph and subject to
the provisions of subsection (e) of this Section 2, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Issuer, properly endorsed (by the Holder executing an assignment in the form
attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is exchangeable at
the principal office of the Issuer for Warrants for the purchase of the same
aggregate number of shares of Warrant Stock, each new Warrant to represent the
right to purchase such number of shares of Warrant Stock as the Holder hereof
shall designate at the time of such exchange. All Warrants issued on transfers
or exchanges shall be dated the Original Issue Date and shall be identical with
this Warrant except as to the number of shares of Warrant Stock issuable
pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Warrant Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and
not as a nominee for any other party, and for investment, and that the
Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Warrant Stock to be issued upon exercise hereof except pursuant
to an effective registration statement, or an exemption from registration,
under the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and
all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL HAVE RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased
upon exercise hereof shall
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<PAGE>
terminate (A) when such securities shall have been effectively registered
under the Securities Act, (B) upon the Issuer's receipt of an opinion of
counsel, in form and substance reasonably satisfactory to the Issuer,
addressed to the Issuer to the effect that such restrictions are no longer
required to ensure compliance with the Securities Act or (C) upon the
Issuer's receipt of other evidence reasonably satisfactory to the Issuer
that such registration is not required. Whenever such restrictions shall
cease and terminate as to any such securities, the Holder thereof shall be
entitled to receive from the Issuer (or its transfer agent and registrar),
without expense (other than applicable transfer taxes, if any), new
Warrants (or, in the case of shares of Warrant Stock, new stock
certificates) of like tenor not bearing the applicable legends required by
paragraph (ii) above relating to the Securities Act and state securities
laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at any
time after each exercise of this Warrant, upon the request of the Holder hereof
or of any shares of Warrant Stock issued upon such exercise, acknowledge in
writing the extent, if any, of its continuing obligation to afford to the Holder
all rights to which the Holder shall continue to be entitled after such exercise
in accordance with the terms of this Warrant, provided that if the Holder shall
fail to make any such request, the failure shall not affect the continuing
obligation of the Issuer to afford such rights to the Holder.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a number of shares of Common Stock equal to at least
200% of the aggregate number of shares of Warrant Stock issuable upon the
exercise of the Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Articles of Incorporation or the by-laws of the Issuer,
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder hereof against dilution (to the extent specifically
provided herein) or impairment. Without limiting the generality of the
foregoing, the Issuer will (i) not permit the par value, if any, of its Common
Stock to exceed the then effective Warrant Price, (ii) not amend or modify any
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provision of the Articles of Incorporation or by-laws of the Issuer in any
manner that would adversely affect in any way the powers, preferences or
relative participating, optional or other special rights of the Common Stock or
which would adversely affect the rights of the Holders of the Warrants, (iii)
take all such action as may be reasonably necessary in order that the Issuer may
validly and legally issue fully paid and nonassessable shares of Common Stock,
free and clear of any liens, claims, encumbrances and restrictions (other than
as provided herein) upon the exercise of this Warrant, and (iv) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Rights and Obligations under any Registration Rights Agreement. The
shares of Warrant Stock are entitled to the benefits and subject to the terms of
the registration rights agreement, if any, entered into between the Issuer and
the investors in the Qualified Financing.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate with or merge
into any other Person and the Issuer shall not be the continuing or
surviving corporation of such consolidation or merger; provided, however,
-------- -------
that a merger for the sole purpose of effecting a change in domicile of the
Company from one state to another shall not be deemed a Triggering Event,
or (b) permit any other Person to consolidate with or merge into the Issuer
and the Issuer shall be the continuing or surviving Person but, in
connection with such consolidation or merger, any Capital Stock of the
Issuer shall be changed into or exchanged for Securities of any other
Person or cash or any other property, or (c) transfer all or substantially
all of its properties or assets to any other Person, or (d) effect a
capital reorganization or reclassification of its Capital Stock, then, and
in the case of each such Triggering Event, proper provision shall be made
so that, upon the basis and the terms and in the manner provided in this
Warrant, the Holder of this Warrant shall be entitled (x) upon the exercise
hereof at any time after the consummation of such Triggering Event, to the
extent this Warrant is not exercised prior to such Triggering Event, or is
redeemed in connection with such Triggering Event, to receive at the
Warrant Price in effect at the time immediately prior to the consummation
of such Triggering Event in lieu of the Common Stock issuable upon such
exercise of this Warrant prior to such Triggering Event, the Securities,
cash and property to which the Holder would have been entitled upon the
consummation of such Triggering Event if the Holder had exercised the
rights represented by this Warrant immediately prior thereto, subject to
adjustments and increases (subsequent to such corporate action) as nearly
equivalent as possible to the adjustments provided for in Section 4 hereof
or (y) to sell this Warrant (or, at the Holder's election, a portion
hereof) to the Person continuing after or surviving such Triggering Event,
or to the Issuer (if Issuer is the continuing or surviving Person) at a
sales price equal to the amount of cash, property and/or Securities to
which a holder of the number of shares of Common Stock which would
otherwise have
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been delivered upon the exercise of this Warrant would have been entitled
upon the effective date or closing of any such Triggering Event (the "Event
Consideration"), less the amount or portion of such Event Consideration
having a fair value equal to the aggregate Warrant Price applicable to this
Warrant or the portion hereof so sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to
the consummation thereof, each Person (other than the Issuer) which may be
required to deliver any Securities, cash or property upon the exercise of
this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the Holder of this Warrant,
(A) the obligations of the Issuer under this Warrant (and if the Issuer
shall survive the consummation of such Triggering Event, such assumption
shall be in addition to, and shall not release the Issuer from, any
continuing obligations of the Issuer under this Warrant) and (B) the
obligation to deliver to the Holder such shares of Securities, cash or
property as, in accordance with the foregoing provisions of this subsection
(a), the Holder shall be entitled to receive, and such Person shall have
similarly delivered to the Holder an opinion of counsel for such Person,
which counsel shall be reasonably satisfactory to the Holder, stating that
this Warrant shall thereafter continue in full force and effect and the
terms hereof (including, without limitation, all of the provisions of this
subsection (a)) shall be applicable to the Securities, cash or property
which such Person may be required to deliver upon any exercise of this
Warrant or the exercise of any rights pursuant hereto.
(iii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised his right as provided in clause (y) of subparagraph
(i) of this subsection (a) to sell this Warrant or a portion thereof, the
Issuer agrees that as a condition to the consummation of any such
Triggering Event the Issuer shall secure such right of Holder to sell this
Warrant to the Person continuing after or surviving such Triggering Event
and the Issuer shall not effect any such Triggering Event unless upon or
prior to the consummation thereof the amounts of cash, property and/or
Securities required under such clause (y) are delivered to the Holder of
this Warrant. The obligation of the Issuer to secure such right of the
Holder to sell this Warrant shall be subject to the Holder's cooperation
with the Issuer, including, without limitation, the giving of customary
representations and warranties to the purchaser in connection with any such
sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time while
this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of,
shares of Common Stock, the Warrant Price shall be adjusted, as at the date
the Issuer shall take a record of the holders the Issuer's Capital Stock
for the purpose of receiving such dividend or other distribution (or
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if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Warrant Price in
effect immediately prior to such record date (or if no such record is
taken, then immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or
distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional
shares, the number of additional shares which would have been outstanding
had the Issuer issued fractional shares in connection with said dividends);
or
(ii) Other Dividends. Pay a dividend on, or make any distribution of
its assets upon or with respect to (including, but not limited to, a
distribution of its property as a dividend in liquidation or partial
liquidation or by way of return of capital), the Common Stock (other than
as described in clause (i) of this subsection (c)), or in the event that
the Issuer shall offer options or rights to subscribe for shares of Common
Stock, or issue any Common Stock Equivalents, to all of its holders of
Common Stock, then on the record date for such payment, distribution or
offer or, in the absence of a record date, on the date of such payment,
distribution or offer, the Holder shall receive what the Holder would have
received had he exercised this Warrant in full immediately prior to the
record date of such payment, distribution or offer or, in the absence of a
record date, immediately prior to the date of such payment, distribution or
offer.
(d) Issuance of Additional Shares of Common Stock. If the Issuer, at any
time while this Warrant is outstanding, shall issue any Additional Shares of
Common Stock (otherwise than as provided in the foregoing subsections (a)
through (c) of this Section 4), at a price per share less than the Warrant Price
then in effect or less than the Per Share Market Value then in effect or without
consideration, then the Warrant Price upon each such issuance shall be adjusted
to that price (rounded to the nearest cent) determined by multiplying the
Warrant Price then in effect by a fraction:
(i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (B) the number of
shares of Common Stock (rounded to the nearest whole share) which the
aggregate consideration for the total number of such Additional Shares of
Common Stock so issued would purchase at a price per share equal to the
greater of the Per Share Market Value then in effect and the Warrant Price
then in effect, and
(ii) the denominator of which shall be equal to the number of shares
of Common Stock outstanding immediately after the issuance of such
Additional Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or (c)
of this Section 4. No adjustment of the Warrant Price shall be made under this
subsection (d) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to any Common Stock Equivalent if upon the issuance of such
Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (e) of this Section 4 or (y) no adjustment was required pursuant to
subsection (e) of this Section 4. No adjustment of the Warrant Price shall be
made under this subsection (d) in an amount less than $.01 per share, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment, if any, which together with
any adjustments so carried forward shall amount to $.01 per share or more,
provided that upon any adjustment of the Warrant Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities or
the reclassification, subdivision or combination of
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Common Stock into a greater or smaller number of shares, the foregoing figure of
$.01 per share (or such figure as last adjusted) shall be adjusted (to the
nearest one-half cent) in proportion to the adjustment in the Warrant Price.
(e) Issuance of Common Stock Equivalents. If the Issuer, at any time while
this Warrant is outstanding, shall issue any Common Stock Equivalent and the
price per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Warrant Price then in effect or less than the Per Share Market Value then in
effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
Warrant Price or less than the Per Share Market Value in effect at the time of
such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of subsection (d) of this
Section 4 on the basis that (1) the maximum number of Additional Shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued (whether or not such Common Stock Equivalents are
actually then exercisable, convertible or exchangeable in whole or in part) as
of the earlier of (A) the date on which the Issuer shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date of
actual issuance of such Common Stock Equivalent, and (2) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall
be deemed to be the minimum consideration received or receivable by the Issuer
for the issuance of such Additional Shares of Common Stock pursuant to such
Common Stock Equivalent. No adjustment of the Warrant Price shall be made under
this subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made in
the Warrant Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e). If no adjustment is required under this
subsection (e) upon issuance of any Common Stock Equivalent or once an
adjustment is made under this subsection (e) based upon the Per Share Market
Value in effect on the date of such adjustment, no further adjustment shall be
made under this subsection (e) based solely upon a change in the Per Share
Market Value after such date.
(f) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value then
in effect, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which the
aggregate consideration for the total number of such shares of Common Stock so
purchased, redeemed or acquired would purchase at the Per Share Market Value;
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such purchase, redemption or acquisition. For the
purposes of this subsection (f), the date as of which the Per Share Market Value
shall be computed shall be the earlier of (x) the date on which the Issuer shall
enter into a firm contract for the purchase, redemption or acquisition of such
Common Stock, or (y) the date of actual purchase, redemption or acquisition of
such Common Stock. For the purposes of this subsection (f), a purchase,
redemption or acquisition of a Common Stock Equivalent shall be deemed to be a
purchase of the underlying Common Stock, and the computation herein required
shall be made on the basis of the full exercise, conversion or exchange of such
Common Stock Equivalent on the date as of which such computation is required
hereby to be made, whether or not such Common Stock Equivalent is actually
exercisable, convertible or exchangeable on such date.
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(g) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
(i) Computation of Consideration. The consideration received by the
Issuer shall be deemed to be the following: to the extent that any
Additional Shares of Common Stock or any Common Stock Equivalents shall be
issued for a cash consideration, the consideration received by the Issuer
therefor, or if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription
price, or, if such Additional Shares of Common Stock or Common Stock
Equivalents are sold to underwriters or dealers for public offering without
a subscription offering, the public offering price, in any such case
excluding any amounts paid or receivable for accrued interest or accrued
dividends and without deduction of any compensation, discounts,
commissions, or expenses paid or incurred by the Issuer for or in
connection with the underwriting thereof or otherwise in connection with
the issue thereof; to the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the, time of such
issuance as determined in good faith by the Board. The consideration for
any Additional Shares of Common Stock issuable pursuant to any Common Stock
Equivalents shall be the consideration received by the Issuer for issuing
such Common Stock Equivalents, plus the additional consideration payable to
the Issuer upon the exercise, conversion or exchange of such Common Stock
Equivalents. In case of the issuance at any time of any Additional Shares
of Common Stock or Common Stock Equivalents in payment or satisfaction of
any dividend upon any class of Capital Stock of the Issuer other than
Common Stock, the Issuer shall be deemed to have received for such
Additional Shares of Common Stock or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or satisfied.
In any case in which the consideration to be received or paid shall be
other than cash, the Board shall notify the Holder of this Warrant of its
determination of the fair market value of such consideration prior to
payment or accepting receipt thereof. If, within thirty days after receipt
of said notice, the Majority Holders shall notify the Board in writing of
their objection to such determination, a determination of the fair market
value of such consideration shall be made by an Independent Appraiser
selected by the Majority Holders with the approval of the Board (which
approval shall not be unreasonably withheld), whose fees and expenses shall
be paid by the Issuer.
(ii) Readjustment of Warrant Price. Upon the expiration or
termination of the right to convert, exchange or exercise any Common Stock
Equivalent the issuance of which effected an adjustment in the Warrant
Price, if such Common Stock Equivalent shall not have been converted,
exercised or exchanged in its entirety, the number of shares of Common
Stock deemed to be issued and outstanding by reason of the fact that they
were issuable upon conversion, exchange or exercise of any such Common
Stock Equivalent shall no longer be computed as set forth above, and the
Warrant Price shall forthwith be readjusted and thereafter be the price
which it would have been (but reflecting any other adjustments in the
Warrant Price made pursuant to the provisions of this Section 4 after the
issuance of such Common Stock Equivalent) had the adjustment of the Warrant
Price been made in accordance with the issuance or sale of the number of
Additional Shares of Common Stock actually issued upon conversion, exchange
or issuance of such Common Stock Equivalent and thereupon only the number
of Additional Shares of Common Stock actually so issued shall be deemed to
have been issued and only the consideration actually received by the Issuer
(computed as in clause (i) of this subsection (g)) shall be deemed to have
been received by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common Stock at
any time outstanding shall (A) not include any shares thereof then directly or
indirectly owned or
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held by or for the account of the Issuer or any of its Subsidiaries, and (B) be
deemed to include all shares of Common Stock then issuable upon conversion,
exercise or exchange of any then outstanding Common Stock Equivalents or any
other evidences of Indebtedness, shares of Capital Stock (including, without
limitation, the Preferred Stock) or other Securities which are or may be at any
time convertible into or exchangeable for shares of Common Stock or Other Common
Stock.
(h) Other Action Affecting Common Stock. In case after the Original Issue
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (g) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to any of the foregoing provisions of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
(j) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder
of this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" mutually agreed upon by the
Issuer and the Holder or, in the event the Issuer and the Holder are unable to
agree, a "big five" national accounting firm (other than the Issuer's
independent auditors) selected by the Issuer's independent auditors. The firm
selected in the manner as provided in the preceding sentence shall be instructed
to deliver a written opinion as to such matters to the Issuer and the Holder
within thirty days after submission to it of such dispute. Such opinion shall
be final and binding on the parties hereto. The fees and expenses of such
accounting firm shall be paid by the Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a
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cash payment therefor equal in amount to the product of the applicable fraction
multiplied by the Per Share Market Value then in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Additional Shares of Common Stock" means all shares of Common Stock
issued by the Issuer after the Original Issue Date, and all shares of Other
Common, if any, issued by the Issuer after the Original Issue Date, except
(i) the Warrant Stock, (ii) the Preferred Stock and the Preferred Shares
and (iii) the grant after the Original Issue Date of, or the exercise after
the Original Issue Date of, options or warrants or rights to purchase stock
under the Company's stock option plan.
"Articles of Incorporation" means the Articles of Incorporation of the
Issuer as in effect on the Original Issue Date, and as hereafter from time
to time amended, modified, supplemented or restated in accordance with the
terms hereof and thereof and pursuant to applicable law.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or
limited) in any Person which is a partnership, (iii) all membership
interests or limited liability company interests in any limited liability
company, and (iv) all equity or ownership interests in any Person of any
other type.
"Common Stock" means the Common Stock, $0.001 par value, of the Issuer
and any other Capital Stock into which such stock may hereafter be changed.
"Common Stock Equivalent" means any Convertible Security or warrant,
option or other right to subscribe for or purchase any Additional Shares of
Common Stock or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness, shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for Additional Shares of Common Stock. The
term "Convertible Security" means one of the Convertible Securities.
"Five Day Average Share Price" means the average of the closing bid
prices of shares of the Common Stock (as reported by Bloomberg Financial
Markets) in the over-the-market on the electronic bulletin board for such
security (the "OTC Bulletin Board") (or such other United States stock
exchange or public market (an "Alternative Exchange") on which the Common
Stock trades if, at the time of exercise, the Common Stock is not trading
on the OTC Bulletin Board), for the five (5) consecutive trading days
immediately preceding the date of determination.
"Governmental Authority" means any governmental, regulatory or self-
regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and
whether domestic or foreign.
"Holder" or "Holders" mean the Person or Persons who shall from time
to time own any Warrant.
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"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (other than the firm that regularly
examines the financial statements of the Issuer) that is regularly engaged
in the business of appraising the Capital Stock or assets of corporations
or other entities as going concerns, and which is not affiliated with
either the Issuer or the Holder of any Warrant.
"Issuer" means SkyLynx Communications, Inc., a Colorado corporation,
and its successors.
"Majority Holders" means at any time the holders of Warrants issued in
connection with convertible loans for the Qualified Financing exercisable
for a majority of the shares of Warrant Stock issuable under the Warrants
at the time outstanding.
"Original Issue Date" means November 15, 1999.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in
the distribution of earnings and assets of the Issuer without limitation as
to amount.
"OTC Bulletin Board" means the over-the-counter electronic bulletin
board.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.
"Per Share Market Value" means on any particular date (a) the Five Day
Average Share Price on such date, (b) if the Common Stock is not listed
then on the OTC Bulletin Board or any Alternative Exchange, then the
average of the "Pink Sheet" quotes for the five consecutive days
immediately preceding such date, as determined in good faith by the holder,
or (c) if the Common Stock is not then publicly traded, the fair market
value of a share of Common Stock as determined by an Independent Appraiser
selected in good faith by the Majority Holders; provided, however, that the
Issuer, after receipt of the determination by such Independent Appraiser,
shall have the right to select an additional Independent Appraiser or
Appraisers, in which case, the fair market value shall be equal to the
average of the determinations by each such Independent Appraiser; and
provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period. The determination of fair
market value by an Independent Appraiser shall be based upon the fair
market value of the Issuer determined on a going concern basis as between a
willing buyer and a willing seller and taking into account all relevant
factors determinative of value, and shall be final and binding on all
parties. In determining the fair market value of any shares of Common
Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities
laws, or to the existence or absence of, or any limitations on, voting
rights.
"Preferred Shares" means Common Stock issuable upon the conversion of
any Preferred Stock.
"Preferred Stock" shall mean a series of the Issuer's preferred stock
issued in a Qualified Financing.
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"Qualified Financing" shall mean an investment in the next series of
Preferred Stock of the Issuer occurring after the date of this Warrant led
by Tudor Investments, in which the Issuer receives aggregate proceeds of at
least $10,000,000, including proceeds received upon conversion of the
convertible loan in connection with which this Warrant has been issued and
any other convertible loans made to the Issuer prior to such Qualified
Financing.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or other
right to purchase or acquire any Security. "Security" means one of the
Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on
the over the counter market as reported by the OTC Bulletin Board, or (b)
if the Common Stock is not listed on the OTC Bulletin Board, a day on which
the Common Stock is traded on any other registered national stock exchange,
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices),
provided, however, that in the event that the Common Stock is not listed or
quoted as set forth in (a), (b) and (c) hereof, then Trading Day shall mean
any day except Saturday, Sunday and any day which shall be a legal holiday
or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Voting Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) having
ordinary voting power for the election of a majority of the members of the
Board of Directors (or other governing body) of such corporation, other
than Capital Stock having such power only by reason of the happening of a
contingency.
"Warrants" means the Warrants issued and sold in connection with
convertible loans for the Qualified Financing, including, without
limitation, this Warrant, and any other warrants of like tenor issued in
substitution or exchange for any thereof pursuant to the provisions of
Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.
"Warrant Price" means $3.375, as such price may be adjusted from time
to time as shall result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all prior adjustments and increases
to such number made or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of any
Warrant or Warrants or otherwise issuable pursuant to any Warrant or
Warrants.
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8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of Common
Stock; or
(B) the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares of
Capital Stock of any class or of any Common Stock Equivalents or
Convertible Securities or other rights; or
(C) there shall be any reclassification of the Capital Stock of the
Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or
substantially all of the Issuer's property, assets or business
(except a merger or other reorganization in which the Issuer
shall be the surviving corporation and its shares of Capital
Stock shall continue to be outstanding and unchanged and except a
consolidation, merger, sale, transfer or other disposition
involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial
liquidation of the Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
days prior to the action in question and not less than twenty days prior to the
record date or the date on which the Issuer's transfer books are closed in
respect thereto. The Issuer shall give to the Holder notice of all meetings and
actions by written consent of its stockholders, at the same time in the same
manner as notice of any meetings of stockholders is required to be given to
stockholders who do not waive such notice (or, if such requires no notice, then
two Trading Days written notice thereof describing the matters upon which action
is to be taken). The Holder shall have the right to send two representatives
selected by him to each meeting, who shall be permitted to attend, but not vote
at, such meeting and any adjournments thereof. This Warrant entitles the Holder
to receive copies of all financial and other information distributed or required
to be distributed to the holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 9 without the consent of the Holder of this Warrant.
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10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York Time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York Time, on any date and
earlier than 11:59 p.m., New York Time, on such date, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to the Holder at his last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
SkyLynx Communications, Inc.
600 South Cherry Street
Suite 400
Denver, CO 80246
Attention: Jeffery A. Mathias, President and CEO
Facsimile No.: (303) 316-0404
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to the address or
address specified on the first page hereto.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer and the Holder and shall be enforceable by the Holder.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
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16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
SKYLYNX COMMUNICATIONS, INC.
By: _____________________________
Name:
Title:
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EXERCISE FORM
SKYLYNX COMMUNICATIONS, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature _______________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature _______________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature _______________________
Address _____________________
_____________________
<PAGE>
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____
day of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
<PAGE>
Exhibit 4.14
WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
SkyLynx Communications, Inc.
Subject to Section 1 hereof, expires on February 11, 2003
No.: W-HCW-1
Number of Shares: 400,000 Date of Issuance: February 11, 2000
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, SkyLynx Communications, Inc., a Delaware corporation (together with
its successors and assigns, the "Issuer"), hereby certifies that H.C. Wainwright
& Co., Inc., located at 245 Park Avenue, 44th Floor, New York, New York 10167,
or its registered permitted assigns is entitled to subscribe for and purchase,
during the period specified in this Warrant, up to 400,000 shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., California Time, on February 11, 2003 (the "Initial
Term"), provided, that, if at the date of the expiration of the Initial Term,
(A) the Warrant Stock shall not be listed on the OTC Bulletin Board, the Nasdaq
SmallCap Market, the Nasdaq National Market, The New York Stock Exchange, Inc.
or The American Stock Exchange, Inc. or (B) the Issuer shall not have sufficient
shares of Warrant Stock issuable upon a full exercise of this Warrant, then the
Initial Term shall be extended until such date on which none of the foregoing
events shall exist (the Initial Term, as such may be extended, being hereinafter
called the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
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(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at the Holder's election (i) in cash by certified or official
bank check, (ii) at any time on or after the Original Issue Date through the
date on or before the date any registration statement covering the resale of the
Warrant Stock has been declared effective by the Securities and Exchange
Commission by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to the provisions of subsection
(e) of this Section 2, this Warrant may be transferred by the Holder without the
consent of the Issuer. If transferred pursuant to this paragraph, and subject
to the provisions of subsection (e) of this Section 2, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Issuer, properly endorsed (by the Holder executing an assignment in the form
attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is exchangeable at
the principal office of the Issuer for Warrants for the purchase of the same
aggregate number of shares of Warrant Stock, each new Warrant to represent the
right to purchase such number of shares of Warrant Stock as the Holder hereof
shall designate at the time of such exchange. All Warrants issued on transfers
or exchanges shall be dated the Original Issue Date and shall be identical with
this Warrant except as to the number of shares of Warrant Stock issuable
pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Warrant Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell, transfer or otherwise dispose of this Warrant or any shares of
Warrant Stock to be issued upon exercise hereof except pursuant to an effective
registration
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statement, or an exemption from registration, under the Securities Act and any
applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and
all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been
effectively registered under the Securities Act, (B) upon the Issuer's receipt
of an opinion of counsel, in form and substance reasonably satisfactory to the
Issuer, addressed to the Issuer to the effect that such restrictions are no
longer required to ensure compliance with the Securities Act or (C) upon the
Issuer's receipt of other evidence reasonably satisfactory to the Issuer that
such registration is not required. Whenever such restrictions shall cease and
terminate as to any such securities, the Holder thereof shall be entitled to
receive from the Issuer (or its transfer agent and registrar), without expense
(other than applicable transfer taxes, if any), new Warrants (or, in the case of
shares of Warrant Stock, new stock certificates) of like tenor not bearing the
applicable legends required by paragraph (ii) above relating to the Securities
Act and state securities laws.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a number of shares of Common Stock equal to at least
100% of the aggregate number of shares of Warrant Stock issuable upon the
exercise of the Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon
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<PAGE>
the exercise of this Warrant if at the time any securities of the same class
shall be listed on such securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holder of this
Warrant, (iii) take all such action as may be reasonably necessary in order that
the Issuer may validly and legally issue fully paid and nonassessable shares of
Common Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant, and (iv) use
its best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Registration Under Securities Act. The Company agrees to register for
resale the shares of Warrant Stock as part of the registration statement to be
filed by the Company to register for resale the shares of Common Stock
underlying the Series F Convertible Preferred Stock sold to investors pursuant
to the Series F Convertible Stock Purchase Agreement dated February 2, 2000.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate with or merge into
any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger; provided, however, that a merger
-------- -------
for the sole purpose of effecting a change in domicile of the Issuer from one
state to another shall not be deemed a Triggering Event, or (b) permit any other
Person to consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, any Capital Stock of the Issuer shall be changed into or exchanged for
Securities of any other Person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other Person, or (d)
effect a capital reorganization or reclassification of its Capital Stock, then,
and in the case of each such Triggering Event, proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Warrant,
the Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent
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<PAGE>
this Warrant is not exercised prior to such Triggering Event, or is redeemed in
connection with such Triggering Event, to receive at the Warrant Price in effect
at the time immediately prior to the consummation of such Triggering Event in
lieu of the Common Stock issuable upon such exercise of this Warrant prior to
such Triggering Event, the Securities, cash and property to which the Holder
would have been entitled upon the consummation of such Triggering Event if the
Holder had exercised the rights represented by this Warrant immediately prior
thereto, subject to adjustments and increases (subsequent to such corporate
action) as nearly equivalent as possible to the adjustments provided for in
Section 4 hereof or (y) to sell this Warrant (or, at the Holder's election, a
portion hereof) to the Person continuing after or surviving such Triggering
Event, or to the Issuer (if Issuer is the continuing or surviving Person) at a
sales price equal to the amount of cash, property and/or Securities to which a
holder of the number of shares of Common Stock which would otherwise have been
delivered upon the exercise of this Warrant would have been entitled upon the
effective date or closing of any such Triggering Event (the "Event
Consideration"), less the amount or portion of such Event Consideration having a
fair value equal to the aggregate Warrant Price applicable to this Warrant or
the portion hereof so sold.
(ii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph (i) of
this subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees
that as a condition to the consummation of any such Triggering Event the Issuer
shall secure such right of Holder to sell this Warrant to the Person continuing
after or surviving such Triggering Event and the Issuer shall not effect any
such Triggering Event unless upon or prior to the consummation thereof the
amounts of cash, property and/or Securities required under such clause (y) are
delivered to the Holder of this Warrant. The obligation of the Issuer to secure
such right of the Holder to sell this Warrant shall be subject to the Holder's
cooperation with the Issuer, including, without limitation, the giving of
customary representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time while
this Warrant is outstanding, shall:
(i) Common Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of, shares of
Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer
shall take a record of the holders the Issuer's Capital Stock for the purpose of
receiving such dividend or other distribution (or if no such record is taken, as
at the date of such payment or other distribution), to that price determined by
multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or
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distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution of
its assets upon or with respect to (including, but not limited to, a
distribution of its property as a dividend in liquidation or partial liquidation
or by way of return of capital), the Common Stock (other than as described in
clause (i) of this subsection (c)), or in the event that the Issuer shall offer
options or rights to subscribe for shares of Common Stock, or issue any Common
Stock Equivalents, to all of its holders of Common Stock, then on the record
date for such payment, distribution or offer or, in the absence of a record
date, on the date of such payment, distribution or offer, the Holder shall
receive what the Holder would have received had it exercised this Warrant in
full immediately prior to the record date of such payment, distribution or offer
or, in the absence of a record date, immediately prior to the date of such
payment, distribution or offer.
(d) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4. The number of shares of
Common Stock at any time outstanding shall (A) not include any shares thereof
then directly or indirectly owned or held by or for the account of the Issuer or
any of its Subsidiaries, and (B) be deemed to include all shares of Common Stock
then issuable upon conversion, exercise or exchange of any then outstanding
Common Stock Equivalents or any other evidences of indebtedness, shares of
Capital Stock (including, without limitation, the Preferred Stock) or other
Securities which are or may be at any time convertible into or exchangeable for
shares of Common Stock or Other Common Stock.
(e) Other Action Affecting Common Stock. In case after the Original Issue
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (d) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(f) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to the provisions (b) and (c)(i) of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
(g) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a
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certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the Warrant Price and Warrant Share Number after
giving effect to such adjustment, and shall cause copies of such certificate to
be delivered to the Holder of this Warrant promptly after each adjustment. Any
dispute between the Issuer and the Holder of this Warrant with respect to the
matters set forth in such certificate may at the option of the Holder of this
Warrant be submitted to one of the national accounting firms currently known as
the "big five" mutually agreed upon by the Issuer and the Holder or, in the
event the Issuer and the Holder are unable to agree, a "big five" national
accounting firm (other than the Issuer's independent auditors) selected by the
Issuer's independent auditors. The firm selected in the manner as provided in
the preceding sentence shall be instructed to deliver a written opinion as to
such matters to the Issuer and the Holder within thirty days after submission to
it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Board" shall mean the Board of Directors of the Issuer.
"Business Day" shall mean day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or
limited) in any Person which is a partnership, (iii) all membership
interests or limited liability company interests in any limited liability
company, and (iv) all equity or ownership interests in any Person of any
other type.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Issuer as in effect on the Original Issue Date.
"Common Stock" means the Common Stock, $0.001 par value, of the Issuer
and any other Capital Stock into which such stock may hereafter be changed.
"Common Stock Equivalent" means any Convertible Security or warrant,
option or other right to subscribe for or purchase any shares of Common
Stock or any Convertible Security.
"Convertible Securities" means evidences of indebtedness, shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for shares of Common Stock. The term
"Convertible Security" means one of the Convertible Securities.
"Five Day Average Share Price" means the average of the closing bid
prices of shares of the Common Stock (as reported by Bloomberg Financial
Markets) in the over-the-market on the electronic bulletin board for such
security (the "OTC Bulletin Board") (or such other United States stock
exchange or public market (an "Alternative
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<PAGE>
Exchange") on which the Common Stock trades if, at the time of exercise,
the Common Stock is not trading on the OTC Bulletin Board), for the five
(5) consecutive trading days immediately preceding the date of
determination.
"Governmental Authority" means any governmental, regulatory or self-
regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and
whether domestic or foreign.
"Holder" means the registered Person or Persons who shall from time to
time own this Warrant.
"Issuer" means SkyLynx Communications, Inc., a Delaware corporation,
and its successors.
"Original Issue Date" means February 11, 2000.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in
the distribution of earnings and assets of the Issuer without limitation as
to amount.
"OTC Bulletin Board" means the over-the-counter electronic bulletin
board.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.
"Per Share Market Value" means on any particular date (a) the Five Day
Average Share Price on such date, (b) if the Common Stock is not listed
then on the OTC Bulletin Board or any Alternative Exchange, then the
average of the "Pink Sheet" quotes for the five consecutive days
immediately preceding such date, as determined in good faith by the Holder,
or (c) if the Common Stock is not then publicly traded, the fair market
value of a share of Common Stock as determined by the Company in good
faith. In determining the fair market value of any shares of Common Stock,
no consideration shall be given to any restrictions on transfer of the
Common Stock imposed by agreement or by federal or state securities laws,
or to the existence or absence of, or any limitations on, voting rights.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or other
right to purchase or acquire any Security. "Security" means one of the
Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on
the over the counter market as reported by the OTC Bulletin Board, or (b)
if the Common Stock is not listed on the OTC Bulletin Board, a day on which
the Common Stock is traded on
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any other registered national stock exchange, or (c) if the Common Stock is
not quoted on the OTC Bulletin Board, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other
government action to close.
"Voting Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) having
ordinary voting power for the election of a majority of the members of the
Board of Directors (or other governing body) of such corporation, other
than Capital Stock having such power only by reason of the happening of a
contingency.
"Warrant Price" means $0.01, as such price may be adjusted from time
to time as shall result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all adjustments to such number made
or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of this
Warrant.
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of Common
Stock; or
(B) the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares of
Capital Stock of any class or of any Common Stock Equivalents or
Convertible Securities or other rights; or
(C) there shall be any reclassification of the Capital Stock of the
Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or
substantially all of the Issuer's property, assets or business
(except a merger or other reorganization in which the Issuer
shall be the surviving corporation and its shares of Capital
Stock shall continue to be outstanding and unchanged and except a
consolidation, merger, sale, transfer or other disposition
involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial
liquidation of the Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also
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shall specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their certificates for Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding-up, as the case may be.
Such notice shall be given at least twenty days prior to the action in question
and not less than twenty days prior to the record date or the date on which the
Issuer's transfer books are closed in respect thereto. The Issuer shall give to
the Holder notice of all meetings and actions by written consent of its
stockholders, at the same time in the same manner as notice of any meetings of
stockholders is required to be given to stockholders who do not waive such
notice (or, if such requires no notice, then two Trading Days written notice
thereof describing the matters upon which action is to be taken). The Holder
shall have the right to send two representatives selected by him to each
meeting, who shall be permitted to attend, but not vote at, such meeting and any
adjournments thereof. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument executed by the Issuer and the Holder.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., California Time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., California Time, on any date
and earlier than 11:59 p.m., California Time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to the Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
SkyLynx Communications, Inc.
600 South Cherry Street
Suite 400
Denver, CO 80246
Attention: Jeffery A. Mathias, President and CEO
Facsimile No.: (303) 316-0404
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to the address or
addresses specified on the first page hereto.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in California or Colorado for
the purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such
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issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer and the Holder and shall be enforceable by the Holder.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Remainder of this page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
SKYLYNX COMMUNICATIONS, INC.
By: ____________________________
Name:
Title:
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EXERCISE FORM
SKYLYNX COMMUNICATIONS, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________________, attorney, to transfer the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the right to purchase ___________ shares of Warrant Stock evidenced
by the within Warrant together with all rights therein, and does irrevocably
constitute and appoint _________________, attorney, to transfer that part of the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
<PAGE>
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-HCW-1 _____ canceled (or transferred or exchanged) this
_____ day of ___________, _____, shares of Common Stock issued therefor in the
name of _______________, Warrant No. W-HCW _____ issued for ____ shares of
Common Stock in the name of _______________.
<PAGE>
Exhibit 4.15
WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
SkyLynx Communications, Inc.
Subject to Section 1 hereof, expires on February 7, 2002
No.: W-CCEC-1
Number of Shares: 100,000 Date of Issuance: February 7, 2000
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, SkyLynx Communications, Inc., a Delaware corporation (together with
its successors and assigns, the "Issuer"), hereby certifies that Continental
Capital & Equity Corporation, located at 195 Wekiva Springs Road, Suite 200,
Longwood, Florida 32779, or its registered permitted assigns is entitled to
subscribe for and purchase, during the period specified in this Warrant, up to
100,000 shares (subject to adjustment as hereinafter provided) of the duly
authorized, validly issued, fully paid and non-assessable Common Stock of the
Issuer, at an exercise price per share equal to the Warrant Price then in
effect, subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. Capitalized terms used in this Warrant and not otherwise
defined herein shall have the respective meanings specified in Section 7 hereof.
This Warrant has been issued in connection with that certain Market Access
Program Marketing Agreement, of even date herewith, by and between Issuer and
Continental Capital & Equity Corporation (the "Marketing Agreement").
This Warrant shall vest and become exercisable in accordance with the
following schedule: (i) 25,000 shares shall be immediately exercisable upon the
Original Issue Date (the "First Installment Warrant Stock"); (ii) 25,000 shares
shall become exercisable 90 days after the Original Issue Date (the "Second
Installment Warrant Stock"); (iii) 25,000 shares shall become exercisable 180
days after the Original Issue Date (the "Third Installment Warrant Stock"); and
(iv) 25,000 shares shall become exercisable 270 days after the Original Issue
Date (the "Fourth Installment Warrant Stock"). Notwithstanding anything to the
contrary contained in the foregoing sentence or elsewhere in this Warrant, in
the event of the termination of the Marketing Agreement, this Warrant shall
cease to vest, and Holder shall forfeit and have no right to exercise this
Warrant with respect to shares of Warrant Stock which have not become
exercisable, as of the date of termination of the Marketing Agreement.
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1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., California Time, on February 7, 2002 (the "Initial
Term"), provided, that, if at the date of the expiration of the Initial Term,
(A) the Warrant Stock shall not be listed on the OTC Bulletin Board, the Nasdaq
SmallCap Market, the Nasdaq National Market, The New York Stock Exchange, Inc.
or The American Stock Exchange, Inc. or (B) the Issuer shall not have sufficient
shares of Warrant Stock issuable upon a full exercise of this Warrant, then the
Initial Term shall be extended until such date on which none of the foregoing
events shall exist (the Initial Term, as such may be extended, being hereinafter
called the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at the Holder's election (i) in cash by certified or official
bank check, (ii) at any time on or after the Original Issue Date through the
date on or before the date any registration statement covering the resale of the
Warrant Stock has been declared effective by the Securities and Exchange
Commission by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to the provisions of subsection
(e) of this Section 2, this Warrant may be transferred by the Holder without the
consent of the Issuer. If transferred pursuant to this paragraph, and subject
to the provisions of subsection (e) of this Section 2, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Issuer, properly endorsed (by the Holder executing an assignment in the form
attached
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<PAGE>
hereto) and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. This Warrant is exchangeable at the principal
office of the Issuer for Warrants for the purchase of the same aggregate number
of shares of Warrant Stock, each new Warrant to represent the right to purchase
such number of shares of Warrant Stock as the Holder hereof shall designate at
the time of such exchange. All Warrants issued on transfers or exchanges shall
be dated the Original Issue Date and shall be identical with this Warrant except
as to the number of shares of Warrant Stock issuable pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Warrant Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell, transfer or otherwise dispose of this Warrant or any shares of
Warrant Stock to be issued upon exercise hereof except pursuant to an effective
registration statement, or an exemption from registration, under the Securities
Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and
all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been
effectively registered under the Securities Act, (B) upon the Issuer's receipt
of an opinion of counsel, in form and substance reasonably satisfactory to the
Issuer, addressed to the Issuer to the effect that such restrictions are no
longer required to ensure compliance with the Securities Act or (C) upon the
Issuer's receipt of other evidence reasonably satisfactory to the Issuer that
such registration is not required. Whenever such restrictions shall cease and
terminate as to any such securities, the Holder thereof shall be entitled to
receive from the Issuer (or its transfer agent and registrar), without expense
(other than applicable transfer taxes, if any), new Warrants (or, in the case of
shares of Warrant Stock, new stock certificates) of like tenor not bearing the
applicable legends required by paragraph (ii) above relating to the Securities
Act and state securities laws.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of
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<PAGE>
this Warrant a number of shares of Common Stock equal to at least 100% of the
aggregate number of shares of Warrant Stock issuable upon the exercise of the
Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved for
issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holder of this
Warrant, (iii) take all such action as may be reasonably necessary in order that
the Issuer may validly and legally issue fully paid and nonassessable shares of
Common Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant, and (iv) use
its best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Registration Under Securities Act. The Company shall use all
reasonable efforts to register the shares of Warrant Stock pursuant to a
registration statement on Form S-3 or SB-2 filed with the Securities and
Exchange Commission, subject to the approval of the Company's board of directors
and certain stockholders of the Company; provided, however, that in the event
that the Company fails to obtain such approvals, the Company agrees to register
the shares of Warrant Stock within one year of the Original Issue Date.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
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(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate with or merge into
any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger; provided, however, that a merger
-------- -------
for the sole purpose of effecting a change in domicile of the Issuer from one
state to another shall not be deemed a Triggering Event, or (b) permit any other
Person to consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, any Capital Stock of the Issuer shall be changed into or exchanged for
Securities of any other Person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other Person, or (d)
effect a capital reorganization or reclassification of its Capital Stock, then,
and in the case of each such Triggering Event, proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Warrant,
the Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event, or is redeemed in connection
with such Triggering Event, to receive at the Warrant Price in effect at the
time immediately prior to the consummation of such Triggering Event in lieu of
the Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which the Holder would
have been entitled upon the consummation of such Triggering Event if the Holder
had exercised the rights represented by this Warrant immediately prior thereto,
subject to adjustments and increases (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in Section 4
hereof or (y) to sell this Warrant (or, at the Holder's election, a portion
hereof) to the Person continuing after or surviving such Triggering Event, or to
the Issuer (if Issuer is the continuing or surviving Person) at a sales price
equal to the amount of cash, property and/or Securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph (i) of
this subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees
that as a condition to the consummation of any such Triggering Event the Issuer
shall secure such right of Holder to sell this Warrant to the Person continuing
after or surviving such Triggering Event and the Issuer shall not effect any
such Triggering Event unless upon or prior to the consummation thereof the
amounts of cash, property and/or Securities required under such clause (y) are
delivered to the Holder of this Warrant. The obligation of the Issuer to secure
such right of the Holder to sell this Warrant shall be subject to the Holder's
cooperation with the Issuer, including, without limitation, the giving of
customary representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time while
this Warrant is outstanding, shall subdivide or combine any shares of Common
Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of holders of its Common
Stock for the purpose of so combining, as at the applicable
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<PAGE>
record date, whichever is earlier) to reflect the reduction in the total number
of shares of Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time while
this Warrant is outstanding, shall:
(i) Common Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of, shares of
Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer
shall take a record of the holders the Issuer's Capital Stock for the purpose of
receiving such dividend or other distribution (or if no such record is taken, as
at the date of such payment or other distribution), to that price determined by
multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution of
its assets upon or with respect to (including, but not limited to, a
distribution of its property as a dividend in liquidation or partial liquidation
or by way of return of capital), the Common Stock (other than as described in
clause (i) of this subsection (c)), or in the event that the Issuer shall offer
options or rights to subscribe for shares of Common Stock, or issue any Common
Stock Equivalents, to all of its holders of Common Stock, then on the record
date for such payment, distribution or offer or, in the absence of a record
date, on the date of such payment, distribution or offer, the Holder shall
receive what the Holder would have received had it exercised this Warrant in
full immediately prior to the record date of such payment, distribution or offer
or, in the absence of a record date, immediately prior to the date of such
payment, distribution or offer.
(d) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4. The number of shares of
Common Stock at any time outstanding shall (A) not include any shares thereof
then directly or indirectly owned or held by or for the account of the Issuer or
any of its Subsidiaries, and (B) be deemed to include all shares of Common Stock
then issuable upon conversion, exercise or exchange of any then outstanding
Common Stock Equivalents or any other evidences of indebtedness, shares of
Capital Stock (including, without limitation, the Preferred Stock) or other
Securities which are or may be at any time convertible into or exchangeable for
shares of Common Stock or Other Common Stock.
(e) Other Action Affecting Common Stock. In case after the Original Issue
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (d) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(f) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to the provisions (b) and (c)(i) of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately
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<PAGE>
before giving effect to such adjustment and the denominator of which shall be
the Warrant Price immediately after giving effect to such adjustment. If the
Issuer shall be in default under any provision contained in Section 3 of this
Warrant so that shares issued at the Warrant Price adjusted in accordance with
this Section 4 would not be validly issued, the adjustment of the Warrant Share
Number provided for in the foregoing sentence shall nonetheless be made and the
Holder of this Warrant shall be entitled to purchase such greater number of
shares at the lowest price at which such shares may then be validly issued under
applicable law. Such exercise shall not constitute a waiver of any claim arising
against the Issuer by reason of its default under Section 3 of this Warrant.
(g) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder
of this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" mutually agreed upon by the
Issuer and the Holder or, in the event the Issuer and the Holder are unable to
agree, a "big five" national accounting firm (other than the Issuer's
independent auditors) selected by the Issuer's independent auditors. The firm
selected in the manner as provided in the preceding sentence shall be instructed
to deliver a written opinion as to such matters to the Issuer and the Holder
within thirty days after submission to it of such dispute. Such opinion shall
be final and binding on the parties hereto. The fees and expenses of such
accounting firm shall be paid by the Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Board" shall mean the Board of Directors of the Issuer.
"Business Day" shall mean day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or
limited) in any Person which is a partnership, (iii) all membership
interests or limited liability company interests in any limited liability
company, and (iv) all equity or ownership interests in any Person of any
other type.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Issuer as in effect on the Original Issue Date.
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<PAGE>
"Common Stock" means the Common Stock, $0.001 par value, of the Issuer
and any other Capital Stock into which such stock may hereafter be changed.
"Common Stock Equivalent" means any Convertible Security or warrant,
option or other right to subscribe for or purchase any shares of Common
Stock or any Convertible Security.
"Convertible Securities" means evidences of indebtedness, shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for shares of Common Stock. The term
"Convertible Security" means one of the Convertible Securities.
"Five Day Average Share Price" means the average of the closing bid
prices of shares of the Common Stock (as reported by Bloomberg Financial
Markets) in the over-the-market on the electronic bulletin board for such
security (the "OTC Bulletin Board") (or such other United States stock
exchange or public market (an "Alternative Exchange") on which the Common
Stock trades if, at the time of exercise, the Common Stock is not trading
on the OTC Bulletin Board), for the five (5) consecutive trading days
immediately preceding the date of determination.
"Governmental Authority" means any governmental, regulatory or self-
regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and
whether domestic or foreign.
"Holder" means the registered Person or Persons who shall from time to
time own this Warrant.
"Issuer" means SkyLynx Communications, Inc., a Delaware corporation,
and its successors.
"Original Issue Date" means February 7, 2000.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in
the distribution of earnings and assets of the Issuer without limitation as
to amount.
"OTC Bulletin Board" means the over-the-counter electronic bulletin
board.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.
"Per Share Market Value" means on any particular date (a) the Five Day
Average Share Price on such date, (b) if the Common Stock is not listed
then on the OTC Bulletin Board or any Alternative Exchange, then the
average of the "Pink Sheet" quotes for the five consecutive days
immediately preceding such date, as determined in good faith by the Holder,
or (c) if the Common Stock is not then publicly traded, the fair market
value of a share of Common Stock as determined by the Company in good
faith. In determining the fair market value of any shares of Common Stock,
no consideration shall be given to any restrictions on transfer of the
Common Stock imposed by agreement or by federal or state securities laws,
or to the existence or absence of, or any limitations on, voting rights.
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<PAGE>
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or other
right to purchase or acquire any Security. "Security" means one of the
Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on
the over the counter market as reported by the OTC Bulletin Board, or (b)
if the Common Stock is not listed on the OTC Bulletin Board, a day on which
the Common Stock is traded on any other registered national stock exchange,
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided, however, that in the event that the Common Stock is not listed or
quoted as set forth in (a), (b) and (c) hereof, then Trading Day shall mean
any day except Saturday, Sunday and any day which shall be a legal holiday
or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Voting Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) having
ordinary voting power for the election of a majority of the members of the
Board of Directors (or other governing body) of such corporation, other
than Capital Stock having such power only by reason of the happening of a
contingency.
"Warrant Price" means: with respect to the First Installment Warrant
Stock, $6.25 per share; with respect to the Second Installment Warrant
Stock, $7.50 per share; with respect to the Third Installment Warrant
Stock, $8.75 per share; and with respect to the Fourth Installment Warrant
Stock, $10.00 per share, as such prices may be adjusted from time to time
as shall result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all adjustments to such number made
or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of this
Warrant.
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of Common
Stock; or
(B) the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares of
Capital Stock of any class or of any Common Stock Equivalents or
Convertible Securities or other rights; or
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<PAGE>
(C) there shall be any reclassification of the Capital Stock of the
Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or
substantially all of the Issuer's property, assets or business
(except a merger or other reorganization in which the Issuer
shall be the surviving corporation and its shares of Capital
Stock shall continue to be outstanding and unchanged and except a
consolidation, merger, sale, transfer or other disposition
involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial
liquidation of the Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
days prior to the action in question and not less than twenty days prior to the
record date or the date on which the Issuer's transfer books are closed in
respect thereto. The Issuer shall give to the Holder notice of all meetings and
actions by written consent of its stockholders, at the same time in the same
manner as notice of any meetings of stockholders is required to be given to
stockholders who do not waive such notice (or, if such requires no notice, then
two Trading Days written notice thereof describing the matters upon which action
is to be taken). The Holder shall have the right to send two representatives
selected by him to each meeting, who shall be permitted to attend, but not vote
at, such meeting and any adjournments thereof. This Warrant entitles the Holder
to receive copies of all financial and other information distributed or required
to be distributed to the holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument executed by the Issuer and the Holder.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., California Time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., California Time, on any date
and earlier than 11:59 p.m., California Time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder
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<PAGE>
of this Warrant or of Warrant Stock issued pursuant hereto, addressed to the
Holder at its last known address or facsimile number appearing on the books of
the Issuer maintained for such purposes, or with respect to the Issuer,
addressed to:
SkyLynx Communications, Inc.
600 South Cherry Street
Suite 400
Denver, CO 80246
Attention: Jeffery A. Mathias, President and CEO
Facsimile No.: (303) 316-0404
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to the address or
addresses specified on the first page hereto.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in California or Colorado for
the purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer and the Holder and shall be enforceable by the Holder.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Remainder of this page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
SKYLYNX COMMUNICATIONS, INC.
By: ____________________________
Name:
Title:
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<PAGE>
EXERCISE FORM
SKYLYNX COMMUNICATIONS, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________________, attorney, to transfer the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the right to purchase ___________ shares of Warrant Stock evidenced
by the within Warrant together with all rights therein, and does irrevocably
constitute and appoint _________________, attorney, to transfer that part of the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
<PAGE>
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-CCEC-1_____ canceled (or transferred or exchanged) this
_____ day of ___________, _____, shares of Common Stock issued therefor in the
name of _______________, Warrant No. W-CCEC-1 issued for ____ shares of Common
Stock in the name of _______________.
<PAGE>
Exhibit 4.16
WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
SkyLynx Communications, Inc.
Subject to Section 1 hereof, expires on March 1, 2003
No.: W-BT-1
Number of Shares: 1,000,000 Date of Issuance: March 1, 2000
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, SkyLynx Communications, Inc., a Delaware corporation (together with
its successors and assigns, the "Issuer"), hereby certifies that Bulk Trade
Inc., located at Akara Building, Wickhams Cay #1, Road Town Tortola, British
Virgin Islands, or its registered permitted assigns is entitled to subscribe for
and purchase, during the period specified in this Warrant, up to 1,000,000
shares (subject to adjustment as hereinafter provided) of the duly authorized,
validly issued, fully paid and non-assessable Common Stock of the Issuer, at an
exercise price per share equal to the Warrant Price then in effect, subject,
however, to the provisions and upon the terms and conditions hereinafter set
forth. Capitalized terms used in this Warrant and not otherwise defined herein
shall have the respective meanings specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., California Time, on March 1, 2003 (the "Initial
Term"), provided, that, if at the date of the expiration of the Initial Term,
(A) the Warrant Stock shall not be listed on the OTC Bulletin Board, the Nasdaq
SmallCap Market, the Nasdaq National Market, The New York Stock Exchange, Inc.
or The American Stock Exchange, Inc. or (B) the Issuer shall not have sufficient
shares of Warrant Stock issuable upon a full exercise of this Warrant, then the
Initial Term shall be extended until such date on which none of the foregoing
events shall exist (the Initial Term, as such may be extended, being hereinafter
called the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
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(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at the Holder's election (i) in cash by certified or official
bank check, (ii) at any time on or after the Original Issue Date through the
date on or before the date any registration statement covering the resale of the
Warrant Stock has been declared effective by the Securities and Exchange
Commission by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to the provisions of subsection
(e) of this Section 2, this Warrant may be transferred by the Holder without the
consent of the Issuer. If transferred pursuant to this paragraph, and subject
to the provisions of subsection (e) of this Section 2, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Issuer, properly endorsed (by the Holder executing an assignment in the form
attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is exchangeable at
the principal office of the Issuer for Warrants for the purchase of the same
aggregate number of shares of Warrant Stock, each new Warrant to represent the
right to purchase such number of shares of Warrant Stock as the Holder hereof
shall designate at the time of such exchange. All Warrants issued on transfers
or exchanges shall be dated the Original Issue Date and shall be identical with
this Warrant except as to the number of shares of Warrant Stock issuable
pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Warrant Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell, transfer or otherwise dispose of this Warrant or any shares of
Warrant Stock to be issued upon exercise hereof except pursuant to an effective
registration
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statement, or an exemption from registration, under the Securities Act and any
applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and
all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been
effectively registered under the Securities Act, (B) upon the Issuer's receipt
of an opinion of counsel, in form and substance reasonably satisfactory to the
Issuer, addressed to the Issuer to the effect that such restrictions are no
longer required to ensure compliance with the Securities Act or (C) upon the
Issuer's receipt of other evidence reasonably satisfactory to the Issuer that
such registration is not required. Whenever such restrictions shall cease and
terminate as to any such securities, the Holder thereof shall be entitled to
receive from the Issuer (or its transfer agent and registrar), without expense
(other than applicable transfer taxes, if any), new Warrants (or, in the case of
shares of Warrant Stock, new stock certificates) of like tenor not bearing the
applicable legends required by paragraph (ii) above relating to the Securities
Act and state securities laws.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a number of shares of Common Stock equal to at least
100% of the aggregate number of shares of Warrant Stock issuable upon the
exercise of the Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved for
issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon
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the exercise of this Warrant if at the time any securities of the same class
shall be listed on such securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holder of this
Warrant, (iii) take all such action as may be reasonably necessary in order that
the Issuer may validly and legally issue fully paid and nonassessable shares of
Common Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant, and (iv) use
its best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Registration Under Securities Act. The Company agrees to register for
resale the shares of Warrant Stock as part of the registration statement to be
filed by the Company to register for resale the shares of Common Stock
underlying the Series F Convertible Preferred Stock sold to investors pursuant
to the Series F Convertible Stock Purchase Agreement dated February 2, 2000.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate with or merge into
any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger; provided, however, that a merger
-------- -------
for the sole purpose of effecting a change in domicile of the Issuer from one
state to another shall not be deemed a Triggering Event, or (b) permit any other
Person to consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, any Capital Stock of the Issuer shall be changed into or exchanged for
Securities of any other Person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other Person, or (d)
effect a capital reorganization or reclassification of its Capital Stock, then,
and in the case of each such Triggering Event, proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Warrant,
the Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent
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this Warrant is not exercised prior to such Triggering Event, or is redeemed in
connection with such Triggering Event, to receive at the Warrant Price in effect
at the time immediately prior to the consummation of such Triggering Event in
lieu of the Common Stock issuable upon such exercise of this Warrant prior to
such Triggering Event, the Securities, cash and property to which the Holder
would have been entitled upon the consummation of such Triggering Event if the
Holder had exercised the rights represented by this Warrant immediately prior
thereto, subject to adjustments and increases (subsequent to such corporate
action) as nearly equivalent as possible to the adjustments provided for in
Section 4 hereof or (y) to sell this Warrant (or, at the Holder's election, a
portion hereof) to the Person continuing after or surviving such Triggering
Event, or to the Issuer (if Issuer is the continuing or surviving Person) at a
sales price equal to the amount of cash, property and/or Securities to which a
holder of the number of shares of Common Stock which would otherwise have been
delivered upon the exercise of this Warrant would have been entitled upon the
effective date or closing of any such Triggering Event (the "Event
Consideration"), less the amount or portion of such Event Consideration having a
fair value equal to the aggregate Warrant Price applicable to this Warrant or
the portion hereof so sold.
(ii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph (i) of
this subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees
that as a condition to the consummation of any such Triggering Event the Issuer
shall secure such right of Holder to sell this Warrant to the Person continuing
after or surviving such Triggering Event and the Issuer shall not effect any
such Triggering Event unless upon or prior to the consummation thereof the
amounts of cash, property and/or Securities required under such clause (y) are
delivered to the Holder of this Warrant. The obligation of the Issuer to secure
such right of the Holder to sell this Warrant shall be subject to the Holder's
cooperation with the Issuer, including, without limitation, the giving of
customary representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time while
this Warrant is outstanding, shall subdivide or combine any shares of Common
Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time while
this Warrant is outstanding, shall:
(i) Common Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of, shares of
Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer
shall take a record of the holders the Issuer's Capital Stock for the purpose of
receiving such dividend or other distribution (or if no such record is taken, as
at the date of such payment or other distribution), to that price determined by
multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
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distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution of
its assets upon or with respect to (including, but not limited to, a
distribution of its property as a dividend in liquidation or partial liquidation
or by way of return of capital), the Common Stock (other than as described in
clause (i) of this subsection (c)), or in the event that the Issuer shall offer
options or rights to subscribe for shares of Common Stock, or issue any Common
Stock Equivalents, to all of its holders of Common Stock, then on the record
date for such payment, distribution or offer or, in the absence of a record
date, on the date of such payment, distribution or offer, the Holder shall
receive what the Holder would have received had it exercised this Warrant in
full immediately prior to the record date of such payment, distribution or offer
or, in the absence of a record date, immediately prior to the date of such
payment, distribution or offer.
(d) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4. The number of shares of
Common Stock at any time outstanding shall (A) not include any shares thereof
then directly or indirectly owned or held by or for the account of the Issuer or
any of its Subsidiaries, and (B) be deemed to include all shares of Common Stock
then issuable upon conversion, exercise or exchange of any then outstanding
Common Stock Equivalents or any other evidences of indebtedness, shares of
Capital Stock (including, without limitation, the Preferred Stock) or other
Securities which are or may be at any time convertible into or exchangeable for
shares of Common Stock or Other Common Stock.
(e) Other Action Affecting Common Stock. In case after the Original Issue
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (d) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(f) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to the provisions (b) and (c)(i) of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
(g) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a
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certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the Warrant Price and Warrant Share Number after
giving effect to such adjustment, and shall cause copies of such certificate to
be delivered to the Holder of this Warrant promptly after each adjustment. Any
dispute between the Issuer and the Holder of this Warrant with respect to the
matters set forth in such certificate may at the option of the Holder of this
Warrant be submitted to one of the national accounting firms currently known as
the "big five" mutually agreed upon by the Issuer and the Holder or, in the
event the Issuer and the Holder are unable to agree, a "big five" national
accounting firm (other than the Issuer's independent auditors) selected by the
Issuer's independent auditors. The firm selected in the manner as provided in
the preceding sentence shall be instructed to deliver a written opinion as to
such matters to the Issuer and the Holder within thirty days after submission to
it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Board" shall mean the Board of Directors of the Issuer.
"Business Day" shall mean day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or
limited) in any Person which is a partnership, (iii) all membership
interests or limited liability company interests in any limited liability
company, and (iv) all equity or ownership interests in any Person of any
other type.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Issuer as in effect on the Original Issue Date.
"Common Stock" means the Common Stock, $0.001 par value, of the Issuer
and any other Capital Stock into which such stock may hereafter be changed.
"Common Stock Equivalent" means any Convertible Security or warrant,
option or other right to subscribe for or purchase any shares of Common
Stock or any Convertible Security.
"Convertible Securities" means evidences of indebtedness, shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for shares of Common Stock. The term
"Convertible Security" means one of the Convertible Securities.
"Five Day Average Share Price" means the average of the closing bid
prices of shares of the Common Stock (as reported by Bloomberg Financial
Markets) in the over-the-market on the electronic bulletin board for such
security (the "OTC Bulletin Board") (or such other United States stock
exchange or public market (an "Alternative
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Exchange") on which the Common Stock trades if, at the time of exercise,
the Common Stock is not trading on the OTC Bulletin Board), for the five
(5) consecutive trading days immediately preceding the date of
determination.
"Governmental Authority" means any governmental, regulatory or self-
regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and
whether domestic or foreign.
"Holder" means the registered Person or Persons who shall from time to
time own this Warrant.
"Issuer" means SkyLynx Communications, Inc., a Delaware corporation,
and its successors.
"Original Issue Date" means March 1, 2000.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in
the distribution of earnings and assets of the Issuer without limitation as
to amount.
"OTC Bulletin Board" means the over-the-counter electronic bulletin
board.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.
"Per Share Market Value" means on any particular date (a) the Five Day
Average Share Price on such date, (b) if the Common Stock is not listed
then on the OTC Bulletin Board or any Alternative Exchange, then the
average of the "Pink Sheet" quotes for the five consecutive days
immediately preceding such date, as determined in good faith by the Holder,
or (c) if the Common Stock is not then publicly traded, the fair market
value of a share of Common Stock as determined by the Company in good
faith. In determining the fair market value of any shares of Common Stock,
no consideration shall be given to any restrictions on transfer of the
Common Stock imposed by agreement or by federal or state securities laws,
or to the existence or absence of, or any limitations on, voting rights.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or other
right to purchase or acquire any Security. "Security" means one of the
Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on
the over the counter market as reported by the OTC Bulletin Board, or (b)
if the Common Stock is not listed on the OTC Bulletin Board, a day on which
the Common Stock is traded on
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any other registered national stock exchange, or (c) if the Common Stock is
not quoted on the OTC Bulletin Board, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other
government action to close.
"Voting Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) having
ordinary voting power for the election of a majority of the members of the
Board of Directors (or other governing body) of such corporation, other
than Capital Stock having such power only by reason of the happening of a
contingency.
"Warrant Price" means $0.01, as such price may be adjusted from time
to time as shall result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all adjustments to such number made
or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of this
Warrant.
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of Common
Stock; or
(B) the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares of
Capital Stock of any class or of any Common Stock Equivalents or
Convertible Securities or other rights; or
(C) there shall be any reclassification of the Capital Stock of the
Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or
substantially all of the Issuer's property, assets or business
(except a merger or other reorganization in which the Issuer
shall be the surviving corporation and its shares of Capital
Stock shall continue to be outstanding and unchanged and except a
consolidation, merger, sale, transfer or other disposition
involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial
liquidation of the Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also
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shall specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their certificates for Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding-up, as the case may be.
Such notice shall be given at least twenty days prior to the action in question
and not less than twenty days prior to the record date or the date on which the
Issuer's transfer books are closed in respect thereto. The Issuer shall give to
the Holder notice of all meetings and actions by written consent of its
stockholders, at the same time in the same manner as notice of any meetings of
stockholders is required to be given to stockholders who do not waive such
notice (or, if such requires no notice, then two Trading Days written notice
thereof describing the matters upon which action is to be taken). The Holder
shall have the right to send two representatives selected by him to each
meeting, who shall be permitted to attend, but not vote at, such meeting and any
adjournments thereof. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument executed by the Issuer and the Holder.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., California Time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., California Time, on any date
and earlier than 11:59 p.m., California Time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to the Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
SkyLynx Communications, Inc.
600 South Cherry Street
Suite 400
Denver, CO 80246
Attention: Jeffery A. Mathias, President and CEO
Facsimile No.: (303) 316-0404
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to the address or
addresses specified on the first page hereto.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in California or Colorado for
the purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such
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issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer and the Holder and shall be enforceable by the Holder.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
SKYLYNX COMMUNICATIONS, INC.
By: ____________________________
Name:
Title:
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EXERCISE FORM
SKYLYNX COMMUNICATIONS, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________________, attorney, to transfer the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the right to purchase ___________ shares of Warrant Stock evidenced
by the within Warrant together with all rights therein, and does irrevocably
constitute and appoint _________________, attorney, to transfer that part of the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
<PAGE>
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-BT-1 _____ canceled (or transferred or exchanged) this
_____ day of ___________, _____, shares of Common Stock issued therefor in the
name of _______________, Warrant No. W-BT-1_____ issued for ____ shares of
Common Stock in the name of _______________.
<PAGE>
Exhibit 4.17
WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
SkyLynx Communications, Inc.
Subject to Section 1 hereof, expires on December 22, 2001
No.: W-T-1
Number of Shares: 526,316 Date of Issuance: March 10, 2000
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, SkyLynx Communications, Inc., a Delaware corporation (together with
its successors and assigns, the "Issuer"), hereby certifies that Eugene S. Tuma,
located at 15 Edgehill Drive, Allison Park, Pennsylvania 15101, or its
registered permitted assigns is entitled to subscribe for and purchase, during
the period specified in this Warrant, up to 526,316 shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., California Time, on December 22, 2001 (the "Initial
Term"), provided, that, if at the date of the expiration of the Initial Term,
(A) the Warrant Stock shall not be listed on the OTC Bulletin Board, the Nasdaq
SmallCap Market, the Nasdaq National Market, The New York Stock Exchange, Inc.
or The American Stock Exchange, Inc. or (B) the Issuer shall not have sufficient
shares of Warrant Stock issuable upon a full exercise of this Warrant, then the
Initial Term shall be extended until such date on which none of the foregoing
events shall exist (the Initial Term, as such may be extended, being hereinafter
called the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
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(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at the Holder's election (i) in cash by certified or official
bank check, (ii) at any time on or after the Original Issue Date through the
date on or before the date any registration statement covering the resale of the
Warrant Stock has been declared effective by the Securities and Exchange
Commission by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to the provisions of subsection
(e) of this Section 2, this Warrant may be transferred by the Holder without the
consent of the Issuer. If transferred pursuant to this paragraph, and subject
to the provisions of subsection (e) of this Section 2, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant at the principal office of
the Issuer, properly endorsed (by the Holder executing an assignment in the form
attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. This Warrant is exchangeable at
the principal office of the Issuer for Warrants for the purchase of the same
aggregate number of shares of Warrant Stock, each new Warrant to represent the
right to purchase such number of shares of Warrant Stock as the Holder hereof
shall designate at the time of such exchange. All Warrants issued on transfers
or exchanges shall be dated the Original Issue Date and shall be identical with
this Warrant except as to the number of shares of Warrant Stock issuable
pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Warrant Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell, transfer or otherwise dispose of this Warrant or any shares of
Warrant Stock to be issued upon exercise hereof except pursuant to an effective
registration
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statement, or an exemption from registration, under the Securities Act and any
applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and
all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been
effectively registered under the Securities Act, (B) upon the Issuer's receipt
of an opinion of counsel, in form and substance reasonably satisfactory to the
Issuer, addressed to the Issuer to the effect that such restrictions are no
longer required to ensure compliance with the Securities Act or (C) upon the
Issuer's receipt of other evidence reasonably satisfactory to the Issuer that
such registration is not required. Whenever such restrictions shall cease and
terminate as to any such securities, the Holder thereof shall be entitled to
receive from the Issuer (or its transfer agent and registrar), without expense
(other than applicable transfer taxes, if any), new Warrants (or, in the case of
shares of Warrant Stock, new stock certificates) of like tenor not bearing the
applicable legends required by paragraph (ii) above relating to the Securities
Act and state securities laws.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a number of shares of Common Stock equal to at least
100% of the aggregate number of shares of Warrant Stock issuable upon the
exercise of the Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved for
issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon
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<PAGE>
the exercise of this Warrant if at the time any securities of the same class
shall be listed on such securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holder of this
Warrant, (iii) take all such action as may be reasonably necessary in order that
the Issuer may validly and legally issue fully paid and nonassessable shares of
Common Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant, and (iv) use
its best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Registration Under Securities Act. The Company agrees to register for
resale the shares of Warrant Stock as part of the registration statement to be
filed by the Company to register for resale the shares of Common Stock
underlying the Series F Convertible Preferred Stock sold to investors pursuant
to the Series F Convertible Stock Purchase Agreement dated February 2, 2000.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate with or merge into
any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger; provided, however, that a merger
-------- -------
for the sole purpose of effecting a change in domicile of the Issuer from one
state to another shall not be deemed a Triggering Event, or (b) permit any other
Person to consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or
merger, any Capital Stock of the Issuer shall be changed into or exchanged for
Securities of any other Person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other Person, or (d)
effect a capital reorganization or reclassification of its Capital Stock, then,
and in the case of each such Triggering Event, proper provision shall be made so
that, upon the basis and the terms and in the manner provided in this Warrant,
the Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent
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<PAGE>
this Warrant is not exercised prior to such Triggering Event, or is redeemed in
connection with such Triggering Event, to receive at the Warrant Price in effect
at the time immediately prior to the consummation of such Triggering Event in
lieu of the Common Stock issuable upon such exercise of this Warrant prior to
such Triggering Event, the Securities, cash and property to which the Holder
would have been entitled upon the consummation of such Triggering Event if the
Holder had exercised the rights represented by this Warrant immediately prior
thereto, subject to adjustments and increases (subsequent to such corporate
action) as nearly equivalent as possible to the adjustments provided for in
Section 4 hereof or (y) to sell this Warrant (or, at the Holder's election, a
portion hereof) to the Person continuing after or surviving such Triggering
Event, or to the Issuer (if Issuer is the continuing or surviving Person) at a
sales price equal to the amount of cash, property and/or Securities to which a
holder of the number of shares of Common Stock which would otherwise have been
delivered upon the exercise of this Warrant would have been entitled upon the
effective date or closing of any such Triggering Event (the "Event
Consideration"), less the amount or portion of such Event Consideration having a
fair value equal to the aggregate Warrant Price applicable to this Warrant or
the portion hereof so sold.
(ii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph (i) of
this subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees
that as a condition to the consummation of any such Triggering Event the Issuer
shall secure such right of Holder to sell this Warrant to the Person continuing
after or surviving such Triggering Event and the Issuer shall not effect any
such Triggering Event unless upon or prior to the consummation thereof the
amounts of cash, property and/or Securities required under such clause (y) are
delivered to the Holder of this Warrant. The obligation of the Issuer to secure
such right of the Holder to sell this Warrant shall be subject to the Holder's
cooperation with the Issuer, including, without limitation, the giving of
customary representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time while
this Warrant is outstanding, shall subdivide or combine any shares of Common
Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time while
this Warrant is outstanding, shall:
(i) Common Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of, shares of
Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer
shall take a record of the holders the Issuer's Capital Stock for the purpose of
receiving such dividend or other distribution (or if no such record is taken, as
at the date of such payment or other distribution), to that price determined by
multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
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distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution of
its assets upon or with respect to (including, but not limited to, a
distribution of its property as a dividend in liquidation or partial liquidation
or by way of return of capital), the Common Stock (other than as described in
clause (i) of this subsection (c)), or in the event that the Issuer shall offer
options or rights to subscribe for shares of Common Stock, or issue any Common
Stock Equivalents, to all of its holders of Common Stock, then on the record
date for such payment, distribution or offer or, in the absence of a record
date, on the date of such payment, distribution or offer, the Holder shall
receive what the Holder would have received had it exercised this Warrant in
full immediately prior to the record date of such payment, distribution or offer
or, in the absence of a record date, immediately prior to the date of such
payment, distribution or offer.
(d) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4. The number of shares of
Common Stock at any time outstanding shall (A) not include any shares thereof
then directly or indirectly owned or held by or for the account of the Issuer or
any of its Subsidiaries, and (B) be deemed to include all shares of Common Stock
then issuable upon conversion, exercise or exchange of any then outstanding
Common Stock Equivalents or any other evidences of indebtedness, shares of
Capital Stock (including, without limitation, the Preferred Stock) or other
Securities which are or may be at any time convertible into or exchangeable for
shares of Common Stock or Other Common Stock.
(e) Other Action Affecting Common Stock. In case after the Original Issue
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (d) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(f) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to the provisions (b) and (c)(i) of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
(g) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a
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certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the Warrant Price and Warrant Share Number after
giving effect to such adjustment, and shall cause copies of such certificate to
be delivered to the Holder of this Warrant promptly after each adjustment. Any
dispute between the Issuer and the Holder of this Warrant with respect to the
matters set forth in such certificate may at the option of the Holder of this
Warrant be submitted to one of the national accounting firms currently known as
the "big five" mutually agreed upon by the Issuer and the Holder or, in the
event the Issuer and the Holder are unable to agree, a "big five" national
accounting firm (other than the Issuer's independent auditors) selected by the
Issuer's independent auditors. The firm selected in the manner as provided in
the preceding sentence shall be instructed to deliver a written opinion as to
such matters to the Issuer and the Holder within thirty days after submission to
it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Board" shall mean the Board of Directors of the Issuer.
"Business Day" shall mean day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or
limited) in any Person which is a partnership, (iii) all membership
interests or limited liability company interests in any limited liability
company, and (iv) all equity or ownership interests in any Person of any
other type.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Issuer as in effect on the Original Issue Date.
"Common Stock" means the Common Stock, $0.001 par value, of the Issuer
and any other Capital Stock into which such stock may hereafter be changed.
"Common Stock Equivalent" means any Convertible Security or warrant,
option or other right to subscribe for or purchase any shares of Common
Stock or any Convertible Security.
"Convertible Securities" means evidences of indebtedness, shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for shares of Common Stock. The term
"Convertible Security" means one of the Convertible Securities.
"Five Day Average Share Price" means the average of the closing bid
prices of shares of the Common Stock (as reported by Bloomberg Financial
Markets) in the over-the-market on the electronic bulletin board for such
security (the "OTC Bulletin Board") (or such other United States stock
exchange or public market (an "Alternative
7
<PAGE>
Exchange") on which the Common Stock trades if, at the time of exercise,
the Common Stock is not trading on the OTC Bulletin Board), for the five
(5) consecutive trading days immediately preceding the date of
determination.
"Governmental Authority" means any governmental, regulatory or self-
regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and
whether domestic or foreign.
"Holder" means the registered Person or Persons who shall from time to
time own this Warrant.
"Issuer" means SkyLynx Communications, Inc., a Delaware corporation,
and its successors.
"Original Issue Date" means March 10, 2000.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in
the distribution of earnings and assets of the Issuer without limitation as
to amount.
"OTC Bulletin Board" means the over-the-counter electronic bulletin
board.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.
"Per Share Market Value" means on any particular date (a) the Five Day
Average Share Price on such date, (b) if the Common Stock is not listed
then on the OTC Bulletin Board or any Alternative Exchange, then the
average of the "Pink Sheet" quotes for the five consecutive days
immediately preceding such date, as determined in good faith by the Holder,
or (c) if the Common Stock is not then publicly traded, the fair market
value of a share of Common Stock as determined by the Company in good
faith. In determining the fair market value of any shares of Common Stock,
no consideration shall be given to any restrictions on transfer of the
Common Stock imposed by agreement or by federal or state securities laws,
or to the existence or absence of, or any limitations on, voting rights.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or other
right to purchase or acquire any Security. "Security" means one of the
Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on
the over the counter market as reported by the OTC Bulletin Board, or (b)
if the Common Stock is not listed on the OTC Bulletin Board, a day on which
the Common Stock is traded on
8
<PAGE>
any other registered national stock exchange, or (c) if the Common Stock is
not quoted on the OTC Bulletin Board, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other
government action to close.
"Voting Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) having
ordinary voting power for the election of a majority of the members of the
Board of Directors (or other governing body) of such corporation, other
than Capital Stock having such power only by reason of the happening of a
contingency.
"Warrant Price" means $4.00, as such price may be adjusted from time
to time as shall result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all adjustments to such number made
or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of this
Warrant.
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of Common
Stock; or
(B) the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares of
Capital Stock of any class or of any Common Stock Equivalents or
Convertible Securities or other rights; or
(C) there shall be any reclassification of the Capital Stock of the
Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or
substantially all of the Issuer's property, assets or business
(except a merger or other reorganization in which the Issuer
shall be the surviving corporation and its shares of Capital
Stock shall continue to be outstanding and unchanged and except a
consolidation, merger, sale, transfer or other disposition
involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial
liquidation of the Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also
9
<PAGE>
shall specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their certificates for Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding-up, as the case may be.
Such notice shall be given at least twenty days prior to the action in question
and not less than twenty days prior to the record date or the date on which the
Issuer's transfer books are closed in respect thereto. The Issuer shall give to
the Holder notice of all meetings and actions by written consent of its
stockholders, at the same time in the same manner as notice of any meetings of
stockholders is required to be given to stockholders who do not waive such
notice (or, if such requires no notice, then two Trading Days written notice
thereof describing the matters upon which action is to be taken). The Holder
shall have the right to send two representatives selected by him to each
meeting, who shall be permitted to attend, but not vote at, such meeting and any
adjournments thereof. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument executed by the Issuer and the Holder.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., California Time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., California Time, on any date
and earlier than 11:59 p.m., California Time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to the Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
SkyLynx Communications, Inc.
600 South Cherry Street
Suite 400
Denver, CO 80246
Attention: Jeffery A. Mathias, President and CEO
Facsimile No.: (303) 316-0404
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to the address or
addresses specified on the first page hereto.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in California or Colorado for
the purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such
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<PAGE>
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer and the Holder and shall be enforceable by the Holder.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[Remainder of this page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
SKYLYNX COMMUNICATIONS, INC.
By: ____________________________
Name:
Title:
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<PAGE>
EXERCISE FORM
SKYLYNX COMMUNICATIONS, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _________________, attorney, to transfer the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
__________ the right to purchase ___________ shares of Warrant Stock evidenced
by the within Warrant together with all rights therein, and does irrevocably
constitute and appoint _________________, attorney, to transfer that part of the
said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
<PAGE>
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-T-1 _____ canceled (or transferred or exchanged) this
_____ day of ___________, _____, shares of Common Stock issued therefor in the
name of _______________, Warrant No. W-T-1 issued for ____ shares of Common
Stock in the name of _______________.
<PAGE>
EXHIBIT 4.18
AMENDED CERTIFICATE OF DESIGNATIONS OF
SERIES F CONVERTIBLE PREFERRED STOCK
OF
SKYLYNX COMMUNICATIONS, INC.
(Pursuant to Section 151(g) of the General Corporation Law of the State of
Delaware)
SkyLynx Communications, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Company"), in
accordance with the provisions of Section 151(g) thereof:
HEREBY CERTIFIES THAT:
First: Pursuant to the authority conferred upon the Board of Directors by
the Amended and Restated Certificate of Incorporation of the Company (the
"Certificate"), the Board of Directors on December 29, 1999 adopted a resolution
creating a new series of 15,000 shares of preferred stock of the Company (the
"Preferred Stock") designated as "Series F Convertible Preferred Stock:"
Second: No shares of Preferred Stock have been issued.
Third: Pursuant to the authority conferred upon the Board of Directors by
the Certificate, the Board of Directors on January 28, 2000 adopted the
following resolution increasing the number of shares Preferred Stock to 20,000
shares and amending the rights, preferences and restrictions of the Preferred
Stock in the manner set forth therein:
RESOLVED, that pursuant to the authority granted to the Board of Directors
by Article IV of the Certificate, the Certificate of Designations of Series F
Convertible Preferred Stock of the Company (the "Preferred Stock") be, and it
hereby is, amended to increase the number of authorized shares of Preferred
Stock to 20,000, which series of Preferred Stock shall rank on par with the
existing series of preferred stock and shall have, in addition to the terms set
forth in the Certificate, the rights, preferences and restrictions set forth in
the Certificate of Amendment to Certificate of Designations of Series F
Convertible Preferred Stock (the "Certificate of Designations"):
Rights, Preferences and Restrictions of Series F Preferred Stock.
----------------------------------------------------------------
1. Designation and Rank. The designation of such series of the
--------------------
Preferred Stock shall be the Series F Convertible Preferred Stock, par value
$.01 per share (the "Series F Preferred Stock"). The maximum number of shares
of Series F Preferred Stock shall be twenty thousand (20,000) shares. The
Series F Preferred Stock shall have a liquidation preference of $1,000 per
share. The Series F Preferred Stock shall rank (i) prior to the common stock,
par value $.001 per share (the "Common Stock"), and to all other classes and
series of equity securities of the Company which by its terms does not rank
senior to the Series F Preferred Stock ("Junior Stock") and (ii) on parity with
the Series A, Series C and Series D Preferred Stock of the Company and any other
class and series of equity securities which by its terms shall rank on parity
with the Series F Preferred Stock. The Series F Preferred Stock shall
<PAGE>
be subordinate to and rank junior to all indebtedness of the Company now or
hereafter outstanding.
2. Dividends. No dividends shall be payable on the Series F
---------
Preferred Stock in preference to the Common Stock or to any other classes or
series of stock issued by the Company.
3. Voting Rights.
-------------
(a) Class Voting Rights. The Series F Preferred Stock
-------------------
shall have the following class voting rights (in addition to the voting rights
set forth in Section 3(b) herein). So long as any shares of the Series F
Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least three-quarters of the
shares of the Series F Preferred Stock outstanding at the time, given in person
or by proxy, either in writing or at a meeting, in which the holders of the
Series F Preferred Stock vote separately as class: (i) authorize, create, issue
or increase the authorized or issued amount of any class or series of stock,
including but not limited to the issuance of any more shares of previously
authorized Common Stock or Preferred Stock, ranking prior to the Series F
Preferred Stock, with respect to the distribution of assets on liquidation,
dissolution or winding up; (ii) amend, alter or repeal the provisions of the
Series F Preferred Stock, whether by merger, consolidation or otherwise, so as
to adversely affect any right, preference, privilege or voting power of the
Series F Preferred Stock; provided, however, that any creation and issuance of
-------- -------
another series of parity or Junior Stock shall not be deemed to adversely affect
such rights, preferences, privileges or voting powers; (iii) repurchase, redeem
or pay dividends on, shares of the Company's Junior Stock; (iv) amend the
Certificate or Bylaws of the Company so as to adversely affect any right,
preference, privilege or voting power of the Series F Preferred Stock; provided,
--------
however, that any creation and issuance of another series of parity or Junior
- -------
Stock shall not be deemed to adversely affect such rights, preferences
privileges or voting powers; (v) effect any distribution with respect to Junior
Stock; or (vi) reclassify the Company's outstanding securities.
(b) General Voting Rights. Except with respect to
---------------------
transactions upon which the Series F Preferred Stock shall be entitled to vote
separately as a class pursuant to Section 3(a) above and except as otherwise
required by Delaware law, the Series F Preferred Stock shall be entitled to vote
with the holders of shares of Common Stock as a single class on all matters
presented for a vote to the shareholders of the Company. The number of votes per
share of Series F Preferred Stock which can be cast shall be adjusted at such
time or times as the Conversion Price is adjusted so that the number of votes
per share of Series F Preferred Stock which may be cast shall always be equal to
the full number of shares of Common Stock into which each share of Series F
Preferred Stock may be converted when voting with the holders of Common Stock as
a single class.
4. Liquidation Preference.
----------------------
(a) In the event of the liquidation, dissolution or winding
up of the affairs of the Company, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
Company, the holders of shares of the Series F Preferred Stock then outstanding
shall be entitled to receive, out of the assets of the Company
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<PAGE>
whether such assets are capital or surplus of any nature, an amount equal to
$1,000 per share of the Series F Preferred Stock plus any accrued and unpaid
dividends (the "Liquidation Preference Amount") before any payment shall be made
or any assets distributed to the holders of the Common Stock or any other Junior
Stock. If the assets of the Company are not sufficient to pay in full the
Liquidation Preference Amount payable to the holders of outstanding shares of
the Series F Preferred Stock and any series of Preferred Stock or any other
class of stock on a parity, as to rights on liquidation, dissolution or winding
up, with the Series F Preferred Stock, then all of said assets will be
distributed among the holders of the Series F Preferred Stock and the other
classes of stock on a parity with the Series F Preferred Stock, if any, ratably
in accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full. The liquidation payment with
respect to each outstanding fractional share of Series F Preferred Stock shall
be equal to a ratably proportionate amount of the liquidation payment with
respect to each outstanding share of Series F Preferred Stock. All payments for
which this Section 4(a) provides shall be in cash, property (valued at its fair
market value as determined by the Company's independent, outside accountant) or
a combination thereof; provided, however, that no cash shall be paid to holders
-------- -------
of Junior Stock unless each holder of the outstanding shares of Series F
Preferred Stock has been paid in cash the full Liquidation Preference Amount
plus any accrued and unpaid dividends to which such holder is entitled as
provided herein. After payment of the full Liquidation Preference Amount plus
any accrued and unpaid dividends to which each holder is entitled, such holders
of shares of Series F Preferred Stock will not be entitled to any further
participation as such in any distribution of the assets of the Company.
(b) A consolidation or merger of the Company with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Company, or the effectuation by the Company of a transaction
or series of transactions in which more than 50% of the voting shares of the
Company is disposed of or conveyed, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 4. In the event of
the merger or consolidation of the Company with or into another corporation, the
Series F Preferred Stock shall maintain its relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(c) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, stating a
payment date and the place where the distributable amounts shall be payable,
shall be given by mail, postage prepaid, no less than 45 days prior to the
payment date stated therein, to the holders of record of the Series F Preferred
Stock at their respective addresses as the same shall appear on the books of the
Company.
5. Conversion. The holder of Series F Preferred Stock shall
----------
have the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. The holder of any shares of Series F
----------------
Preferred Stock may, at such holder's option, elect to convert (a "Voluntary
Conversion") all or any portion of the shares of Series F Preferred Stock held
by such person into a number of fully paid and nonassessable shares of Common
Stock (the "Conversion Rate") equal to the quotient of (i) the Liquidation
Preference Amount of the shares of Series F Preferred Stock being
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<PAGE>
converted divided by (ii) the Conversion Price (as defined in Section 5(d)
herein) then in effect as of the date of the delivery by such holder of its
notice of election to convert.
(b) Mechanics of Voluntary Conversion. The Voluntary
Conversion of Series F Preferred Stock shall be conducted in the following
manner:
(i) Holder's Delivery Requirements. To convert Series
------------------------------
F Preferred Stock into full shares of Common Stock on any date (the "Voluntary
Conversion Date"), the holder thereof shall (A) transmit by facsimile (or
otherwise delivering), for receipt on or prior to 11:59 p.m., California Time on
such date, a copy of a fully executed notice of conversion in the form attached
hereto as Exhibit I (the "Conversion Notice"), to the Company, and (B) surrender
---------
to a common carrier for delivery to the Company as soon as practicable following
such date, the original certificates representing the shares of Series F
Preferred Stock being converted (or an indemnification undertaking with respect
to such shares in the case of their loss, theft or destruction) (the "Preferred
Stock Certificates") and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company
------------------
of a facsimile copy of a Conversion Notice, the Company shall immediately send,
via facsimile, a confirmation of receipt of such Conversion Notice to such
holder. Upon receipt by the Company of the Preferred Stock Certificates to be
converted pursuant to a Conversion Notice, together with the originally executed
Conversion Notice, the Company or its designated transfer agent (the "Transfer
Agent") (as applicable) shall, on the next business day following the date of
receipt by the Company of both (or the second business day following the date of
receipt by the Company of both if received after 11:00 a.m. California Time),
(A) issue and surrender to a common carrier for overnight delivery to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (B) credit such aggregate number of
shares of Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account with American Securities Transfer & Trust, Inc.
If the number of shares of Preferred Stock represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of shares of
Series F Preferred Stock being converted, then the Company shall, as soon as
practicable and in no event later than two (2) business days after receipt of
the Preferred Stock Certificate(s) and at its own expense, issue and deliver to
the holder a new Preferred Stock Certificate representing the number of shares
of Series F Preferred Stock not converted.
(iii) Dispute Resolution. In the case of a dispute
as to the determination of the Conversion Price or the arithmetic calculation of
the number of shares of Common Stock to be issued upon conversion, the Company
shall promptly issue to the holder the number of shares of Common Stock that is
not disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile as soon as possible, but in no event
later than two (2) business days after receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Conversion Price or the arithmetic calculation of the
number of shares of Common Stock to be issued upon such conversion within one
(1) business day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall within one (1) business day
submit via
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<PAGE>
facsimile (A) the disputed determination of the Conversion Price to an
independent, reputable investment bank or (B) the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to its independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than seventy-two (72) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent manifest error. The reasonable expenses of such investment bank
or accountant in making such determination shall be paid by the Company, in the
event the holder's calculation or determination was correct, or by the holder,
in the event the Company's calculation or determination was correct, or equally
by the Company and the holder in the event that neither the Company's or the
holder's calculation or determination was correct. The period of time in which
the Company is required to effect conversions under this Certificate of
Designations shall be tolled with respect to the subject conversion pending
resolution of any dispute by the Company made in good faith and in accordance
with this Section 5(b)(iii).
(iv) Record Holder. The person or persons entitled to
-------------
receive the shares of Common Stock issuable upon a conversion of the Series F
Preferred Stock shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If within
-----------------------------------
five (5) business days of the Company's receipt of the Preferred Stock
Certificates to be converted and the Conversion Notice (the "Share Delivery
Period") the Company shall fail to issue a certificate to a holder or credit the
holder's balance account with American Securities Transfer & Trust, Inc. for the
number of shares of Common Stock to which such holder is entitled upon such
holder's conversion of the Series F Preferred Stock or to issue a new Preferred
Stock Certificate representing the number of shares of Series F Preferred Stock
to which such holder is entitled pursuant to Section 5(b)(ii) herein (a
"Conversion Failure"), in addition to all other available remedies which such
holder may pursue hereunder and under the Series F Convertible Stock Purchase
Agreement by and among the Company and the purchasers of Series F Preferred
Stock (the "Series F Stock Purchase Agreement") (including indemnification
pursuant to Article VIII thereof), the Company shall pay additional damages to
such holder on each date after such fifth (5th) business day that such
conversion is not timely effected in an amount equal 1% of the product of (A)
the sum of the number of shares of Common Stock not issued to the holder on a
timely basis pursuant to Section 5(b)(ii) herein and to which such holder is
entitled and, in the event the Company has failed to deliver a Preferred Stock
Certificate to the holder on a timely basis pursuant to Section 5(b)(ii) herein,
the number of shares of Common Stock issuable upon conversion of the shares of
Series F Preferred Stock represented by such Preferred Stock Certificate, as of
the last possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 5(b)(ii) and (B) the
Closing Bid Price (as defined in Section 5(j) herein) of the Common Stock on the
last possible date which the Company could have issued such Common Stock and
such Preferred Stock Certificate, as the case may be, to such holder without
violating Section 5(b)(ii) herein and the holder may after any time after such
Share Delivery Period send the Company a notice of revocation of conversion (the
"Revocation Notice") revoking such holder's Conversion Notice (and requesting a
return of the applicable Preferred Stock Certificates) by (A) transmitting by
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<PAGE>
facsimile (or otherwise delivering), for receipt on or prior to 11:59 p.m.,
California Time on such date, a copy of an executed Revocation Notice and (B)
sending by a common carrier for delivery to the Company as soon as practicable
following such date, the originally executed Revocation Notice. If the holder
has delivered a Revocation Notice to the Company, then the Company's obligation
to pay additional damages to such holder (in accordance with the preceding
sentence) shall terminate. If the Company fails to pay the additional damages
set forth in this Section 5(b)(v) within five (5) business days of the date
incurred, then such payment shall bear interest at the rate of 2% per month (pro
rated for partial months) until such payments are made.
(c) Mandatory Conversion.
--------------------
(i) Each share of Series F Preferred Stock outstanding
on the Mandatory Conversion Date (as defined below) shall, automatically and
without any action on the part of the holder thereof, convert into a number of
fully paid and nonassessable shares of Common Stock equal to the quotient of (i)
the Liquidation Preference Amount of the shares of Series F Preferred Stock
outstanding on the Mandatory Conversion Date divided by (ii) the Conversion
Price (as defined below) in effect on the Mandatory Conversion Date.
(ii) As used herein, a "Mandatory Conversion Date"
shall be the date which is three (3) years after the date of first issuance of
any shares of Series F Preferred Stock (the "Issuance Date"), provided that the
Mandatory Conversion Date shall be extended for any shares of Series F Preferred
Stock (i) pursuant to Section 3(n) of the Registration Rights Agreement by and
among the Company and the purchasers of Series F Preferred Stock (the
"Registration Rights Agreement"), which extension shall be one day for each of
the days in any Blackout Period (as defined in Section 3(n) of the Registration
Rights Agreement), (ii) until the shares of Common Stock to which the holder is
entitled upon a Mandatory Conversion are duly authorized and available for
issuance in connection with such Mandatory Conversion, (iii) until the
registration statement contemplated by the Registration Rights Agreement (the
"Registration Statement") registering such shares of Common Stock has been
declared effective by the Commission and is currently effective as of the
Mandatory Conversion Date and (iv) until such shares of Common Stock are listed
on the Over-The-Counter Bulletin Board (the "OTC Bulletin Board"), the Nasdaq
SmallCap Market, the Nasdaq National Market ("Nasdaq"), The New York Stock
Exchange, Inc. or the American Stock Exchange, Inc if such shares of Common
Stock are not already listed. The Mandatory Conversion Date and the Voluntary
Conversion Date collectively are referred to in this Certificate of Designations
as the "Conversion Date."
(iii) On the Mandatory Conversion Date, the
outstanding shares of Series F Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
Preferred Stock Certificates representing such shares are surrendered to the
Company or its transfer agent; provided, however, that the Company shall not be
-------- -------
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of any shares of Series F Preferred Stock unless the Preferred
Stock Certificates evidencing such shares of Series F Preferred Stock are either
delivered to the Company or the holder notifies the Company that such Preferred
Stock Certificates have been lost, stolen, or destroyed, and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. Upon the occurrence of the
6
<PAGE>
automatic conversion of the Series F Preferred Stock pursuant to this Section 5,
the holders of the Series F Preferred Stock shall surrender the Preferred Stock
Certificates representing the Series F Preferred Stock for which the Mandatory
Conversion Date has occurred to the Company and the Company shall deliver the
shares of Common Stock issuable upon such conversion (in the same manner set
forth in Section 5(b)(ii) herein) to the holder within three (3) business days
of the holder's delivery of the applicable Preferred Stock Certificates.
(d) Conversion Price. The term "Conversion Price" shall
----------------
mean, with respect to any conversion of Series F Preferred Stock, $1.00 (as
adjusted herein).
(e) Adjustments of Conversion Price.
-------------------------------
(i) Adjustments for Stock Splits and Combinations. If
---------------------------------------------
the Company shall at any time or from time to time after the Issuance Date,
effect a stock split of the outstanding Common Stock, the applicable Conversion
Price in effect immediately prior to the stock split shall be proportionately
decreased. If the Company shall at any time or from time to time after the
Issuance Date, combine the outstanding shares of Common Stock, the applicable
Conversion Price in effect immediately prior to the combination shall be
proportionately increased. Any adjustments under this Section 5(e)(i) shall be
effective at the close of business on the date the stock split or combination
occurs.
(ii) Adjustments for Certain Dividends and
-------------------------------------
Distributions. If the Company shall at any time or from time to time after the
- -------------
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the applicable
Conversion Price in effect immediately prior to such event shall be decreased as
of the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying, as
applicable, the applicable Conversion Price then in effect by a fraction:
(A) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date; and
(B) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and
----------------------------------
Distributions. If the Company shall at any time or from time to time after the
- -------------
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of Series F Preferred Stock shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Company which they would
7
<PAGE>
have received had their Series F Preferred Stock been converted into Common
Stock on the date of such event and had thereafter, during the period from the
date of such event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during such period),
giving application to all adjustments called for during such period under this
Section 5(e)(iii) with respect to the rights of the holders or the Series F
Preferred Stock.
(iv) Adjustments for Reclassification, Exchange or
---------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series F
- ------------
Preferred Stock at any time or from time to time after the Issuance Date shall
be changed to the same or different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or otherwise (other
than by way of a stock split or combination of shares or stock dividends
provided for in Section 5(e)(i), (ii) and (iii) herein, or a reorganization,
merger, consolidation, or sale of assets provided for in Section 5(e)(v)
herein), then, and in each event, an appropriate revision to the Conversion
Price shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of Series F
Preferred Stock shall have the right thereafter to convert such share of Series
F Preferred Stock into the kind and amount of shares of stock and other
securities receivable upon reclassification, exchange, substitution or other
change, by holders of the number of shares of Common Stock into which such share
of Series F Preferred Stock might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
(v) Adjustments for Reorganization, Merger,
---------------------------------------
Consolidation or Sales of Assets. If at any time or from time to time after the
- --------------------------------
Issuance Date there shall be a capital reorganization of the Company (other than
by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 5(e)(i), (ii) and (iii) herein, or a
reclassification, exchange or substitution of shares provided for in Section
5(e)(iv) herein), or a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all of the Company's
properties or assets to any other person (an ''Organic Change"), then as a part
of such Organic Change an appropriate revision to the Conversion Price shall be
made and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holder of each share of Series F Preferred Stock shall
have the right thereafter to convert such share of Series F Preferred Stock into
the kind and amount of shares of stock and other securities or property of the
Company or any successor corporation resulting from Organic Change. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 5(e)(v) with respect to the rights of the holders of the Series
F Preferred Stock after the Organic Change to the end that the provisions of
this Section 5(e)(v) (including any adjustment in the applicable Conversion
Price then in effect and the number of shares of stock or other securities
deliverable upon conversion of the Series F Preferred Stock) shall be applied
after that event in as nearly an equivalent manner as may be practicable.
(vi) Consideration for Stock. In case any shares of
-----------------------
Common Stock or any securities convertible into or exchangeable for, directly or
indirectly, Common Stock (''Convertible Securities"), other than the Series F
Preferred Stock, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold:
8
<PAGE>
(A) in connection with any merger or
consolidation in which the Company is the surviving corporation (other than any
consolidation or merger in which the previously outstanding shares of Common
Stock of the Company shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration therefore shall
be, deemed to be the fair value, as determined reasonably and in good faith by
the Board of Directors, of such portion of the assets and business of the
nonsurviving corporation as such Board of Directors may determine to be
attributable to such shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be; or
(B) in the event of any consolidation or merger
of the Company in which the Company is not the surviving corporation or in which
the previously outstanding shares of Common Stock of the Company shall be
changed into or exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its Common Stock
for stock or securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated,
and for a consideration equal to the fair market value on the date of such
transaction of all such stock or securities or other property of the other
corporation. If any such calculation results in adjustment of the applicable
Conversion Price, or the number of shares of Common Stock issuable upon
conversion of the Series F Preferred Stock, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Series F Preferred Stock immediately prior to such merger,
consolidation or sale, shall be made after giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Series F
Preferred Stock.
(vii) Issuance of Additional Common Stock or
--------------------------------------
Convertible Securities. If the Company, at any time while shares of Series F
- ----------------------
Preferred Stock are outstanding, shall issue any shares of Common Stock or
Convertible Securities (otherwise than as provided in the foregoing subsections
(i) through (v) of this Section 5(e)), at a price per share less than the
Conversion Price then in effect (and less than the Closing Bid Price of the
Common Stock on such date) or without consideration, then the Conversion Price
upon each such issuance shall be adjusted to that price (rounded to the nearest
cent) determined by multiplying the Conversion Price then in effect by a
fraction:
(A) the numerator of which shall be equal to the
sum of (A) the number of shares of Common Stock outstanding immediately prior to
the issuance of such Common Stock plus (B) the number of shares of Common Stock
(rounded to the nearest whole share) which the aggregate consideration for the
total number of such Common Stock or Convertible Securities so issued would
purchase at a price per share equal to the average Closing Bid Price of the
Common Stock over the last five trading days; and
(B) the denominator of which shall be equal to
the number of shares of Common Stock outstanding immediately after the issuance
of such Common Stock or Convertible Securities.
9
<PAGE>
The provisions of this Section 5(e)(vii) shall not apply under any of the
circumstances for which an adjustment is provided elsewhere in Section 5(e)(v)
herein. No adjustment of the Conversion Price shall be made under this Section
5(e)(vii) in an amount less than $.01 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment, if any, which together with any adjustments so
carried forward shall amount to $.01 per share or more, provided that upon any
adjustment of the Conversion Price as a result of any dividend or distribution
payable in Common Stock or the reclassification, subdivision or combination of
Common Stock into a greater or smaller number of shares, the foregoing figure of
$.01 per share (or such figure as last adjusted) shall be adjusted (to the
nearest one-half cent) in proportion to the adjustment in the Conversion Price.
For purposes of this Section 5(e)(vii), the number of shares of Common Stock at
any time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or any of its
subsidiaries, and shall be deemed to include all shares of Common Stock then
issuable upon conversion, exercise or exchange of any then outstanding
Convertible Securities or any other securities of the Company which are or may
be at any time convertible into or exchangeable for shares of Common Stock or
Convertible Securities.
(viii) Record Date. In case the Company shall take
-----------
record of the holders of its Common Stock or any other Preferred Stock for the
purpose of entitling them to subscribe for or purchase Common Stock or
Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date.
(ix) Certain Issues Excepted. Anything herein to the
-----------------------
contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of shares of Common Stock issuable upon conversion of
the Series F Preferred Stock upon the grant after the Issuance Date of, or the
exercise after the Issuance Date of, options or rights to purchase stock under
the Company's stock option plans as currently in effect.
(f) No Impairment. The Company shall not, by amendment of
-------------
its Certificate or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series F Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon occurrence of each
------------------------------
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of the Series F Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series F Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the holder of
such affected Series F Preferred Stock, at any time, furnish or cause to be
furnished to such holder a like certificate setting forth such adjustments and
readjustments, the applicable Conversion Price in effect at the time, and the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon the conversion of a share of
such
10
<PAGE>
Series F Preferred Stock. Notwithstanding the foregoing, the Company shall not
be obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent of such adjusted amount.
(h) Issue Taxes. The Company shall pay any and all issue
-----------
and other taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series F Preferred Stock pursuant thereto; provided,
--------
however, that the Company shall not be obligated to pay any transfer taxes
- -------
resulting from any transfer requested by any holder in connection with any such
conversion.
(i) Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile or three business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the Company. The
Company will give written notice to each holder of Series F Preferred Stock at
least twenty (20) days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution, liquidation or winding-up, provided that in no event shall
such notice be provided to such holder prior to such information being made
known to the public. The Company will also give written notice to each holder of
Series F Preferred Stock at least twenty (20) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will take place,
provided that in no event shall such notice be provided to such holder prior to
such information being made known to the public.
(j) Fractional Shares. No fractional shares of Common
-----------------
Stock shall be issued upon conversion of the Series F Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Company shall pay cash equal to the product of such fraction multiplied by the
average of the Closing Bid Prices of the Common Stock for the five consecutive
trading days immediately preceding on the Voluntary Conversion Date or Mandatory
Conversion Date, as applicable. The term "Closing Bid Price" shall mean, for any
security as of any trading day, the last closing bid price of such security in
the OTC Bulletin Board for such security as reported by Bloomberg Financial
Markets ("Bloomberg"), or on Nasdaq, if no closing bid price is reported for
such security by Bloomberg or on Nasdaq, the last closing trade price of such
security as reported by Bloomberg or on Nasdaq, or, if no last closing trade
price is reported for such security by Bloomberg or on Nasdaq, the average of
the bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. or on Nasdaq. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing basis, the Closing Bid Price of such security on such date shall be
the fair market value as determined in good faith by the Company.
(k) Reservation of Common Stock. The Company shall, so
---------------------------
long as any shares of Series F Preferred Stock are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series F Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series F Preferred Stock then outstanding. The
11
<PAGE>
initial number of shares of Common Stock reserved for conversions of the Series
F Preferred Stock and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Series F Preferred Stock based on
the number of shares of Series F Preferred Stock held by each holder at the time
of issuance of the Series F Preferred Stock or increase in the number of
reserved shares, as the case may be. In the event a holder shall sell or
otherwise transfer any of such holder's shares of Series F Preferred Stock, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any shares of Series F Preferred Stock shall be allocated to the remaining
holders of Series F Preferred Stock, pro rata based on the number of shares of
Series F Preferred Stock then held by such holder. The Company shall, from time
to time in accordance with the Delaware General Corporation Law, as amended,
increase the authorized number of shares of Common Stock if at any time the
unissued number of authorized shares shall not be sufficient to satisfy the
Company's obligations under this Section 5(k).
(l) Retirement of Series F Preferred Stock. Conversion of
--------------------------------------
Series F Preferred Stock shall be deemed to have been effected on the applicable
Voluntary Conversion Date or Mandatory Conversion Date. Upon conversion of only
a portion of the number of shares of Series F Preferred Stock represented by a
certificate surrendered for conversion, the Company shall issue and deliver to
such holder at the expense of the Company, a new certificate covering the number
of shares of Series F Preferred Stock representing the unconverted portion of
the certificate so surrendered as required by Section 5(b)(ii) herein.
(m) Regulatory Compliance. If any shares of Common Stock
---------------------
to be reserved for the purpose of conversion of Series F Preferred Stock require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Company shall, at its sole cost and expense, in good faith and
as expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
6. No Preemptive Rights. Except as provided in Section 5
--------------------
herein, no holder of the Series F Preferred Stock shall be entitled to rights to
subscribe for, purchase or receive any part of any new or additional shares of
any class, whether now or hereinafter authorized, or of bonds or debentures, or
other evidences of indebtedness convertible into or exchangeable for shares of
any class, but all such new or additional shares of any class, or any bond,
debentures or other evidences of indebtedness convertible into or exchangeable
for shares, may be issued and disposed of by the Board of directors on such
terms and for such consideration (to the extent permitted by law), and to such
person or persons as the Board of Directors in their absolute discretion may
deem advisable.
7. Vote to Change the Terms of or Issue Preferred Stock. The
----------------------------------------------------
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the holders of not less than three-quarters of the
then outstanding shares of Series F Preferred Stock shall be required (a) for
any change to this Certificate of Designations which would amend, alter, change
or repeal any of the powers, designations, preferences and rights of
12
<PAGE>
the Series F Preferred Stock or (b) for the issuance of shares of Series F
Preferred Stock other than pursuant to the Series F Stock Purchase Agreement.
8. Lost or Stolen Certificates. Upon receipt by the Company of
---------------------------
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the shares of Series
F Preferred Stock, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred Stock
certificate(s) of like tenor and date; provided, however, the Company shall not
-------- -------
be obligated to re-issue Preferred Stock certificates if the holder
contemporaneously requests the Company to convert such shares of Series F
Preferred Stock into Common Stock.
9. Remedies, Characterizations, Other Obligations, Breaches and
------------------------------------------------------------
Injunctive Relief. The remedies provided in this Certificate of Designations
- -----------------
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including, a decree of
specific performance and/or other injunctive relief), no remedy contained herein
shall be deemed a waiver of compliance with the provisions giving rise to such
remedy and nothing herein shall limit a holder's right to pursue actual damages
for any failure by the Company to comply with the terms of this Certificate of
Designations. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the Series F
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Series F Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
10. Specific Shall Not Limit General; Construction. No specific
----------------------------------------------
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all initial purchasers
of the Series F Preferred Stock and shall not be construed against any person as
the drafter hereof.
11. Failure or Indulgence Not Waiver. No failure or delay on
--------------------------------
the part of a holder of Series F Preferred Stock in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
13
<PAGE>
IN WITNESS WHEREOF, SkyLynx Communications, Inc. has caused this
Certificate of Designations to be executed this January 28, 2000.
SKYLYNX COMMUNICATIONS, INC.
By: /s/ JAMES E. MAURER
-----------------------------
Name: James E. Maurer
Title: Chief Financial Officer
14
<PAGE>
NOTICE
EXHIBIT I
SKYLYNX COMMUNICATIONS INC.
CONVERSION NOTICE
Reference is made to the Amended and Restated Certificate of Incorporation
of SkyLynx Communications, Inc. for Series F Convertible Preferred Stock (the
"Amended and Restated Certificate"). In accordance with and pursuant to the
Amended and Restated Certificate, the undersigned hereby elects to convert the
number of shares of Series F Convertible Preferred Stock, par value $.01 per
share (the "Preferred Shares"), of SkyLynx Communications, Inc., a Delaware
corporation (the "Company"), indicated below into shares of Common Stock, par
value $.001 per share (the "Common Stock") of the Company, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.
<TABLE>
<CAPTION>
<S> <C>
Date of Conversion: ______________________________
Number of Preferred Shares to be converted: _______
Stock certificate no(s). of Preferred Shares to be converted: _________
The Common Stock have been sold pursuant to the Registration Statement (as defined in the
Registration Rights Agreement): YES ___ NO ___
Please confirm the following information:
Conversion Price: ______________________________
Number of shares of Common Stock ______________________________
to be issued:
Please issue the Common Stock into which the Preferred Shares are being converted and, if
applicable, any check drawn on an account of the company in the following name and to the
following address:
Issue to: ______________________________
______________________________
Facsimile Number: ______________________________
Authorization: ______________________________
By: __________________________
Title: _______________________
Dated:
Account number:
(if electronic book entry transfer): ______________________________
Transaction Code Number
(if electronic book entry transfer): ______________________________
</TABLE>
<PAGE>
EXHIBIT 10.21
CONVERTIBLE LOAN AND WARRANT AGREEMENT
--------------------------------------
THIS CONVERTIBLE LOAN AND WARRANT AGREEMENT (this "Agreement") is
---------
entered into as of __________, 1999 (the "Effective Date") by and between
--------------
SkyLynx Communications, Inc., a Colorado corporation (the "Company"), and
-------
_____________, an individual ("______").
WHEREAS, ______ is willing, pursuant to the terms and conditions of
this Agreement, to loan the Company _________________________ ($_____) (the
"Loan Amount") which loan (the "Loan") shall be convertible into securities of
----------- ----
the Company on the terms and subject to the conditions set forth herein; and
WHEREAS, the Company wishes to obtain such Loan and to issue ______ a
warrant to purchase capital stock of the Company on the terms and conditions of
the warrant in the form referenced herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
-----------
shall have the following respective meanings:
"Common Stock" shall mean the Company's common stock, $.001 par
------------
value per share, and any other securities at any time receivable or issuable in
respect of the Common Stock.
"Other Transaction Documents" shall mean the Note and the Warrant
---------------------------
(each as defined herein).
"Preferred Stock" shall mean a series of the Company's preferred
---------------
stock issued in a Qualified Financing.
"Qualified Financing" shall mean an investment in the next
-------------------
series of Preferred Stock of the Company occurring after the Effective Date led
by Tudor Investments, in which the Company would receive aggregate proceeds of
at least $10,000,000, including proceeds to be received upon conversion of the
Loan and any other convertible loans made to the Company prior to such Qualified
Financing.
"Warrant" shall mean the Warrant from the Company to ______ of
-------
even date herewith.
2. LOAN. ______ hereby agrees to loan the Company the Loan Amount
----
on the terms and subject to the conditions set forth in this Agreement and the
Note. The Loan is evidenced by a Convertible Promissory Note in the form
attached hereto as Exhibit A (the "Note").
--------- ----
3. LOAN TERM; INTEREST; REPAYMENT. The term of the Loan will begin
------------------------------
on the Effective Date and end February 14, 2000 (the "Repayment Date"). No
--------------
interest shall be due on the Loan unless the Company is in default, as defined
in Section 9 of this Agreement. In the event that the Company is in default,
interest on the unpaid principal balance (such unpaid principal balance is
referred to as the "Outstanding Balance") will accrue retroactively from the
-------------------
<PAGE>
Effective Date at the prime rate of Bank of America on the Effective Date, as
published in the Wall Street Journal, plus 2% per annum, calculated on the basis
of a 360-day year and actual days elapsed; provided, however, that no such
accrued interest shall be due and payable prior to the Repayment Date. To the
extent not converted pursuant to Section 5, the Company will repay the
Outstanding Balance plus all interest accrued thereon on the Repayment Date.
4. UNSECURED LOAN. The Loan shall not be secured by any assets of
--------------
the Company; provided, however, that upon a default of the Company under this
Agreement or the Note, ______ shall be entitled to the remedies specified in
Section 9.
5. CONVERSION. Upon the closing by the Company of a Qualified
----------
Financing, ______ shall be required to convert the Outstanding Balance plus all
accrued interest thereon through the date being converted on a dollar-for-dollar
basis into the Preferred Stock being issued and sold to the investors in the
Qualified Financing ("Conversion Securities") at a conversion price equal to the
---------------------
purchase price per share of the Conversion Securities paid by the investors in
the Qualified Financing. In connection with such conversion, ______ shall be
entitled to the same contractual rights granted to other investors, and shall be
subject to the same contractual obligations required from the other investors,
in the Qualified Financing.
6. WARRANT. On the date hereof, the Company has issued to ______ a
-------
stock purchase warrant in the form attached hereto as Exhibit B (the "Warrant").
--------- -------
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
hereby represents and warrants to ______ that the statements in the following
paragraphs of this Section 7 are all true and correct:
7.1. Organization, Good Standing and Qualification. The Company
---------------------------------------------
is a corporation duly organized, validly existing and in good standing under,
and by virtue of, the laws of the State of Colorado and has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as now conducted and as presently proposed to be conducted.
7.2. Due Authorization. All corporate action on the part of the
-----------------
Company, its officers, directors and stockholders necessary for (a) the
authorization, execution and delivery of, and the performance of all obligations
of the Company under this Agreement, (b) the authorization, execution and
delivery of the Other Transaction Documents, and (c) the authorization,
issuance, reservation for issuance and delivery of all of the shares of Common
Stock issuable upon exercise of the Warrant has been taken. This Agreement and
the Other Transaction Documents have been duly and validly executed and
delivered by the Company and each constitute a valid and binding obligation of
the Company enforceable in accordance with its terms, subject, as to enforcement
of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization
and similar laws affecting creditors' rights generally and to general equitable
principles.
7.3. Consents and Approvals. All consents, approvals,
----------------------
authorizations, registrations, qualifications and filings required in connection
with the execution, delivery and performance of this Agreement and the Other
Transaction Documents by the Company have been obtained or made, except for
filings under state securities laws permitted to be made after the Effective
Date.
8. REPRESENTATIONS AND WARRANTIES OF ______. ______ represents and
----------------------------------------
warrants to the Company as follows:
-2-
<PAGE>
8.1. Investigation; Economic Risk. ______ acknowledges that
----------------------------
he has had an opportunity to discuss the business, affairs and current prospects
of the Company with the Company's officers. ______ further acknowledges having
had access to information about the Company that he has requested. ______
acknowledges that he is able to fend for himself in the transactions
contemplated by this Agreement and has the ability to bear the economic risks of
its investment pursuant to this Agreement.
8.2. Purchase for Own Account. The Warrant, the Note and the
------------------------
securities issuable upon exercise or conversion thereof will be acquired for
______'s own account, not as a nominee or agent, and not with a view to or in
connection with the sale or distribution of any part thereof.
8.3. Exempt from Registration; Restricted Securities. ______
-----------------------------------------------
understands that the sale of the Note and the Warrant will not be registered
under the Securities Act of 1933, as amended (the "Act"), on the ground that the
sale provided for in this Agreement is exempt from registration under the Act,
and that the reliance of the Company on such exemption is predicated in part on
______'s representations set forth in this Agreement. ______ understands that
the Warrant, the Note and the securities issuable upon exercise or conversion
thereof are restricted securities within the meaning of Rule 144 under the Act,
and must be held indefinitely unless they are subsequently registered or an
exemption from such registration is available. ______ is an "accredited
investor" within the meaning of the Act.
9. DEFAULT. For purposes of this Agreement, the term "default"
------- -------
shall include any of the following:
(a) The failure by the Company to pay any amounts under the
Note when due;
(b) A material breach by the Company of any term or provision
of this Agreement, the Note or the Warrant; or
(c) The filing of a petition in bankruptcy or under any similar
insolvency law by the Company, the making of an assignment for the benefit of
creditors, or if any voluntary petition in bankruptcy or under any similar
insolvency law is filed against the Company and such petition is not dismissed
within sixty (60) days after the filing thereof.
Upon the occurrence of a default under Section 9(b), the Company shall
have thirty (30) days to cure such default after receipt of written notice of
default from ______ specifying the nature of the Company's default. If the
default is pursuant to Section 9(a) or 9(c), or if the Company is unable to cure
its default under Section 9(b) within such thirty (30) day period, ______ may,
at his option, accelerate repayment of the Loan in which case the Outstanding
Balance and all interest accrued thereon shall be due and payable immediately.
Upon any default of the Company hereunder, ______ may pursue any legal or
equitable remedies that he has available to him.
10. MISCELLANEOUS.
-------------
10.1. Governing Law. This Agreement shall be governed in all
-------------
respects by and construed in accordance with the laws of the State of New York
without regard to provisions regarding choice of laws.
10.2. Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by any party hereto
and the closing of the transactions contemplated hereby.
-3-
<PAGE>
10.3. Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto whose rights or obligations hereunder are affected by such
amendments. This Agreement and the rights and obligations therein may not be
assigned by ______ without the written consent of the Company, which consent
will not be unreasonably withheld. This Agreement and the rights and obligations
therein may not be assigned by the Company without the written consent of
______; provided, however, that a merger for the sole purpose of effecting a
change in domicile of the Company from one state to another shall not be deemed
an assignment requiring the written consent of ______.
10.4. Entire Agreement. This Agreement, the Other Transaction
----------------
Documents and the Exhibits hereto and thereto (all of which are hereby expressly
incorporated herein by this reference) constitute the entire understanding and
agreement between the parties with regard to the subjects hereof and thereof;
provided, however, that nothing in this Agreement shall be deemed to terminate
- -------- -------
or supersede the provisions of any confidentiality and nondisclosure agreements
executed by the parties hereto prior to the date hereof, if any, which
agreements shall continue in full force and effect until terminated in
accordance with their respective terms.
10.5. Notices. Except as may be otherwise provided herein, all
-------
notices and other communications required or permitted hereunder shall be in
writing and shall be conclusively deemed to have been duly given (a) when hand
delivered to the other party; (b) when received if sent by facsimile at the
address and number set forth below; (c) three business days after deposit in the
U.S. mail with first class or certified mail receipt requested postage prepaid
and addressed to the other party as set forth below; or (d) the next business
day after deposit with a national overnight delivery service, postage prepaid,
addressed to the parties as set forth below with next-business-day delivery
guaranteed, provided that the sending party receives a confirmation of delivery
from the delivery service provider.
To: ___________________ To the Company:
_______________________ SkyLynx Communications, Inc.
_______________________ 600 South Cherry Street
_______________________ Suite 400
_______________________ Denver, CO 80246
Attn.: Jeffery A. Mathias
Fax Number: (___) _____ Fax Number: (303) 316-0404
Each person making a communication hereunder by facsimile shall
promptly confirm by telephone to the person to whom such communication was
addressed each communication made by him by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 10.5 by giving the
other party written notice of the new address in the manner set forth above.
10.6. Amendments. Any term of this Agreement may be amended only
----------
with the written consent of Company and ______.
10.7. Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to a party, upon any breach or default of any
party hereto under this Agreement, shall impair any such right, power or remedy
of such party, nor shall it be construed to be a waiver of any such breach or
default or any subsequent breach or default. Any waiver, permit, consent or
approval of any kind or character related to this Agreement on the part of
-4-
<PAGE>
either party must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to either party shall be cumulative
and not alternative.
10.8. Legal Fees. In the event of any action at law, suit in equity
----------
or arbitration proceeding in relation to this Agreement or securities of the
Company issued or to be issued, the prevailing party, shall be paid by the other
party a reasonable sum for attorney's fees and expenses for such prevailing
party.
10.9. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
10.10. Severability. Should any provision of this Agreement be
------------
determined to be illegal or unenforceable, such determination shall not affect
the remaining provisions of this Agreement.
[The remainder of this page intentionally left blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Loan and Warrant
Agreement to be effective as of the date first above written.
____________________________________ SKYLYNX COMMUNICATIONS, INC.
____________________________________ By: ____________________________________
____________________________________ Name:
Title:
-6-
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
<PAGE>
Exhibit 10.24
SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Dated as of February 2, 2000
among
SKYLYNX COMMUNICATIONS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE>
SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of February 2, 2000 by and among SkyLynx
Communications, Inc., a Delaware corporation (the "Company"), and the Purchasers
of shares of Series F Convertible Preferred Stock of the Company whose names are
set forth on Exhibit A hereto (the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to each Purchaser and each
Purchaser shall purchase from the Company, the number of shares of the Company's
Series F Convertible Preferred Stock, par value $.01 per share (the "Preferred
Shares"), at a purchase price of $1,000 per share, set forth opposite such
Purchaser's name on Exhibit A hereto. The designation, rights, preferences and
---------
other terms and provisions of the Series F Convertible Preferred Stock are set
forth in the Certificate of Designations attached hereto as Exhibit B (the
---------
"Certificate of Designations"). The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Rule 506 of Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act").
Section 1.2 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, solely for the purpose of
issuance upon the conversion of the Preferred Shares, a sufficient number of its
authorized but unissued shares of its Common Stock, par value $.001 per share
(the "Common Stock"), to effect the conversion of the Preferred Shares. Any
shares of Common Stock issuable upon conversion of the Preferred Shares (and
such shares when issued) are herein referred to as the "Conversion Shares." The
Preferred Shares and the Conversion Shares are sometimes collectively referred
to as the "Shares."
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to each Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
each Purchaser agrees to purchase that number of the Preferred Shares set forth
opposite such Purchaser's respective name on Exhibit A. The aggregate purchase
price of the Preferred Shares being acquired by each Purchaser (the "Purchase
Price") is set forth opposite such Purchaser's name on Exhibit A.
(a) The first closing of the purchase and sale of the Preferred Shares to
be acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street,
Telesis Tower, San Francisco, California 94104-4505 (the "First Closing") at
11:00 a.m. California Time on the earlier of (i)
<PAGE>
February 2, 2000 or (ii) the date on which the last to be fulfilled or waived of
the conditions set forth in Article IV hereof and applicable to the First
Closing shall be fulfilled or waived in accordance herewith, or at such other
time and place or on such date as the Purchasers purchasing at least a majority
of the Preferred Shares and the Company may agree upon (the "First Closing
Date"). On the First Closing Date, the Company shall deliver to each Purchaser
participating in the First Closing a certificate for the number of Preferred
Shares set forth opposite the Purchaser's name under the heading "Number of
Preferred Shares Purchased" on Exhibit A hereto, registered in such Purchaser's
name (or its nominee) and such Purchaser shall pay the Purchase Price by wire
transfer of funds into the Company's account at Norwest Bank Colorado, N.A.,
ABA#: ___________, Account Number: ___________.
(b) The second closing of the purchase and sale of the Preferred Shares to
be acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street,
Telesis Tower, San Francisco, California 94104-4505 (the "Second Closing") at
11:00 a.m. California Time on the earlier of (i) February 18, 2000 or (ii) the
date on which the last to be fulfilled or waived of the conditions set forth in
Article IV hereof and applicable to the Second Closing shall be fulfilled or
waived in accordance herewith, or at such other time and place or on such date
as the Purchasers purchasing the balance of the Preferred Shares and the Company
may agree upon (the "Second Closing Date"). On the Second Closing Date, the
Company shall deliver to each Purchaser participating in the Second Closing a
certificate for the number of Preferred Shares set forth opposite the
Purchaser's name under the heading "Number of Preferred Shares Purchased" on
Exhibit A hereto, registered in such Purchaser's name (or its nominee) and such
Purchaser shall pay the Purchase Price by wire transfer of funds into the
Company's account at Norwest Bank Colorado, N.A., ABA#: 102 000 076, Account
Number: 106-3047378. The First Closing and the Second Closing are sometimes, as
and when the context indicates, referred to herein individually as a "Closing"
and collectively as the "Closings."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Purchasers:
(a) (i) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business and any
other business presently proposed to be conducted. The Company does not have
any subsidiaries except as set forth in the Company's Form 10-KSB for the year
ended December 31, 1998, including the accompanying financial statements (the
"Form 10-KSB"), or on Schedule 2.1(a) hereto. The Company and each such
subsidiary is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification
2
<PAGE>
necessary, except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified would not have a Material Adverse Affect (as
defined in Section 2.1(e) hereof).
(ii) Except as set forth in Schedule 2.1(a) hereto, each of the
Company and its subsidiaries has all requisite corporate power and authority and
all franchises, licenses, permits, consents, authorizations, regulatory
approvals and other approvals necessary to own and operate its properties, to
carry on its business and any other businesses presently proposed to be
conducted and to carry out the transactions contemplated by this Agreement,
except where the failure to possess such franchises, licenses, permits,
consents, authorizations, regulatory approvals and other approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. All such franchises, licenses, permits, consents, authorizations,
regulatory approvals and other approvals are valid and in full force and effect,
and the Company has duly performed and is in compliance in all material respects
with all of its obligations thereunder. No event has occurred with respect to
any of such franchises, licenses, permits, consents, authorizations, regulatory
approvals or other approvals that allows, or after notice or lapse of time or
both would allow, the suspension, limitation, revocation, non-renewal or
termination thereof that, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect, and, to the Company's
knowledge, no termination of any such franchises, licenses, permits, consents,
authorizations, regulatory approvals or other approvals, or proceedings to
suspend, limit, revoke or terminate any such franchises, licenses, permits,
consents, authorizations, regulatory approvals or other approvals has been
threatened.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 3.11) and the
Registration Rights Agreement substantially in the form attached hereto as
Exhibit C (the "Registration Rights Agreement") (collectively, the "Transaction
Documents") and to issue and sell the Shares in accordance with the terms of
this Agreement and the Certificate of Designations. The execution, delivery and
performance of the Transaction Documents and the Certificate of Designations by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of
Directors or stockholders is required. This Agreement has been duly executed
and delivered by the Company. The Registration Rights Agreement and the
Certificate of Designations will have been duly executed and delivered by the
Company at the First Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof issued and outstanding as of January 27, 2000 are set forth
on Schedule 2.1(c) hereto. All of the issued and outstanding shares of the
Common Stock, Series A Convertible Preferred Stock, Series C Convertible
Preferred Stock and Series D Convertible Preferred Stock have been duly and
validly authorized and issued and are fully-paid and nonassessable. Except as
set forth in the 1999 Commission Documents (as defined in Section 2.1(f)
herein), the
3
<PAGE>
Certificate of Incorporation, with any and all amendments thereto, as in effect
on the date hereof (the "Certificate"), or on Schedule 2.1(c) hereto, no shares
of Common Stock or of any series of the Company's preferred stock are entitled
to preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, call or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company. Furthermore, except as set forth in this
Agreement and the Registration Rights Agreement, and as set forth in the 1999
Commission Documents, the Certificate or on Schedule 2.1(c), there are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities,
as provided on Schedule 2.1(c) hereto, the Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. Except as provided on Schedule
2.1(c), the Company is not a party to any agreement with respect to the voting
or transfer of any shares of the capital stock of the Company. Except as set
forth on Schedule 2.1(c) hereto, the offer and sale of all capital stock,
convertible securities, rights, warrants, or options of the Company issued prior
to the Closing complied with all applicable federal and state securities laws,
and no stockholder has a right of rescission or damages with respect thereto
which would have a Material Adverse Effect. The Company has furnished to each
Purchaser a true, complete and correct copy of the Certificate and the Company's
Bylaws, with any and all amendments thereto, as in effect on the date hereof
(the "Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Preferred Shares
shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designations. When the Conversion Shares are issued in accordance with the
terms of the Preferred Shares as set forth in the Certificate of Designations,
such shares will be validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock. The Conversion Shares have been duly authorized and
reserved for issuance upon conversion of the Preferred Shares.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under and the execution of the Certificate of Designations and the
consummation by the Company of the transactions contemplated herein and therein
do not and will not (i) violate any provision of the Certificate or Bylaws, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party or by which the
Company's assets are bound, (iii) create or impose a lien, charge or encumbrance
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or
4
<PAGE>
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clause (i) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not have, individually or in the aggregate, a Material
Adverse Effect. For the purposes of this Agreement, "Material Adverse Effect"
means any adverse effect on the business, operations, properties, prospects, or
financial condition of the Company and its subsidiaries, taken as a whole, and
which is material to the Company and its subsidiaries, taken as a whole. The
business of the Company and its subsidiaries is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which individually or in the aggregate do not and would not
have a Material Adverse Effect. The Company is not required under federal, state
or local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or the Certificate of Designations, or issue and sell the
Preferred Shares or the Conversion Shares in accordance with the terms hereof or
thereof (other than any filings which may be required to be made by the Company
with the Commission or state securities administrators subsequent to the
Closing, and any registration statement which may be filed pursuant hereto, and
the filing of the Certificate of Designations with the Secretary of State of the
State of Delaware); provided that, for purposes of the representation made in
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including materials filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing, including filings incorporated by reference therein,
being referred to herein as the "Commission Documents"). The Company has
delivered or made available to each of the Purchasers true and complete copies
of the Commission Documents filed with the Commission since December 31, 1998
(the "1999 Commission Documents"). As of their respective dates, the Commission
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and, as of their respective dates, none of the
Commission Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the Commission Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present the financial position of
the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
5
<PAGE>
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each applicable person's ownership of the
outstanding stock or other interests of such subsidiary. Each subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation and has the requisite corporate power to
own, lease and operate its properties and assets and to conduct its business as
it is now being conducted. For the purposes of this Agreement, "subsidiary"
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares of capital
stock of each subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable. Except as set forth in Schedule 2.1(g), there are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
or has any knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since September 30, 1999, the date
through which the most recent quarterly report of the Company on Form 10-QSB has
been prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than (i)
those disclosed in the Commission Documents or (ii) those incurred in the
ordinary course of the Company's or its subsidiaries respective businesses since
September 30, 1999 (none of which results from breach of contract, breach of
warranty, tort, infringement claim or other lawsuit) and which, individually or
in the aggregate, do not or would not have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. The 1999 Commission Documents or Schedule 2.1(k)
hereto sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary or for which the Company or any
subsidiary has commitments. For
6
<PAGE>
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $25,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Except as set forth in Schedule 2.1(l), each of
the Company and the subsidiaries has good title to all of its real and personal
property as reflected in the Commission Documents, free of any mortgages,
pledges, charges, liens, security interests or other encumbrances, except which,
individually or in the aggregate, would not have a Material Adverse Effect. All
leases of the Company and each of its subsidiaries are valid and subsisting and
in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation or proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of the subsidiaries has accurately
prepared and filed all Tax Returns required by law to be filed by it; the
Company and each of the subsidiaries has paid all Taxes due and owing and all
additional assessments; and adequate provisions have been made and are reflected
in the financial statements of the Company and the subsidiaries for all current
Taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. The Company and each of the
Subsidiaries have withheld and paid over all Taxes which it is obligated to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third party, except for any failures to so
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pay as would not have a Material Adverse Effect; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency; none of
the federal income Tax returns of the Company or any subsidiary for the years
subsequent to December 31, 1996 has been audited by the Internal Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) pending or threatened
against the Company or any subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency. The term "Tax" (including, with
correlative meaning, the terms "Taxes," "Taxing" and "Taxable") shall mean all
federal, state, local and foreign income, profits, franchise, gross receipts,
license, premium, environmental (including taxes under IRC Section 59A) capital
stock, severance, stamp, payroll, sales, employment, unemployment, disability,
use, transfer, property, withholding, excise, production, occupation, windfall
profits, customs duties, social security (or similar), registration, value
added, alternative or add-on minimum, estimated, occupancy and other taxes,
duties or governmental assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions. The term "Tax Return" shall
mean any return, report, form or similar statement required to be filed with
respect to any Tax (including any attached schedules), including any information
return, claim for refund, amended return, election or declaration of estimated
Tax.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary or the Purchasers with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement nor the Schedules hereto nor any other documents, certificates, or
instruments furnished to the Purchasers by the Company or any of its
subsidiaries in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made, not misleading.
(r) Intellectual Property. "Intellectual Property" means (i) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereon, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations, continuations-
in-part, revisions, extensions and reexaminations thereof, (ii) all trademarks,
service marks, trade dress, logos, trade names, domain names, and corporate
names, together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrights and all
applications, registrations and renewals in connection therewith, (iv) all mask
works and all applications, registrations and renewals in connection therewith,
(v) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, methods, schematics, technology, technical
data, designs, drawings, flowcharts, block diagrams, specifications, customer
and supplier lists, pricing and cost information and business and marketing
plans and proposals), (vi) all computer software (including data and related
documentation), (vii) all other proprietary rights, (viii) all copies and
tangible embodiments of the foregoing categories of intellectual property listed
in subsections (i) through
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(vii) herein (in whatever form or medium) and (ix) all licenses, sublicenses,
agreements, or permissions related to the foregoing categories of intellectual
property listed in subsections (i) through (vii) herein. "Company Intellectual
Property" means any Intellectual Property owned by the Company and its
subsidiaries.
(a) Each item of Company Intellectual Property which is a
patent, patent application, trademark, trademark application, service mark,
service mark application, trade dress, logo, trade name, corporate name,
copyright registration, copyright application, mask work registration or mask
work application is set forth on Schedule 2.1(r) or is disclosed in the
Commission Documents;
(b) Each item of Intellectual Property owned or available for
use by the Company and its subsidiaries immediately prior to the Closing
hereunder will be owned or available for use by the Company and its subsidiaries
on identical terms and conditions immediately subsequent to the Closing
hereunder;
(i) all registered patents, trademarks, service marks and
copyrights constituting part of the Company Intellectual Property are valid and
subsisting and in full force and effect and are not subject to any taxes or
other fees except for annual filing and maintenance fees;
(ii) the Company is not aware of any notice, claim or
assertion that any item of Intellectual Property owned or used by the Company
and its subsidiaries is invalid nor is the Company aware of any facts that would
cause a reasonable person to conclude that any such item of Intellectual
Property is invalid;
(iii) to the best knowledge of the Company, the Company and
its subsidiaries has the sole and exclusive right to use all of the Company
Intellectual Property in all jurisdictions in which the Company and its
subsidiaries conducts or proposes to conduct its business, and the consummation
of the transactions contemplated hereby will not alter or impair any such
rights;
(iv) to the best knowledge of the Company, the Intellectual
Property owned or used by the Company and its subsidiaries is all the
Intellectual Property that is necessary for the ownership, maintenance and
operation of the Company's and its subsidiaries properties and assets; and
(v) to the best knowledge of the Company, the Company and
its subsidiaries has taken all reasonable action to maintain and protect each
item of Company Intellectual Property.
(c) Other than as set forth on Schedule 2.1(r), to the best
knowledge of the Company, it has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of third parties, and the Company has not received any charge, complaint,
claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that the Company and its
subsidiaries must
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license or refrain from using any Intellectual Property rights of any third
party). Other than as set forth on Schedule 2.1(r), to the best knowledge of the
Company, no third party has interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Company Intellectual Property.
(d) With respect to each item of Company Intellectual Property,
except as set forth on Schedule 2.1(r):
(i) the Company and its subsidiaries possesses all right,
title and interest in and to the item, free and clear of any encumbrance,
license or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the best knowledge of the
Company, is threatened which challenges the legality, validity, enforceability,
use or ownership of the item;
(iv) to the best knowledge of the Company, the Company and
its subsidiaries has never agreed to indemnify any person for or against any
interference, infringement, misappropriation or other conflict with respect to
the item;
(v) to the best knowledge of the Company, each license,
sublicense, agreement or permission is legal, valid, binding, enforceable and in
full force and effect and will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms immediately following the
Closing;
(vi) to the best of the Company's knowledge, no party to
any license, sublicense, agreement or permission is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification or acceleration thereunder;
(vii) no party to any license, sublicense, agreement or
permission has repudiated any provision thereof;
(viii) with respect to any sublicense, the representations
and warranties set forth in subsections (v) through (vii) above are true and
correct with respect to the underlying license;
(ix) with respect to each license, sublicense, agreement
or permission, the underlying item of Company Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree, ruling or
charge;
(x) with respect to the each license, sublicense,
agreement or permission, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or
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demand is pending or, to the best knowledge of the Company, is threatened which
challenges the legality, validity or enforceability of the underlying item of
Company Intellectual Property; and
(xi) with respect to the each license, sublicense,
agreement or permission, the Company and its subsidiaries has not granted any
sublicense or similar right with respect to the license, sublicense, agreement
or permission.
(e) The continued operation of the Company's and its
subsidiaries business and any other businesses presently proposed to be
conducted by the Company and its subsidiaries will not, to the best knowledge of
the Company, interfere with, infringe upon, misappropriate, or otherwise come
into conflict with, any Intellectual Property rights of third parties.
(f) The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use such
employee's best efforts to promote the interest of the Company and its
subsidiaries or that would conflict with the Company's and its subsidiaries
business or any other businesses presently proposed to be conducted by the
Company and its subsidiaries or the Company's and its subsidiaries use of the
Intellectual Property.
(g) Neither the execution nor delivery of this Agreement, nor
the carrying on of the Company's and its subsidiaries business by the employees
of the Company and its subsidiaries, nor the conduct of the Company's and its
subsidiaries business or any other businesses presently proposed to be conducted
by the Company and its subsidiaries, will, to the best knowledge of the Company,
conflict with or result in a breach of the terms, conditions of provisions of,
or constitute a default under, any contract, covenant or instrument under which
any or such employees is now obligated.
(h) The Company and its subsidiaries does not and will not need,
in order to conduct its business and any other businesses presently proposed to
be conducted by the Company and its subsidiaries, to utilize any inventions of
any of its employees, former employees (or persons it currently intends to hire)
made while not employed by the Company and its subsidiaries and the rights to
which have not been fully assigned to the Company.
(i) The Company and its subsidiaries has obtained valid and
effective assignments from all of its employees, former employees, independent
contractors, and former independent contractors of all of such persons' rights
in any Company Intellectual Property developed by such persons while employed by
or under contract with the Company and its subsidiaries, except to the extent
that failure to do so has not had and would not reasonably be expected to have a
Material Adverse Effect.
(j) For each item of Company Intellectual Property which is an
application, including but not limited to patent applications, trademark
applications, service mark applications, copyright applications, or mask work
applications, the Company and its
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subsidiaries has the right to require the applicant to transfer ownership to the
Company and its subsidiaries of the application and of the registration once it
issues.
(s) Environmental Compliance. Except as disclosed in the 1999
Commission Documents or on Schedule 2.1(s) hereto, the Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. The 1999 Commission Documents or Schedule 2.1(s) hereto
sets forth all material permits, licenses and other authorizations issued under
any Environmental Laws to the Company or its subsidiaries. "Environmental Laws"
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth in the 1999 Commission Documents or on Schedule 2.1(s) hereto, the Company
has all necessary governmental approvals required under all Environmental Laws
and used in its business or in the business of any of its subsidiaries. The
Company and each of its subsidiaries are also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws. Except for such
instances as would not, individually or in the aggregate, have a Material
Adverse Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its subsidiaries that violate or may violate any Environmental Law after the
Closing or that may give rise to any Environmental Liabilities, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance. "Environmental Liabilities" means all liabilities of a person
(whether such liabilities are owed by such person to governmental authorities,
third parties or otherwise) whether currently in existence or arising hereafter
which arise under or relate to any Environmental Law.
(t) Books and Record Internal Accounting Controls. The records and
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.
(u) Material Agreements. Except as set forth in the Commission
Documents or on Schedule 2.1(u) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-1, Form
S-3 or other applicable forms (collectively, "Material Agreements") if the
Company or any subsidiary were registering securities under the Securities Act.
The Company
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and each of its subsidiaries have in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge, are not in default under any Material Agreement now in effect, the
result of which could reasonably be expected to have a Material Adverse Effect.
Except as set forth in the Certificate or Schedule 2.1(u), no written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of dividends
on the Preferred Shares, other preferred stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the 1999
Commission Documents or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $60,000 between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company or any of its subsidiaries, or any corporation or other entity
controlled by such officer, employee, consultant or director, or any person
owning 5% or more of the Company's capital stock, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares and Conversion Shares. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has offered
to sell or solicited offers to buy the Preferred Shares, or entered into any
preliminary conversations or negotiations relating thereto with any person, or
has taken any action so as to bring the issuance and sale of the Preferred
Shares and the Conversion Shares under the registration provisions of the
Securities Act and applicable state securities laws. Neither the Company nor
any person acting on its behalf has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Preferred Shares and the
Conversion Shares.
(x) Governmental Approvals. Except as set forth in the 1999
Commission Documents or on Schedule 2.1(x) hereto, and except for the filing of
any notice prior or subsequent to the Closing that may be required under
applicable state and/or federal securities laws (which if required, shall be
filed on a timely basis), including the filing of a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designations with the Secretary of State for the State of
Delaware, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares,
or for the performance by the Company of its obligations under the Transaction
Documents or the Certificate of Designations.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the 1999 Commission Documents or on Schedule 2.1(y)
hereto. Except as set forth in the 1999 Commission Documents or on Schedule
2.1(y) hereto, neither the Company nor its subsidiaries
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<PAGE>
has any material employment contract, non-competition agreement, agreement
regarding proprietary information, confidentiality agreement, non-solicitation
agreement or any other similar contract or restrictive covenant, relating to the
right of any officer, employee or consultant to be employed or engaged by the
Company. Since September 30, 1999, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect, or
has been terminated or, to the knowledge of the Company, has any present
intention of terminating his or her employment or engagement with the Company or
any subsidiary.
(z) Absence of Certain Developments. Except as provided in the 1999
Commission Documents or on Schedule 2.1(z) hereto, since September 30, 1999,
neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other securities or any rights,
options or warrants with respect thereto, except pursuant to the Company's stock
option plans;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
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(x) other than the transactions contemplated by this
Agreement, entered into any other transaction other than in the ordinary course
of business, or entered into any other material transaction, whether or not in
the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and
acquisitions.
(ab) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if the Purchasers, or any person or entity that owns
a beneficial interest in any Purchaser, is an "employee pension benefit plan"
(within the meaning of Section 3(2) of ERISA) with respect to which the Company
is a "party in interest" (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.
As used in this Section 2.1(ac), the term "Plan" shall mean an "employee pension
benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(ad) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in
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certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designations in accordance with this
Agreement, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Company.
(ae) Other Sales. The Company has not and will not sell any
shares of Series F Convertible Preferred Stock to any person or entity other
than the Purchasers or their affiliates.
(af) Listing. The Common Stock is listed and traded on the over-
the-counter electronic bulletin board (the "OTC Bulletin Board").
(ag) Year 2000. To the knowledge of the Company, all of the
Company's and its subsidiaries products and services that record, store, process
and calculate and present calendar dates, or calculate any information dependent
on or relating to such dates, will operate on and after January 1, 2000 without
error caused by date data that represents or references different centuries or
more than one century (collectively, "Y2K Compliant"). To the knowledge of the
Company, all of the Company's and its subsidiaries material products and
services will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. To the knowledge of the
Company, all of the Company's and its subsidiaries internal computer systems are
Y2K compliant.
Section 2.2 Representations and Warranties of the Purchasers.
Each Purchaser hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, the Purchaser is a corporation, partnership, limited
liability company or trust duly incorporated, formed or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, formation or organization.
(b) Authorization and Power. Each Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by each
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate, partnership,
limited liability or other action (if the Purchaser is an entity), and no
further consent or authorization of such Purchaser or its Board of Directors,
stockholders, partners, managers, members or trustees, as the case may be, is
required. Each of this Agreement and the Registration Rights Agreement has been
duly authorized, executed and delivered by each Purchaser.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
each Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
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<PAGE>
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Purchaser
is a party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a material adverse effect
on such Purchaser). No Purchaser is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement or to
purchase the Preferred Shares in accordance with the terms hereof, provided that
for purposes of the representation made in this sentence, such Purchaser is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(d) Acquisition for Investment. Each Purchaser is purchasing the
Preferred Shares solely for its own account for the purpose of investment and
not with a view to or for sale in connection with distribution. No Purchaser
has a present intention to sell the Preferred Shares, nor a present arrangement
(whether or not legally binding) or intention to effect any distribution of the
Preferred Shares to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(f) below, none of
the Purchasers agrees to hold the Preferred Shares for any minimum or other
specific term and each of the Purchasers reserves the right to dispose of the
Preferred Shares at any time in accordance with federal securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Preferred Shares.
(e) Accredited Investors. Each Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144; Listing. Each Purchaser understands that the Shares
must be held indefinitely unless such Shares are registered under the Securities
Act or an exemption from registration is available. Each Purchaser acknowledges
that such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Each Purchaser understands that to the extent that Rule
144 is not available, such person will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement. Each Purchaser understands that
the Common Stock is traded on the OTC Bulletin Board and that no assurance can
be given that the Company's Common Stock will qualify for listing or trading on
the Nasdaq Stock Market, or any other relevant exchange, market or system, or
that, if listed or traded thereon in the future, it will continue to qualify for
listing or trading thereon.
(g) General. Each Purchaser understands that the Preferred Shares
are being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Preferred Shares.
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(h) Access to Information. Each Purchaser has received all
documents, records, books and publicly available information pertaining to
Purchaser's investment in the Company that have been reasonably requested by
Purchaser. Purchaser acknowledges that the Company is subject to the periodic
reporting requirements of the Exchange Act, and Purchaser has received or
reviewed copies of the Commission Documents.
ARTICLE III
COVENANTS
The Company covenants as follows, which covenants are for the benefit of
the Company, each of the Purchasers and their permitted assignees (as defined
herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with their
rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred
Shares and the Conversion Shares as required under Regulation D, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Preferred Shares and the Conversion Shares to the Purchasers.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Purchasers set forth herein in order to determine the applicability of
federal and state securities laws exemptions and the suitability of the
Purchasers to acquire the Preferred Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
comply with its reporting and filing obligations under the Exchange Act, will
comply with all requirements related to any registration statement filed
pursuant to this Agreement or the Registration Rights Agreement, and, except as
required by applicable law, will not take any action or file any document
(whether or not permitted by the Securities Act or the rules promulgated
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act or Securities Act.
The Company will take all action necessary to continue the listing or trading of
its Common Stock on the OTC Bulletin Board or any relevant market or system, if
applicable, and to comply with the Company's reporting, filing and other
obligations under the bylaws or rules of the OTC Bulletin Board or any relevant
market or system.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, the Purchasers
or any employees, agents or representatives thereof, so long as the Purchasers
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares which represent 10% or more of the total
combined voting power of all voting securities of the Company then outstanding,
to examine and make reasonable copies of and extracts from the records and books
of account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors and key employees.
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Section 3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
following to the Purchasers so long as the Purchasers shall be obligated
hereunder to purchase the Preferred Shares or shall beneficially own any
Preferred Shares which represent more than 10% of the total combined voting
power of all voting securities of the Company then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as
soon as available, and in any event within 45 days after the end of each of the
first three fiscal quarters of the Company or such later date pursuant to an
extension granted by the Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon
as available, and in any event within 90 days after the end of each fiscal year
of the Company or such later date pursuant to an extension granted by the
Commission; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
provision of the Certificate or Bylaws of the Company or Registration Rights
Agreement in any way that would materially adversely affect any of the rights of
the holders of Preferred Shares, including but not limited to the liquidation
preferences, dividends rights, conversion rights, voting rights or redemption
rights of the holders of the Preferred Shares.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would materially restrict or
impair the right or ability to perform of the Company or any subsidiary to
perform under any Transaction Document or the Certificate of Designations.
Section 3.9 Distributions. So long as any Preferred Shares remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company, except for the repurchase or
reacquisition of Common Stock pursuant to the terms of the Company's stock
option plans.
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Section 3.10 Reservation of Shares. So long as any Preferred Shares
remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, no less than the
aggregate number of shares of Common Stock needed to provide for the issuance of
the Conversion Shares.
Section 3.11 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchasers or their
respective nominee(s), for the Conversion Shares in such amounts as specified
from time to time by the Purchasers to the Company upon conversion of the
Preferred Shares in substantially the form of Exhibit D attached hereto (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares under the Securities Act, all such certificates shall bear the
restrictive legend specified in Section 6.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.11 will be given by the Company to
its transfer agent and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.11
shall affect in any way the Purchasers' obligations and agreements set forth in
Section 6.1 to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Shares. If any Purchaser provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of Shares may be made without registration under
the Securities Act or such Purchaser provides the Company with reasonable
assurances that Shares can be sold pursuant to Rule 144 without any restriction
as to the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.11 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.11 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.11, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
Section 3.12 FIRPTA. The Company acknowledges that holders of Preferred
Shares may be foreign persons or may have foreign persons or entities as
partners and that the Company may be required to file or cause to be filed in
the future with the IRS certain statements with its United States income Tax
Returns required under Section 1.897-2(h) of the Treasury Regulations. The
Company is not a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code and the Company shall use reasonable
efforts consistent with sound business practice to avoid becoming a "United
States real property holding corporation." Upon the request of any holder of
Preferred Shares, the Company shall provide such holder with a statement that
the Company is not a "United States real property holding corporation" as of the
date specified by the holder (or as of the date of the request if the holder
does not specify a date) and shall send a copy of such statement to the IRS in a
form and manner which identifies the holder and which otherwise satisfies the
requirements of Section 1.897-
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2(h)(2) of the Treasury Regulations. In the event the Company in the future
becomes a "United States real property holding corporation," the Company shall
promptly notify each holder in writing of such fact. Thereafter, upon written
request from any holder Preferred Shares, the Company shall provide information,
documentation and assistance to such holder reasonably related to the Company's
status as a "United States real property holding corporation," including but not
limited to (i) an affidavit stating (if true) that the stock held by such holder
is of a class that is regularly traded (as defined by Sections 1.897-1(n) and
1.897-9T of the Treasury Regulations) on an established securities market (as
defined by Section 1.897-1(m) of the Treasury Regulations), and (ii) information
or assistance which would enable such holder to obtain a withholding certificate
permitting a transferee of such holder's stock to avoid or reduce any
withholding obligation such transferee would otherwise have under federal Tax
law.
Section 3.13 Regulation S. The Company covenants and agrees that if the
Company fails to (i) file a registration statement within 60 days from the First
Closing Date and/or (ii) register the Conversion Shares within 120 days from the
First Closing Date, under the terms and conditions of the Registration Rights
Agreement attached hereto as Exhibit C, then for so long as any of the Preferred
Shares or Conversion Shares remain outstanding and continue to be "restricted
----------
securities" within the meaning of Rule 144 under the Securities Act, the Company
- ----------
shall, in order to permit resales of the Preferred Shares or Conversion Shares
pursuant to Regulation S under the Securities Act, (a) continue to file all
material required to be filed pursuant to Section 13(a) or 15(d) of the Exchange
Act, and (b) not knowingly engage in directed selling efforts in connection with
the resale of securities by any Purchaser under Regulation S.
Section 3.14 Restrictions on Subsequent Financings. From the First
Closing Date until the date 180 days immediately following such First Closing
Date, the Company covenants and agrees that, without the consent of Purchasers
purchasing at least three-quarters of the Preferred Shares, it will not agree
to, enter into or otherwise accept any subsequent offer or sale to, or exchange
with (or other type of distribution to), any third party (a "Subsequent
Financing"), of Common Stock or any securities convertible or exchangeable into
Common Stock, including debt securities (the "Financing Securities").
Notwithstanding the foregoing, a Subsequent Financing shall not include: (i) any
transaction involving the Company's issuance of any Financing Securities (other
than for cash) (A) as consideration in a merger, acquisition, consolidation or
sale or disposition of stock or assets or (B) in exchange for stock or assets;
(ii) the grant of any Financing Securities under any Company employee benefit
plan, stock option plan, restricted stock plan or stock purchase plan or
agreement for the benefit of the Company's employees, directors or consultants;
(iii) the issuance of Financing Securities pursuant to (x) the options, warrants
or other convertible securities outstanding as of the First Closing Date and (y)
the Second Closing, and specifically listed on the Schedules hereto; or (iv) any
transaction entered into and completed on terms and conditions which contemplate
the exchange, consideration or sale (or other type of distribution or payment,
as applicable) of any Financing Securities at an "effective" price at or above
(A) forty percent (40%) of the closing bid price per share of the Common Stock
on the date of the execution of the definitive agreement to sell such Financing
Securities on the OTC Bulletin Board or any registered
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national stock exchange or market on which the Common Stock is then listed (or
the then average of the "Pink Sheet" quotes, if the Common Stock is not then
listed on the OTC Bulletin Board or any registered national stock exchange or
market) and (B) $2.50 per share (each of the transactions set forth in (i)-(iv)
of this Section 3.14 being a "Permitted Financing"); provided, however, that
-------- -------
each such Permitted Financing is not subject to any term or condition which
shall require the Company to file with the Commission a registration statement
in respect of any Financing Securities prior to sixty (60) days after the
Effectiveness Date (as such term is defined in the Registration Rights
Agreement); provided, further, the preceding proviso shall not apply to any
-------- ------- -------
Permitted Financing pursuant to Section 3.14(ii) which is disclosed in Schedule
2.1(c) hereto under the heading "Registration Rights". The Company will promptly
notify the Purchasers in writing of the terms and conditions of any proposed
Subsequent Financing.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares to the Purchasers is subject to the satisfaction or waiver, at
or before the respective Closing, of each of the conditions set forth below.
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of the Purchasers shall be true and correct in
all material respects as of the date when made and as of the Closing as though
made at that time, except for representations and warranties that are expressly
made as of a particular date, which shall be true and correct as of such date.
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Purchasers at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Proceedings or Litigation. No investigation, action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced or threatened against the Company, any subsidiary thereof or any
Purchaser, or any of the officers, directors or affiliates of the Company, any
subsidiary thereof or any Purchaser seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(e) Securities Law Exemptions. The sale and issuance of the
Preferred Shares and the Conversion Shares to the Purchasers shall be permitted
by applicable law, rule and regulation, and shall be exempt from the
registration or qualification requirements of the Securities Act and applicable
state securities laws.
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(f) Consents and Approvals. All authorizations, consents, approvals,
licenses, exemptions of, filings or registrations with any third party or any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, necessary for, or in connection with, the
execution or delivery of the Preferred Shares, or for the performance by the
Company of its obligations under the Transaction Documents or the Certificate of
Designations, shall have been received.
(g) Registration Rights Agreement. At the Closing, each Purchaser
shall have executed and delivered the Registration Rights Agreement in
substantially the form attached hereto as Exhibit C to the Company.
(h) Transfer Agent Instructions. At the First Closing, the
Irrevocable Transfer Agent Instructions in substantially the form attached
hereto as Exhibit D shall have been delivered to and acknowledged in writing by
the Company's transfer agent.
(i) Minimum First Closing Purchase. At the First Closing, the
Company shall make sales of the Preferred Shares to the Purchasers and the
Purchasers shall purchase from the Company as listed on Exhibit A hereto
Preferred Shares resulting in gross proceeds of a minimum of $10,000,000 to the
Company, less any and all fees and legal expenses payable to the Purchasers.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of the Purchasers to acquire and
pay for the Preferred Shares is subject to the satisfaction or waiver, at or
before the respective Closing, of each of the conditions set forth below. These
conditions are for the Purchasers' sole benefit and may be waived by the
Purchasers at any time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing as
though made at that time, except for representations and warranties that speak
as of a particular date, which shall be true and correct as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing.
(c) Suspension, Etc. From the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to Closing), and, at any
time prior to the Closing, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, on Nasdaq
or on the OTC Bulletin Board, nor shall a banking moratorium have been declared
either by the United States or New York State authorities, nor shall there have
occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
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material adverse change in any financial market which, in each case, in the
judgment of the Purchasers, makes it impracticable or inadvisable to purchase
the Preferred Shares.
(d) Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Proceedings or Litigation. No investigation, action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced or threatened against the Company, any subsidiary thereof or any
Purchaser, or any of the officers, directors or affiliates of the Company, any
subsidiary thereof or any Purchaser seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Securities Law Exemptions. The sale and issuance of the
Preferred Shares and the Conversion Shares to the Purchasers shall be permitted
by applicable law, rule and regulation, and shall be exempt from the
registration or qualification requirements of the Securities Act and applicable
state securities laws.
(g) Consents and Approvals. All authorizations, consents, approvals,
licenses, exemptions of, filings or registrations with any third party or any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, necessary for, or in connection with, the
execution or delivery of the Preferred Shares, or for the performance by the
Company of its obligations under the Transaction Documents or the Certificate of
Designations, shall have been received.
(h) Preferred Stock Certificates. The Company shall have executed and
delivered to each Purchaser a stock certificate or certificates (in such
denominations as such Purchaser shall request) for the Preferred Shares being
purchased by such Purchaser at the Closing.
(i) Certificate of Designations of Rights and Preferences. Prior to
the First Closing, the Certificate of Designations shall have been filed with
the Secretary of State of the State of Delaware.
(j) Registration Rights Agreement. At the First Closing, the Company
shall have executed and delivered the Registration Rights Agreement in
substantially the form attached hereto as Exhibit C to the Purchasers.
(k) Transfer Agent Instructions. At the First Closing, the
Irrevocable Transfer Agent Instructions in substantially the form attached
hereto as Exhibit D shall have been delivered to and acknowledged in writing by
the Company's transfer agent.
(l) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the Certificate of
Designations, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction
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Documents and any other documents required to be executed or delivered in
connection therewith.
(m) Officer's Certificate. The Company shall have delivered to the
Purchasers an officer's certificate, dated as of the Closing Date, certifying as
to the items in subsections (a) through (k) above.
(n) Opinion of Counsel. At the Closing, the Purchasers shall have
received opinions of counsel to the Company, dated the Closing Date, in form and
substance acceptable to the Purchasers' counsel, Parker Chapin Flattau & Klimpl,
LLP, and such other certificates and documents as the Purchasers or such counsel
shall reasonably require incident to the Closing.
ARTICLE V
REGISTRATION RIGHTS
At the Closing, the Company and the Purchasers shall enter into the
Registration Rights Agreement in substantially the form attached hereto as
Exhibit C.
ARTICLE VI
STOCK CERTIFICATE LEGEND
Section 6.1 Legend. Each certificate representing the Preferred Shares,
and, if appropriate, securities issued upon conversion thereof, shall be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR SKYLYNX COMMUNICATIONS, INC. (THE
"COMPANY") SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION OF SUCH SECURITIES
UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Preferred
Shares or Conversion Shares without the legend set forth above if at such time,
prior to making any transfer of any Preferred Shares or Conversion Shares, such
holder thereof shall give written notice to the Company describing the manner
and terms of such transfer or removal as the Company may reasonably request.
Such proposed transfer or removal will not be effected until: (a) (i) holder has
delivered to the Company a legal opinion from counsel to holder that, in the
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opinion of such counsel, the registration of such Preferred Shares or Conversion
Shares under the Securities Act is not required in connection with such proposed
transfer; or (ii) a registration statement under the Securities Act covering
such proposed disposition has been filed by the Company with the Commission and
has become effective under the Securities Act; and (b) the Company is reasonably
satisfied that (i) the registration or qualification of such Preferred Shares or
Conversion Shares under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition; or (ii) compliance with
applicable state securities or "blue sky" laws has been effected. The Company
will use its best efforts to respond to any such notice from a holder, or else
effect such transfer or removal, within three (3) days. In the case of any
proposed transfer under this Section 6, the Company will use reasonable efforts
to comply with any such applicable state securities or "blue sky" laws, but
shall in no event be required, in connection therewith, to qualify to do
business in any state where it is not then qualified or to take any action that
would subject it to tax or to the general service of process in any state where
it is not then subject. The restrictions on transfer contained in Section 6.1
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this Agreement.
ARTICLE VII
TERMINATION
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to any Closing by the mutual written consent of the
Company and the Purchasers purchasing a majority of the Preferred Shares at such
Closing.
Section 7.2 Other Termination. This Agreement may be terminated as to
the First Closing by the action of the Board of Directors of the Company or by
the Purchasers purchasing a majority of the Preferred Shares at the First
Closing at any time if the First Closing shall not have been consummated by
February 2, 2000, provided that the reason the First Closing shall not have been
consummated is not the breach of the terminating party's representations,
warranties or covenants hereunder. This Agreement may be terminated as to the
Second Closing by the action of the Board of Directors of the Company or by the
Purchasers purchasing a majority of the Preferred Shares at the Second Closing
at any time if the Second Closing shall not have been consummated by February
18, 2000, provided that the reason the Second Closing shall not have been
consummated is not the breach of the terminating party's representations,
warranties or covenants hereunder.
Section 7.3 Effect of Termination. In the event of termination by the
Company or the Purchasers, written notice thereof shall forthwith be given to
the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party as to such Closing. If this
Agreement is terminated as provided in Section 7.1 or 7.2 herein, this Agreement
shall become void and of no further force and effect as to such Closing, and
neither the Company nor the Purchasers as to such Closing shall have any
liability to the other party hereunder, except as otherwise provided in Sections
9.2, 9.9, 9.12 and 9.15.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their directors, officers, partners, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers, severally but not jointly, agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent
27
<PAGE>
to entry of any judgment in respect thereof which imposes any future obligation
on the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party of
a release from all liability in respect of such claim. The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement or the Registration Rights Agreement, each party shall pay the fees
and expenses of its advisors, counsel, accountants and other experts, if any,
and all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall reimburse the Purchasers for up to $30,000 of the aggregate fees and
expenses of Parker Chapin Flattau & Klimpl, LLP, with respect to the
transactions contemplated by this Agreement. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the
Preferred Shares pursuant hereto.
Section 9.2 Consent to Jurisdiction. Each of the Company and the
Purchasers (i) hereby irrevocably submits to the jurisdiction of the United
States District Court sitting in the State of Delaware for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 9.2 shall affect
or limit any right to serve process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designations, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of three-quarters of the
Preferred Shares then outstanding, and no provision hereof may be waived other
than by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought. No such amendment shall be effective to the
extent that it
28
<PAGE>
applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents or the Certificate of Designations unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: SkyLynx Communications, Inc.
600 South Cherry Street
Suite 400
Denver, CO 80246
Attention: Jeffery A. Mathias, President and CEO
Telephone Number: (303) 316-0400
Fax: (303) 316-0404
with copies to: Gibson, Dunn & Crutcher LLP
One Montgomery Street, Telesis Tower
San Francisco, CA 91404-4505
Attention: Michael A. Levy
Telephone Number: (415) 393-8200
Fax: (415) 986-5309
If to the Purchasers: At the address of the Purchasers set forth on the
signature page to this Agreement, with copies to
Purchasers' counsel as set forth on the signature page or
as specified in writing by the Purchasers.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
29
<PAGE>
Section 9.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to the choice of law provisions.
Section 9.10 Survival. The representations and warranties of the Company
and the Purchasers contained in: (i) Section 2.1(o) shall survive until the
expiration of the statute of limitations applicable to the matters covered
thereby (giving effect to any waiver, mitigation or extension thereof); (ii)
Section 2.1(s) shall survive until three years after the First Closing Date; and
(iii) Article II, with the exception of Sections 2.1(o) and (s), shall survive
the execution and delivery hereof and the Closing until the date two years from
the First Closing Date. The agreements and covenants set forth in Articles I,
III, V and VII of this Agreement shall survive the execution and delivery hereof
and the Closing hereunder until the Purchasers and their affiliates in the
aggregate or their permitted transferees beneficially own (on a fully-diluted
basis, giving effect to the issuance of the Conversion Shares, and determined in
accordance with Rule 13d-3 under the Exchange Act) less than 2% of the total
combined voting power of all voting securities of the Company then outstanding;
provided, however, that the agreements and covenants set forth in Sections 3.1,
3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10 and 3.11 shall survive the execution and
delivery hereof and the Closing hereunder for an indefinite period. The
agreements and covenants set forth in Articles VIII and IX of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder for an
indefinite period.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 9.12. Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement. Each Purchaser agrees that it
will not disclose this Agreement or the transactions contemplated hereby, except
to Purchaser's lawyers, accountants or similar representatives to the extent
30
<PAGE>
reasonably required, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designations or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designations or the Registration Rights Agreement and this Agreement, the
Certificate of Designations and the Registration Rights Agreement, as
applicable, shall be reformed and construed as if such invalid, illegal or
unenforceable provision, or part of such provision, to the extent of its
invalidity, illegality or unenforceability, had never been contained herein or
therein.
Section 9.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchasers or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Certificate of Designations, and
the Registration Rights Agreement.
Section 9.15 Specific Enforcement. The Company and the Purchasers
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement or the Registration Rights Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 9.16 Wainwright Warrants. The Company and the Purchasers
acknowledge and agree that no adjustment to the conversion price of the
Preferred Shares shall be made by virtue of the issuance of the Wainwright
Warrants (as defined in Schedule 2.1(c)), or the issuance of shares of Common
Stock upon exercise of the Wainwright Warrants. The Company and those
Purchasers who are holders of warrants to purchase shares of Common Stock of the
Company, dated as of April 16, 2000, issued in connection with the sale of
Series D Convertible Preferred Stock of the Company, or holders of warrants to
purchase shares of Common Stock of the Company, dated as of November 15, 1999,
issued in connection with the Series F Bridge Financing (as defined in Schedule
2.1(c)), acknowledge and agree that no adjustment to the warrant price of any
such warrant, or the number of shares of Common Stock issuable thereunder, shall
be made by virtue of the issuance of the Wainwright Warrants, or the issuance of
shares of Common Stock upon exercise of the Wainwright Warrants. The Company
and the Purchasers further acknowledge and agree that the Company may include
the shares of Common Stock issuable upon exercise of the Wainwright Warrants in
the Registration Statement to be filed pursuant to the Registration Rights
Agreement.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
SKYLYNX COMMUNICATIONS, INC.
By: _______________________________
Name:
Title:
PURCHASER:
Signature:
By: _______________________________
Name:
Title:
Address:
Tel No.:
Fax No.:
___________________________________
32
<PAGE>
SECOND CLOSING
<TABLE>
<CAPTION>
==========================================================================
Series F Investors Shares Amount
- --------------------------------------------------------------------------
<S> <C> <C>
Purchasers to come
- --------------------------------------------------------------------------
Series F Investors Total
- --------------------------------------------------------------------------
</TABLE>
______________
(1) Includes the conversion of a convertible promissory note held by a certain
holder, issued by the Company as of November 15, 1999 and certain other
convertible promissory notes in the aggregate principal amount of
$1,450,000 held by the other lenders set forth above as issued by the
Company as of November 15, 1999. Such notes will be deemed converted, paid
in full and of no further force or effect upon the First Closing,
notwithstanding any failure on such lender's part to return such lender's
original note. The warrants issued to all of the lenders in connection with
such notes will be deemed amended so that the First Closing constitutes a
"Qualified Financing" under the warrants.
<PAGE>
EXHIBIT B
CERTIFICATE OF DESIGNATIONS
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
<PAGE>
SCHEDULES
<PAGE>
EXHIBIT 10.25
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of February 2, 2000, by and among SkyLynx Communications, Inc., a
Delaware corporation (the "Company"), and each of the Purchasers listed on the
signature pages hereto (collectively, the "Purchasers").
This Agreement is being entered into pursuant to the Series F Convertible
Preferred Stock Purchase Agreement, dated as of the date hereof, by and among
the Company and the Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions.
-----------
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section 3(n).
"Board" shall have the meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Closing Date" means the date of the last closing of the sale of Preferred
Stock pursuant to the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $0.001 per
share.
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<PAGE>
"Effectiveness Date" means with respect to the Registration Statement the
120/th/ day following the First Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section 2.
"Event" shall have the meaning set forth in Section 7(e).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means the 60/th/ day following the First Closing Date.
"Holders" means the holders from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"OTC Bulletin Board" shall mean the over-the-counter electronic bulletin
board.
"Periodic Amount" shall have the meaning set forth in Section 7(e).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Series F Convertible Preferred Stock, par value
$.01 per share and stated value $1,000 per share, of the Company issued to the
Purchasers pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock issuable upon
conversion of the Preferred Stock (the "Conversion Shares"), and upon any stock
split, stock dividend, recapitalization or similar event with respect to such
Conversion Shares and (ii) any other dividend or other distribution with respect
to, conversion or exchange of, or in replacement of,
2
<PAGE>
Registrable Securities; provided, however, that Registrable Securities shall
include (but not be limited to) a number of shares of Common Stock equal to no
less than 100% of the maximum number of shares of Common Stock issuable upon
conversion of the Preferred Stock sold on or prior to the Closing Date.
Notwithstanding anything contained herein to the contrary, if the actual number
of shares of Common Stock issuable upon conversion of the Preferred Stock
exceeds 100% of the number of shares of Common Stock issuable upon conversion of
the Preferred Stock sold on or prior to the Closing Date, the term "Registrable
Securities" shall be deemed to include such additional shares of Common Stock.
"Registration Statement" means a registration statement and any additional
registration statement contemplated by Section 2, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means Parker Chapin Flattau & Klimpl, LLP (unless such
counsel no longer represents any of the Holders), for which the Holders will be
reimbursed by the Company pursuant to Section 4.
2. Shelf Registration.
------------------
On or prior to the Filing Date, the Company shall prepare and file with the
Commission a "shelf" Registration Statement covering all Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in which
case such registration shall be on another appropriate form in accordance
herewith). The Company shall (i) not permit any securities other than the
Registrable Securities to be included in the Registration Statement and (ii) use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after filing thereof, but in
any event prior to the Effectiveness Date and to keep such Registration
Statement continuously effective under the Securities Act until such date as is
the earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on which the Registrable
Securities may be sold without any restriction, and are freely tradeable without
legends, pursuant to Rule 144(k), as determined by the counsel to the
3
<PAGE>
Company pursuant to a written opinion letter addressed to the Company's transfer
agent to such effect (unless counsel to such Purchaser reasonably concludes that
sales of such Registrable Securities by such Purchaser remain subject to any
restriction, or that the legends may not be removed from the Registrable
Securities, under Rule 144(k)) (the "Effectiveness Period"). If an additional
Registration Statement is required to be filed because the actual number of
shares of Common Stock into which the Preferred Stock is convertible exceeds the
number of shares of Common Stock initially registered in respect of the
Conversion Shares, the Company shall have thirty (30) days to file such
additional Registration Statement, and the Company shall use its best efforts to
cause such additional Registration Statement to be declared effective by the
Commission as soon as possible, but in no event later than sixty (60) days after
filing.
3. Registration Procedures.
-----------------------
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission, on or prior to the Filing
Date, a Registration Statement on Form S-3 (or, if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, such
registration shall be on another appropriate form in accordance herewith) in
accordance with the method or methods of distribution thereof as specified by
the Holders, and shall use its best efforts to cause the Registration Statement
to become effective and remain effective as provided herein; provided, however,
that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated therein by
reference), the Company shall (i) furnish to the Holders and their Special
Counsel copies of all such documents proposed to be filed, which documents
(other than those incorporated by reference) will be subject to the review of
the Holders and their Special Counsel, and (ii) at the request of the Holders,
cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of their Special Counsel to the Holders, to conduct a
reasonable investigation within the meaning of the Securities Act.
The Company shall not file the Registration Statement or any
Prospectus or any amendments or supplements thereto to which the Holders of a
majority of the Registrable Securities or their Special Counsel shall reasonably
object to in writing within three (3) Business Days of their receipt thereof if
such filing may contain information that may result in a misstatement of fact or
an omission of a material fact.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as practicable provide the
4
<PAGE>
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders and their Special Counsel in writing as
promptly as possible (and, in the case of (i)(A) below, not less than five (5)
Business Days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) Business Day following the
day: (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company 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; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, 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.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to any Holders and their Special Counsel, without charge,
one conformed copy of each Registration Statement and each amendment thereto,
including financial
5
<PAGE>
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
any Holders or their Special Counsel (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to any Holders and their Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Holders or
their Special Counsel may reasonably request; and the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the Holders and their
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as the Holders request in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to a Registration Statement, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any Holder may request at least
two (2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an 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 the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the OTC Bulletin Board and any
other securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.
6
<PAGE>
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 90 days after the end of any 12-month
period (or within such extended period of time as may be permitted by the
Commission for filing the applicable report with the Commission) commencing on
the first day of the first fiscal quarter of the Company after the effective
date of the Registration Statement, which statement shall conform to the
requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may postpone or suspend
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filing or effectiveness of a Registration Statement for a period not to exceed
twenty (20) consecutive days, provided that the Company may not postpone or
suspend its obligation under this Section 3(n) for more than forty-five (45)
days in the aggregate during any 12-month period (each, a "Blackout Period");
provided, however, that no such postponement or suspension shall be permitted
for consecutive 20-day periods, arising out of the same set of facts,
circumstances or transactions.
4. Registration Expenses.
---------------------
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation: (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the OTC
Bulletin Board and each other securities exchange or market on which Registrable
Securities are required hereunder to be listed, (B) with respect to filings
required to be made with the Commission, (C) with respect to filings required to
be made under the OTC Bulletin Board and (D) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
Special Counsel to the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and the Special Counsel for the Holders, in the case of the Special Counsel, up
to a maximum of $10,000, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Company's
independent public accountants (including the expenses of any comfort letters or
costs associated with the delivery by independent public accountants of a
comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing or relisting of the
Registrable Securities on the OTC Bulletin Board or any securities exchange as
required hereunder.
5. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents, investment advisors and employees of each
such controlling Person, to the fullest extent permitted by applicable law, from
and against any and all losses,
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<PAGE>
claims, damages, liabilities, costs (including, without limitation, costs of
preparation and attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of an Indemnified Party and shall survive the
transfer of the Registrable Securities by the Holders.
(b) Indemnification by Holders. The Holders shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising solely out of or based solely upon any
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in therein and that such
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of prospectus or in any amendment or
supplement thereto. Notwithstanding anything to the contrary contained herein,
the Holder shall be liable under this Section 5(b) for only that amount as does
not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the
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<PAGE>
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or
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<PAGE>
relates to information supplied by, such Indemnifying, Party or Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in Section 5(c), any reasonable attorneys'
or other reasonable fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms. Notwithstanding anything
to the contrary contained herein, such Holder shall be liable or required to
contribute under this Section 5(c) for only that amount as does not exceed the
net proceeds to such Holder as a result of the sale of Registrable Securities
pursuant to such Registration Statement.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Rule 144 and Piggyback Registration.
-----------------------------------
(a) As long as any Holder owns Preferred Stock or Conversion Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Holders with true and complete copies
of all such filings. As long as any Holder owns Preferred Stock or Conversion
Shares, if the Company is not required to file reports pursuant to Section 13(a)
or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and
make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Person to sell Conversion Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act. Upon the request of any Holder, the Company shall deliver
to such Holder a written certification of a duly authorized officer as to
whether it has complied with such requirements.
(b) If at any time when there is not an effective Registration Statement
covering Conversion Shares, the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than: (1) on Form S-4 or Form S-8 (each
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<PAGE>
as promulgated under the Securities Act) or its then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans; or (2) the Company's amendment or successor
registration statement to the Company's Registration Statement on Form SB-2
Registration No. 333-83705 to be filed in connection with the reincorporation of
the Company in the State of Delaware, the Company shall send to each Holder of
Registrable Securities written notice of such determination and the Company will
cause the registration under the Securities Act of all Registrable Securities
(unless within thirty (30) days after receipt of such notice, any such Holder
shall notify the Company in writing that it elects to have less than all of its
Registrable Securities intended to be disposed of by such Holder included in
such registration) to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 6(b) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(b) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).
7. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company, on the one
hand, or by a Holder, on the other hand, of any of their respective obligations
under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights
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<PAGE>
granted by law and under this Agreement, including recovery of damages, will be
entitled to specific performance of its respective rights under this Agreement.
The Company and the Holders agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as set forth in the
Registration Rights Agreement, dated as of January 18, 1999, by and among the
Company and purchasers of its Series B Convertible Preferred Stock, the
Registration Rights Agreement, dated as of April 16, 1999, by and among the
Company and purchasers of its Series D Convertible Preferred Stock, and the
Registration Rights Agreement, dated as of May 6, 1999, by and among the Company
and purchasers of its Series E Convertible Preferred Stock (the "Prior
Registration Rights Agreements"), neither the Company nor any of its
subsidiaries is, as of the date hereof, a party to, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Without limiting the generality of the foregoing, without
the written consent of the Holders of at least three-quarters of the then
outstanding Registrable Securities, the Company shall not grant to any Person
the right to request the Company to register any securities of the Company under
the Securities Act unless the rights so granted are not prior to and are not
otherwise in conflict with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as set forth in the Prior
Registration Rights Agreements, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its security holders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.
(d) Failure to File Registration Statement and Other Events. The
Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if certain other events occur. The Company and the Holders further agree that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (i) the Registration Statement is not filed on or prior to the
Filing Date, or is not declared effective by the Commission on or prior to the
Effectiveness Date (or in the event an additional Registration Statement to be
filed because the actual number of shares of Common Stock into which the
Preferred Stock is convertible exceeds the number of shares of Common Stock
initially registered is not filed and declared effective within the time periods
set forth in Section 2(a)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2 promulgated
under the Exchange Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (iii) the Registration Statement is filed with and
declared effective by the Commission
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<PAGE>
but thereafter ceases to be effective as to all Registrable Securities at any
time prior to the expiration of the Effectiveness Period, without being
succeeded immediately by a subsequent Registration Statement filed with and
declared effective by the Commission, or (iv) trading in the Common Stock shall
be suspended or if the Common Stock is delisted from the OTC Bulletin Board for
any reason for more than ten (10) Business Days in the aggregate, or (v) the
Company breaches in a material respect (x) any covenant or other material term
or condition to this Agreement, (y) Section 5(b)(ii) or (v) or Section 5(k) of
the Certificate of Designation or (z) Section 3.2, 3.7, 3.8, 3.10, 3.11, 3.13 or
3.14 of the Purchase Agreement, and such breach continues for a period of thirty
(30) days after written notice thereof to the Company, or (vi) the Company has
breached Section 3(n) of this Agreement (any such failure or breach of this
Section 7(e)((i)-(vi) being referred to as an "Event"), the Company shall pay in
-----
cash as liquidated damages for such failure and not as a penalty to each Holder
an amount equal to one percent (1%) of such Holder's pro rata share of the
purchase price paid by all Holders for all shares of the Preferred Stock
purchased and then outstanding pursuant to the Purchase Agreement for the
initial thirty (30) day period until the applicable Event has been cured, which
shall be pro rated for such periods less than thirty (30) days, and two percent
(2%) of such Holder's pro rata share for each thirty (30) day period thereafter
until the applicable Event has been cured (which shall be also pro rated, as
aforesaid) (the "Periodic Amount"). Payments to be made pursuant to this Section
---------------
7(e) shall be due and payable immediately upon demand in immediately available
funds. The parties agree that the Periodic Amount represents a reasonable
estimate on the part of the parties, as of the date of this Agreement, of the
amount of damages that may be incurred by the Holders if the Registration
Statement is not filed on or prior to the Filing Date or has not been declared
effective by the Commission on or prior to the Effectiveness Date and maintained
in the manner contemplated herein during the Effectiveness Period or if any
other Event as described herein has occurred and not been cured.
(e) Specific Enforcement, Consent to Jurisdiction.
(i) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Purchase Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the Purchase Agreement and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
(ii) Each of the Company and each of the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the State of Delaware for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or the Purchase
Agreement and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and each of the Purchasers consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this Section 7(e) shall affect or limit any right
to serve process in any other manner permitted by law.
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<PAGE>
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and each of the Holders. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
- -------- -------
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., California
Time, on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice later than 5:00 p.m., California Time, on
any date and earlier than 11:59 p.m., California Time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The address for such communications with
respect to each of the Holders shall be that set forth under such Holder's name
on Holder's signature page hereto, or with respect to the Company, addressed to:
SkyLynx Communications, Inc.
600 South Cherry Street
Suite 400
Denver, CO 80246
Attention: Jeffery A. Mathias, President and CEO
Facsimile: (303) 316-0404
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to the addresses
listed on Holder's signature page attached hereto, if applicable. Copies of
notices to the Holders shall be sent to Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, Attention: Christopher S.
Auguste, Esq., Facsimile No.: (212) 704-6288.
(h) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns.
The Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of the Holders. The Purchasers may
assign their rights hereunder in the manner and to the Persons as permitted
under the Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance
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<PAGE>
with the terms of this Agreement, shall be automatically assignable by each
Holder to any transferee of such Holder of all or a portion of the shares of
Preferred Stock or the Registrable Securities if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement. In addition, each Holder
shall have the right to assign its rights hereunder to any other Person with the
prior written consent of the Company, which consent shall not be unreasonably
withheld. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to
principles of conflicts of law thereof.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(o) Confirmation of Effectiveness. Within two (2) Business Days
after the Registration Statement which includes the Registrable Securities is
ordered effective by the Commission, the Company shall deliver, and shall cause
legal counsel for the Company to
16
<PAGE>
deliver, to the transfer agent for such Registrable Securities (with copies to
the Holders) confirmation that the Registration Statement has been declared
effective by the Commission.
(p) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of the Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[Remainder of Page Intentionally Left Blank]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized persons as of the date first
indicated above.
SKYLYNX COMMUNICATIONS, INC.
By: ____________________________________
Name:
Title:
PURCHASER:
Signature:
By: ____________________________________
Name:
Title:
Address:
Tel No.:
Fax No.:
18
<PAGE>
EXHIBIT 10.26
January 31, 2000
SkyLynx Communications, Inc.
600 South Cherry Street
Suite 305
Denver, Colorado 80222
Attention: Mr. Jeffery A. Mathias, President and Chief Executive Officer
Re: Amendment No. 2 to Financial Services Agreement
dated July 1, 1999, as amended on December 22, 1999
Gentlemen:
Reference is made to the Financial Services Agreement between H.C.
Wainwright & Co., Inc. ("Wainwright") and SkyLynx Communications, Inc. (together
with its subsidiaries, stockholders, sister companies, parents and other
affiliates, the "Company") dated as of July 1, 1999 (the "Agreement"), as
amended by the Letter Agreement dated December 22, 1999 ("Amendment No. 1").
This letter (this "Amendment") amends certain of the terms contained in the
Agreement and terminates Amendment No. 1.
In connection with the Company's Series F Financing, which Wainwright
is currently in the process of obtaining on behalf of the Company, Wainwright
and the Company hereby agree to amend the Agreement, effective concurrently with
the consummation of the Series F Financing, as follows:
1. Amendment No. 1 shall be terminated and shall be of no further force
or effect.
2. The Company shall issue to Wainwright a warrant to purchase 400,000
shares of the Company's common stock (the "Common Stock") at an exercise price
of $0.01 per share, exercisable over a term of three (3) years and containing a
cashless exercise provision. In connection with the $1,950,000 raised by
Wainwright prior to the date hereof (which the Company and Wainwright agree and
acknowledge has been raised and for which a fee of 10% of the proceeds thereof
has been paid by the Company to Wainwright), the Company and Wainwright agree
and acknowledge that the Company shall issue to Wainwright a warrant to purchase
100,000 shares of Common Stock at an exercise price of $3.00 per share,
exercisable over a term of three (3) years. The shares of Common Stock
underlying the warrants (the "Warrant Shares") shall be registered for resale by
the Company as part of the registration statement (the "Registration Statement")
to be filed by the Company to register for resale the shares of Common Stock
underlying the Series F Convertible Preferred Stock to be sold to investors in
the Series F Financing; provided, however, that the Company shall not be
required to register such shares if such investors withhold their consent to the
inclusion of such shares as part of the Registration Statement.
<PAGE>
SkyLynx communications, Inc.
January 31, 2000
Page 2
3. The Company shall pay Wainwright an amount equal to eight percent (8%)
of the Aggregate Consideration, in excess of the $1,950,000 referred to above
and less than or equal to $10,000,000, received or receivable directly or
indirectly by the Company in connection with the Series F Financing. The
Company shall pay Wainwright an amount equal to 10.5% of the Aggregate
Consideration, in excess of $10,000,000 and less than or equal to $20,000,0000,
received or receivable directly or indirectly by the Company in connection with
the Series F Financing. Such fees shall be in place of and supersede all fees
otherwise provided for in Section 1 of the Agreement.
4. Section 2 of the Agreement shall be amended as follows:
a. Wainwright's right of first refusal referred to in the first
paragraph of Section 2 of the Agreement shall be a right to act only as co-
placement agent or co-underwriter, rather than lead placement agent or lead
underwriter, in connection with a public or private sale of equity securities.
The term of the right of first refusal referred to in the first paragraph of
Section 2 of the Agreement shall be reduced to one (1) year from the date of
this Amendment. Wainwright's right of first refusal referred to in the first
paragraph of Section 2 of the Agreement shall terminate if Wainwright fails to
respond in writing to the Company that it accepts acting as co-placement agent
or co-underwriter in connection with a public or private sale of equity
securities within ten (10) days of the date of written notice from the Company
that the Company intends to effect a public or private sale of equity
securities.
b. The period on or prior to which a transaction referred to in the
sixth and final paragraph of Section 2 of the Agreement must be initiated shall
be reduced to December 31, 2001 and the compensation payable to Wainwright
thereunder shall be reduced to one-half of one percent (0.5%) of the aggregate
value of such transaction; provided, however, that Wainwright shall be entitled
to receive such compensation regardless of whether Wainwright is involved in any
capacity in such transaction. The last sentence of the sixth and final
paragraph of Section 2 of the Agreement is deleted in its entirety.
5. In the event that on or prior to one (1) year from the date of this
Agreement the Company: (i) issues warrants to purchase shares of the Company's
Common Stock pursuant to a rights offering to the Company's existing
stockholders, (ii) Wainwright acts as the lead placement agent for such
offering, and (iii) such warrants are exercised within twelve (12) months of the
date of their issuance, then Wainwright shall be entitled to receive an amount
equal to seven percent (7%) of the gross proceeds received or receivable
directly or indirectly by the Company in connection therewith.
The Company agrees that the indemnification and other provisions set
forth in the Indemnification Letter, which are hereby incorporated by reference
herein, and are in full force and effect with respect to the Agreement, as
amended by this Amendment.
<PAGE>
SkyLynx communications, Inc.
January 31, 2000
Page 3
This Amendment amends and modifies the Agreement, which remains in
full force and effect as to matters not discussed herein. In the case of any
inconsistency or conflict between the provisions of this Amendment and the
provisions of the Agreement, the provisions of this Amendment shall govern.
Please confirm that the foregoing correctly sets forth our agreement
by signing and returning to Wainwright the enclosed duplicate copy of this
Amendment.
Very truly yours,
H.C. WAINWRIGHT & CO., INC.
By:_______________________________
Name: Eric T. Singer
Title: Managing Director
Accepted and agreed to as of
the date first written above:
SKYLYNX COMMUNICATIONS, INC.
By:___________________________________________
Name: Jeffery A. Mathias
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT 10.32
-------------
Employment Agreement
--------------------
This agreement is effective September 1, 1998 and executed July 9, 1998 by
and between SkyLynx Communications, Inc., a Colorado corporation, ("Employer"),
and Steven Jesson, hereafter called "Employee."
1.1 Recitals
------------
1. The Employee represents that he has acquired outstanding and special
skills and abilities with an extensive background compatible to the
Employer's industry, which is the high-speed data transmission industry.
2. The Employer needs and desires the services and expertise of the Employee
and is willing to engage his services on the terms and conditions stated
below.
3. The Employee desires to be employed exclusively by the Employer and is
willing to do so on those terms and conditions.
NOW, THEREFORE, in consideration of the above recitals and of the mutual
promises and conditions in this Agreement, it is agreed as follows:
1. Employee's Duties and Authority. The Employer shall employ the Employee
-- --------------------------------
as General Manager, Western Region, or in such other capacity or capacities
as the Employer may from time to time prescribe.
2. Other Business Activities. During the term of employment, the Employee
-- --------------------------
shall devote his entire work efforts and talents to the performance of this
Agreement. Employee shall now, without the prior written consent of the
Employer, render to others services of any kind for compensation, gain,
pecuniary benefit or monetary reward. Employee shall not engage in any other
business activity that would materially interfere with the performance of his
duties under this Agreement.
3. Reasonable Time and Effort. During his employment, the Executive shall
-- ---------------------------
devote all such time, interest, and effort to the performance of this
Agreement as may be fair and reasonable.
4. Non-Competition During Employment. During the employment term, the
-- ----------------------------------
Employee shall not, in any fashion participate or engage in any activity or
other business that is competitive with the business of the Employer. In
addition, the Employee, while employed, shall not take any action without the
Employer's prior written consent to establish, form, cause to be established
or formed, or become employed by a competing business on termination of
employment by the Employer. The failure of the Employee to comply with the
provisions of this paragraph shall give the Employer the right (in addition
to all other remedies the Employer may have) to terminate any benefits or
compensation that the Employee may be other wise entitled to following
termination of this Agreement.
<PAGE>
5. Term of Employment. The Employee shall be employed from September 1,
-- ------------------
1998 to August 31, 2000 unless the Employee is terminated as provided in this
Agreement or this Agreement is extended by the mutual written consent of the
parties.
6. Place of Employment. During the employment term the Employee shall
-- --------------------
perform the services required at the office of the Employer based at a
location in California to be chosen by Employer. The Employee acknowledges
that the Employer may from time to time require the Employee to travel
temporarily to other geographic locations on the Employer's business.
7. Salary. Between September 1, 1998 and December 31, 1998, the Employer
-- -------
shall pay a basic salary to the Employee at the rate of $9,000 per month,
payable in semi-monthly installments. Effective January 1, 1999 the annual
base salary will be increased to $12,000 per month paid semi-monthly. The
base salary will be increased to $13,000 per month beginning January 1, 2000
and ending August 31, 2000.
8. Additional Benefits. The Employee shall receive all other benefits of
-- --------------------
employment generally available to the Employer's other Executive and
managerial Employees, including the following:
A. Health Care and Medical Benefits. The Employer shall provide the
-- ---------------------------------
Employee, during the term of this Agreement, with major medical health
benefits equivalent to that provided other officers.
B. Vacation and Holiday Benefits. The Employee shall be entitled to
-- ------------------------------
three (3) weeks of paid vacations during each year of his employment
with Employer.
C. Stock Option Benefits. As of the date of this Agreement, the Employee
-- ----------------------
shall receive five-year qualified and non-qualified options to
purchase 100,000 shares of Common Stock of the Employer at an exercise
price of $4.00 per share. The option shall expire on August 31, 2003.
Said options shall vest on the first day of each month at the rate of
4,166 shares per month during the term of this Agreement. If the
Employee terminates his employment willfully, dies, becomes unable to
perform his assigned job due to disability or is terminated for cause
prior to the term of this Agreement, the portion of the option shares
that have not vested shall be null and void. If the Employee is
terminated not for cause, the Employee shall be entitled to the entire
amount of Common stock options of the Employer as agreed to in this
Agreement in accordance with the vesting schedule set forth above.
All shares issued under this provision shall bear a restrictive legend
that will prohibit transfer except under the provisions of Rule 144 of
the Securities Exchange Act of 1934, as amended or unless the shares
have been registered with the Securities the stock and Exchange
Commission. Employee will be issued 25,000 shares of said Common
Stock upon reporting for duty. In the event of termination of this
<PAGE>
agreement for any reason, said shares are considered fully vested.
D. Other Benefits. During the term of this Agreement, the Employee shall
-- ---------------
be entitled to receive such of the following benefits of employment as
is available to all other officers: life insurance benefits, pension,
profit-sharing and income protection or disability plans, in each
instance, consistent with his position.
1. Expenses. The Employer shall reimburse the Employee for reasonable
- -- ---------
expenses incurred in connection with the Employee's performance of his duties
including travel expenses, food and lodging while away from home, pursuant to
the Employer's reimbursement policies.
2. Employee's Right of Ownership. All inventions conceived or developed by
- -- ------------------------------
the Employee that do not pertain to the business of the Employer, or with
respect that the equipment, supplies, facilities, contacts, or trade secret
information, customer lists, data bases or other assets of the Employer was
used, or that relate to the business of the Employer or to the Employer's actual
or demonstrably anticipated research and development, or that result from any
work performed by the Employee for the Employer shall remain the property of the
Employee.
3. Indemnification By Employer. The Employer shall indemnify and hold the
- -- ----------------------------
Employee harmless against, and shall purchase indemnity insurance, if available,
on behalf of the Employee, for an amount deemed by the Employer to be a
necessary or desirable amount for expenses, including reasonable attorney fees,
judgments, fines, settlements, and other amounts reasonably incurred in
connection with any proceeding arising by reason of the Employee's employment by
the Employer. The Employer may advance to the Employee expenses incurred in
defending any such proceeding not covered by insurance.
4. Termination By Employer.
- -- ------------------------
A. Involuntary Termination of Agreement. The Employer may terminate this
-- -------------------------------------
Agreement without cause, either on the last day of any fiscal year of
the Employer, upon sixty (60) days prior written notice, or on six
(6) months' prior written notice to the Employee.
B. Termination For Cause. The Employer may terminate this Agreement at
-- ----------------------
any time without notice if the Employee commits any material act of
dishonesty, discloses confidential information, is guilty of gross
carelessness or misconduct, unjustifiably neglects his duties under
this Agreement, or acts in any way that has a direct, substantial, and
adverse effect on the Employer's reputation.
13. Employee Termination.
---------------------
<PAGE>
A. Resignation. The Employee may terminate this Agreement by giving the
-- ------------
Employer six (6) months' prior written notice of resignation.
B. Retirement. This Agreement shall be terminated by the Employee's
-- -----------
voluntary retirement, that retirement shall be effective on the last
day of any fiscal year of the Employer, and that the Employee gives
the Employer six (6) months' written notice.
C. Disability.
-- -----------
(1). If, during the term of this Agreement, the Employee becomes
disabled due to mental or physical illness and is unable to perform
his duties in a normal and regular manner, this Agreement shall be
then terminated, and
(2). The Employer has advised the Employee that it currently maintains
disability insurance for its Employees, including the Employee.
(3). Curing the term of this Agreement, Employer shall maintain
disability insurance covering the Employee on terms and conditions no
less favorable than the terms and conditions in effect at the date of
this Agreement, unless all other similarly employed Employees benefits
are changed in relationship to the Employee.
D. Death. If the Employee dies during the period of employment, this
-- ------
Agreement shall then be terminated on the date of death.
E. Merger. In the event of a merger where the Employer is not the
-- -------
surviving entity, or of a sale of all or substantially all of the
Employer's assets, the Employer may, at its sole and absolute option:
(1). Assign this Agreement and all rights and obligations under it to
any business entity that succeeds to all or substantially all, of the
Employer's business through that merger or sale of assets, or
(2). On at least thirty (30) days prior written notice to the
Employee, terminate this Agreement effective on the date of the merger
or sale of assets, and
(3). Under either (1) or (2) of this provision or a management change
due to a sale of the stock positions of management, the stock options
granted to Employee shall be subject to the full vesting of said
options immediately upon the closing of the events described herein.
14. Non-disclosure After Termination. Because of his employment by the
---------------------------------
Employer, the Employee will have access to trade secrets, confidential
information about the Employer, its products, customers and methods of doing
business. In consideration of his employment hereunder and his access to this
information, the Employee agrees that
<PAGE>
for a period of five (5) years after termination of his employment for any
reason, he will not disclose such trade secrets or confidential information.
15. Arbitration. Any controversy or claim arising out of or relating to this
- --- ------------
Agreement that cannot be settled by the parties, shall be determined by binding
arbitration in accordance with the provisions of the Florida Arbitration Code.
Such proceedings shall be held in Hillsborough County, Florida. There shall be
three (3) arbiters with each party choosing one (1) from the list of approved
arbiters and those two (2) choosing the third. Each party shall pay its own
attorney fees, costs, expenses and the fees of the arbiter such party chooses.
Other costs of the arbitration, including the cost of any record or transcripts
of the arbitration, administrative fees, the fee of the third arbiter shall be
borne equally by the parties.
16. Entire Agreement. This Agreement contains the entire Agreement between the
-----------------
parties and supersedes all prior oral and written Agreements, understandings,
commitments and practices between the parties. No amendments to this Agreement
will be effective in writing and signed by both parties.
17. Choice of Law. The formation, construction and performance of this
--------------
Agreement shall be construed in accordance with the laws of the State of
Florida. This Agreement, or any of the provisions contained herein, shall not
be construed more strongly in favor or against one party or the other because of
which party was responsible for the drafting, typing or language usage.
18. Notices. Any notice to the Employer required or permitted under this
--------
Agreement shall be given in writing to the Employer by registered mail or
certified mail, return receipt requested, postage prepaid, at its then principal
place of business with a like copy addressed to the President of the Parent at
its then principal place of business. For the purpose of determining compliance
with any time limit in this Agreement, a notice shall be deemed to have been
duly given (1) on the date of service, if served personally on the party to whom
notice is to be given; or (2) on the second business day after proper mailing,
if the party to whom a matter is mailed is to be given notice in the manner
provided in this section.
19. Severability. If any provision of this Agreement is held invalid or
-------------
unenforceable, the remainder of this Agreement shall nevertheless remain in full
force and effect. If any provision is held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this day of 1998 at Tampa, Florida.
SkyLynx Communications, Inc.
<PAGE>
By:
Steven Jesson
<PAGE>
EXHIBIT 10.33
-------------
MODIFICATION AGREEMENT
----------------------
This modification agreement is dated this day of August 1998. The
undersigned parties constituting Employer (or "SkyLynx"), and Employee (or
"Jesson"), respectively agree as follows:
Whereas, the parties executed an employment agreement dated July 20, 1998;
and
Whereas, the parties desire to amend the said employment agreement by
extending the starting date, remuneration and legal relationship of the parties.
NOW, THEREFORE, the parties agree as follows:
Except as modified by this document, all provisions of the employment agreement
dated July 20, 1998 shall remain in full force and effect.
The commencement date of the employment relationship between the parties is
hereby extended to January 1, 1999.
Jesson shall serve as an independent contractor consultant between this date and
December 31, 1998.
Jesson shall be paid a prepaid expense fee on September 1, 1998 in the amount of
$4,000.00
Any travel, lodging, meal and entertainment expenses will require company
approval and shall be due either in advance or immediately on being billed to
SkyLynx.
The sum of $36,000.00 will be due and payable on January 2, 1999 representing
four (4) months consulting fees. In the event Jesson is unable or unwilling
to provide these services for the time specified, said fees shall be prorated
to the date of such inability or unwillingness to continue.
In witness whereof the parties have hereunto set their hands and seals this
day of August 1998.
SkyLynx Communications, Inc. Steven Jesson
By:
-------------------------- -------------------------------
Gary L. Brown Employee
As President for
Employer
<PAGE>
Exhibit 21.1
SUBSIDIARIES STATE OF INC
SkyLynx Communications, Inc. Delaware
SkyLynx Communications of California, Inc. Delaware
(Qualified in California)
SkyLynx Communications of Pacific Northwest, Inc. Delaware
(Qualified in Oregon and Washington)
SkyLynx Communications MST, Inc. Delaware
(Qualified in Arizona and Nevada)
2 Cactus Development, Inc. Delaware
(Qualified in Arizona and Colorado)
SkyLynx Communications (Tampa), Inc. Florida
SkyLynx Communications (Sarasota), Inc. Florida
SkyLynx Communications of Oregon, Inc. Oregon
SkyLynx Communications of Washington, Inc. Washington
SkyLynx Communications (Fresno), Inc. California
SkyLynx Communications of California, Inc. California
SkyLynx.com, Inc. Delaware
ISP.NET, Inc. Delaware
ISP.COM, Inc. Delaware
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 333-74487 and 333-92065.
/s/ ARTHUR ANDERSEN
LLP
Denver, Colorado
Date TBD
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS FOUND AS AN ATTACHMENT TO THE COMPANY'S
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,947,982
<SECURITIES> 0
<RECEIVABLES> 710,878
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,393,429
<PP&E> 4,436,347
<DEPRECIATION> 870,302
<TOTAL-ASSETS> 16,532,181
<CURRENT-LIABILITIES> 6,191,924
<BONDS> 0
0
7,293,134
<COMMON> 15,194
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,532,181
<SALES> 4,726,589
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 31,256,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,013
<INCOME-PRETAX> (26,975,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,975,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,975,644)
<EPS-BASIC> (3.44)
<EPS-DILUTED> (3.44)
</TABLE>
