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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported) February 28, 2000 (February 23, 2000)
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LOG ON AMERICA, INC.
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(Exact name of Registrant as specified in charter)
Delaware 0-25761 05-0496586
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(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
3 Regency Plaza, Providence, Rhode Island 02903
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 459-6298
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Item 5. Other Events.
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Private Placement.
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On February 23, 2000, Log On America, Inc. (the "Company")
entered into a Securities Purchase Agreement (the "Agreement"), by and among the
Company and the buyers named therein (the "Buyers"). Pursuant to the Agreement,
the Buyers purchased 15,000 shares of the Company's Series A Convertible
Preferred Stock (the "Preferred Shares") and 594,204 common stock purchase
warrants (the "Warrants") for an aggregate consideration of $15 million.
Subject to the terms and conditions set forth in the
Agreement, the Buyers also are required to buy, and the Company will be required
to sell, 10,000 additional Preferred Shares and related Warrants for an
additional consideration of $10 million. The Buyers also have the option to
purchase up to an aggregate of 10,000 additional Preferred Shares and related
Warrants for consideration of $1,000 per Preferred Share.
The offer and sale of the above-mentioned securities is made
pursuant to the exemption from securities registration afforded by Rule 506 of
Regulation D as promulgated by the United States Securities and Exchange
Commission thereunder. The rights, preferences and privileges of the Preferred
Shares are as described in the Company's Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock filed with the
Delaware Secretary of State on February 23, 2000 (the "Certificate of
Designations").
The Company and the Buyers also entered into a Registration Rights
Agreement, dated February 23, 2000, pursuant to which the Company agreed to
prepare and file a registration statement on Form S-3 covering the resale of the
common stock to be issued upon the conversion of the Preferred Shares and the
exercise of the Warrants.
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Nortel Credit Agreement.
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On February 23, 2000, the Company entered into a Credit
Agreement with Nortel Networks Inc., a Delaware corporation ("Nortel"), as
administrative agent and lender, and other lending entities which may become a
party to the Credit Agreement (together with Nortel, the "Lenders").
Under the terms of the Credit Agreement, the Lenders have
committed to an initial advance to the Company of up to $30 million and a second
advance of up to an additional $15 million to finance the Company's commitment
to purchase, by December 31, 2001, up to $47 million of equipment and services
from Nortel. The second advance is subject to the completion of an equity
capital contribution of $10 million in excess of the $15 million sale of
Preferred Shares referenced above.
As collateral for the Company's obligations under the Credit Agreement,
the Company has agreed to grant Nortel, as administrative agent, a security
interest in substantially all of the Company's assets.
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Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
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(c) Exhibits.
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<TABLE>
<CAPTION>
Exhibit No. Description.
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<S> <C>
3.1 Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock of the Company, as filed with the Delaware Secretary of State
on February 23, 2000.
4.1 Securities Purchase Agreement, dated as of February 23, 2000, by and among
the Company and certain Buyers.
4.2 Registration Rights Agreement, dated as of February 23, 2000, by and among
the Company and certain Buyers.
4.3 Form of Warrant to purchase shares of Common Stock.
99.1 Credit Agreement, dated as of January 31, 2000, by and between the Company
and Nortel Networks Inc. (Portions omitted pursuant to a confidential treatment
request.)
99.2 Press release of the Company, dated February 23, 2000.
</TABLE>
Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LOG ON AMERICA, INC.
February 28, 2000 By: /s/ David R. Paolo
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David R. Paolo, President
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
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<S> <C>
3.1 Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock of Log On America, Inc., as filed with the Delaware
Secretary of State on February 23, 2000.
4.1 Securities Purchase Agreement, dated as of February 23, 2000, by and among
Log On America, Inc. and certain Buyers.
4.2 Registration Rights Agreement, dated as of February 23, 2000, by and among
Log On America, Inc., and certain Buyers.
4.3 Form of Warrant to purchase shares of common stock issued pursuant to the
Securities Purchase Agreement.
99.1 Credit Agreement, dated as of January 31, 2000, by and between the Log On
America and Nortel Networks Inc. (Portions omitted pursuant to a confidential
treatment request.)
99.2 Press release of Log On America, Inc., dated February 23, 2000.
</TABLE>
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Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
LOG ON AMERICA, INC.
Log on America, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $0.01 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of Thirty Five
Thousand (35,000) shares of Series A Convertible Preferred Stock of the Company,
as follows:
RESOLVED, that the Company is authorized to issue 35,000
shares of Series A Convertible Preferred Stock (the "Preferred
Shares"), par value $0.01 per share, which shall have the following
powers, designations, preferences and other special rights:
(1) Dividends. The Preferred Shares shall not bear any
dividends.
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this
Certificate of Designations, the following terms shall have the following
meanings:
(i) "Additional Amount" means, on a per share basis,
the result of the following formula: (0.08)(N/365)($1,000).
(ii) "Business Day" means any day other than Saturday,
Sunday or other day on which commercial banks in the city of New York are
authorized or required by law to remain closed.
(iii) "Closing Bid Price" means, for any security as
of any date, the last closing bid price for such security on the Principal
Market (as defined below) as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the foregoing does not apply, the last closing bid price
of such security in the over-the-counter market on the electronic bulletin board
for such
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security as reported by Bloomberg, or, if no closing bid price is reported for
such security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, 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. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of Preferred Shares. If the Company and the holders of Preferred
Shares are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 2(d)(iii) below with the term
"Closing Bid Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
(iv) "Closing Price" means, (A) with respect to any
Preferred Shares issued on the Initial Issuance Date, $16.41 (subject to
adjustment for stock slits, stock dividends, stock combinations and other
similar transactions) and (B) with respect to any Preferred Share issued after
the Initial Issuance Date, the Market Price of the Common Stock on such Issuance
Date of such Preferred Share, provided that in no event shall the Closing Price
be greater than $24.13 (subject to adjustment for stock splits, stock dividends,
stock combinations and other similar transactions).
(v) "Conversion Amount" means, the sum of (1) the
Additional Amount and (2) the Stated Value (as defined below).
(vi) "Conversion Price" means, as of any Conversion
Date (as defined below) or other date of determination, the lower of the Fixed
Conversion Price and the Floating Conversion Price, each in effect as of such
date and subject to adjustment as provided herein.
(vii) "Conversion Percentage" means 90%, subject to
adjustment as provided herein.
(viii) "Designated Senior Debt" means any and all
indebtedness, liabilities and/or obligations of the Company outstanding (whether
or not due and payable) under the Nortel Networks Credit Facility.
(ix) "Designated Senior Debt Representative" means,
with respect to the Nortel Networks Credit Agreement, the "Administrative Agent"
as such term is defined in the Nortel Networks Credit Agreement.
(x) "Fixed Conversion Price" means, with respect to
any Preferred Share, as of any Conversion Date or other date of determination
(A) prior to the date which is 182 days after the applicable Issuance Date, 150%
of the Closing Price on the applicable Issuance Date and (B) on and after the
date which is 182 days after the applicable Issuance Date, the lower of (I) the
Fixed Conversion Price in effect on the date immediately preceding the date
which is 182 days after the applicable Issuance Date and (II) 120% of the
arithmetic average of the Closing Bid Price of the Common Stock on the 10
consecutive trading days immediately preceding the date
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which is 182 days after the applicable Issuance Date, in each case subject to
adjustment as provided herein.
(xi) "Floating Conversion Price" means, as of any date
of determination, the product of (A) the Conversion Percentage multiplied by (B)
the lowest Closing Bid Price of the Common Stock during the three (3)
consecutive trading days ending on and including such date of determination. All
such determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
(xii) "Initial Issuance Date" means the first date on
which the Company issues Preferred Shares pursuant to the Securities Purchase
Agreement.
(xiii) "Initial Preferred Shares" means Preferred
Shares which are issued on the Initial Issuance Date.
(xiv) "Issuance Date" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(xv) "Maturity Date" means the date which is three (3)
years after the applicable Issuance Date, unless extended pursuant to Section
2(d)(vii) or pursuant to Section 3(t) of the Registration Rights Agreement (as
defined below), which extension shall be equal to two times the aggregate number
of days of all Grace Periods (as defined in Section 3(u) of the Registration
Rights Agreement).
(xvi) "Market Price" means, with respect to any
security for any period, that price which shall be computed as the arithmetic
average of the Weighted Average Price for such security on each of the 5
consecutive trading days immediately preceding such date of determination. All
such determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
(xvii) "N" means the number of days from, but
excluding, the last Dividend Date with respect to which dividends, along with
any Default Interest, has been paid by the Company on the applicable Preferred
Share, or the Issuance Date if no Dividend Date has occurred, through and
including the Conversion Date, the Maturity Date or other date of determination
for such Preferred Share, as the case may be, for which such determination is
being made.
(xviii) "Nortel Networks Credit Agreement" means that
certain Credit Agreement dated as of January 31, 2000 among the Company, Nortel
Networks Inc. and the other lenders parties thereto from time to time (the
"Lenders") and Nortel Networks Inc. as administrative agent for the Lenders, as
such credit agreement may be amended, modified, increased, supplemented,
renewed, extended, restated or refinanced from time to time, but only to the
extent that such amendment, modification, increase, supplement, renewal,
extension, restatement or refinancing does not (A) amend Section 9.4(d), Section
9.4(e), Section 9.4(f), Section 9.4(g) or Section 9.4(h) of the Nortel Networks
Credit Agreement (or the analogous provisions of any refinancing agreement) in
any manner that would adversely affect the rights of the holders of the
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Preferred Shares to receive Restricted Payments (as defined in the Nortel
Networks Credit Agreement) pursuant to any such Section (or the analogous
provisions of any refinancing agreement) or otherwise amend the Nortel Networks
Credit Agreement in any manner that would effectively accomplish any of the
foregoing referred to in this clause (A), or (B) amend Section 11.1(q), Section
11.1(t) or Section 11.1(u) of the Nortel Networks Credit Agreement (or the
analogous provisions of any refinancing agreement) in any manner that would
allow the Designated Senior Debt Representative or any of the Lenders (as
defined in the Nortel Networks Credit Agreement) to claim that an Event of
Default (as defined in Section 11.1 of the Nortel Networks Credit Agreement (or
the analogous provisions of any refinancing agreement)) has occurred under any
such Section (or the analogous provisions of any refinancing agreement) which
such Person would not have, absent such amendment, been able to claim prior to
such amendment or otherwise amend the Nortel Networks Credit Agreement in any
manner that would effectively accomplish any of the foregoing referred to in
this clause (B).
(xix) "Nortel Networks Credit Facility" means the
Nortel Networks Credit Agreement and the Credit Facility evidenced and/or
governed by the Nortel Networks Credit Agreement.
(xx) "Owed Designated Senior Debt" means, as of any
date of determination, all Designated Senior Debt which is then due and owing by
the Company.
(xxi) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xxii) "Principal Market" means the Nasdaq National
Market or if the Common Stock is not traded on the Nasdaq National Market, then
the principal securities exchange or trading market for the Common Stock.
(xxiii) "Registration Rights Agreement" means that
certain registration rights agreement between the Company and the initial
holders of the Preferred Shares relating to the filing of a registration
statement covering the resale of the shares of Common Stock issuable upon
conversion of the Preferred Shares.
(xxiv) "SEC" means the United States Securities and
Exchange Commission.
(xxv) "Securities Purchase Agreement" means that
certain securities purchase agreement between the Company and the initial
holders of the Preferred Shares.
(xxvi) "Stated Value" means $1,000.
(xxvii) "Warrants" means warrants to acquire shares of
Common Stock issued pursuant to the Securities Purchase Agreement.
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(xxviii) "Weighted Average Price" means, for any
security as of any date, the dollar volume-weighted average price for such
security on the Principal Market as reported by Bloomberg through its "Volume at
Price" function or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg, the
average of the bid prices of each of the market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Weighted Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the holders of the Preferred Shares. If the Company and the holders of the
Preferred Shares are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(d)(iii) below
with the term "Weighted Average Price" being substituted for the term "Market
Price." All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.
(b) Holder's Conversion Right; Mandatory Conversion.
Subject to the provisions of Section 5, at any time or times on or after the
applicable Issuance Date, any holder of Preferred Shares shall be entitled to
convert any whole or fractional number of Preferred Shares into fully paid and
nonassessable shares of Common Stock in accordance with Section 2(d), at the
Conversion Rate (as defined below). If any Preferred Shares remain outstanding
on the Maturity Date, then all such Preferred Shares shall be converted at the
Conversion Rate as of such date in accordance with Section 2(d). The Company
shall not issue any fraction of a share of Common Stock upon any conversion. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 2(b) shall
be determined according to the following formula (the "Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
(d) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern 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) if required by
Section 2(d)(viii), surrender to a common carrier for delivery to the Company as
soon as practicable following such date the original
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certificates representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "Preferred Stock Certificates").
(ii) Company's Response. Upon receipt by the Company
of a copy of a Conversion Notice, the Company (I) shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder
and the Company's designated transfer agent (the "Transfer Agent"), which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein and (II) on or before
the second Business Day following the date of receipt by the Company of the
facsimile or other copy of such Conversion Notice (the "Share Delivery Date"),
(A) issue and deliver 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)
provided the Transfer Agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer Program, upon the request of the
holder, 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
DTC through its Deposit Withdrawal Agent Commission system. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred Shares being converted, then
the Company shall, as soon as practicable and in no event later than three
Business Days after receipt of the Preferred Stock Certificate(s) (the
"Preferred Stock Delivery Date") and at its own expense, issue and deliver to
the holder a new Preferred Stock Certificate representing the number of
Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall instruct the Transfer Agent to 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 within one (1) Business Day of receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the Conversion
Rate within three (3) Business Days of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall within one (1)
Business Day submit via facsimile (A) the disputed determination of the Market
Price to an independent, reputable investment bank selected by the Company and
approved by the holders of at least two-thirds of the Preferred Shares then
outstanding or (B) the disputed arithmetic calculation of the Conversion Rate to
the Company's 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 three (3) Business Days 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 error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares 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.
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(A) Cash Damages. If within three (3) Business
Days after the Company's receipt of the facsimile copy of a Conversion Notice
the Company shall fail to issue a certificate (which certificate, to the extent
set forth in Section 2(g) of the Securities Purchase Agreement, does not have
any restrictive legend) to a holder or credit such holder's balance account with
DTC for the number of shares of Common Stock to which such holder is entitled
upon such holder's conversion of Preferred Shares or to issue a new Preferred
Stock Certificate representing the number of Preferred Shares to which such
holder is entitled pursuant to Section 2(d)(ii), in addition to all other
available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder for each date
after the Share Delivery Date such conversion is not timely effected and/or each
date after the Preferred Stock Delivery Date such Preferred Stock Certificate is
not delivered in an amount equal to 0.5% of the sum of (a) the product of (I)
the number of shares of Common Stock not issued to the holder on or prior to the
Share Delivery Date and to which such holder is entitled and (II) the Closing
Bid Price of the Common Stock on the Share Delivery Date, and (b) in the event
the Company has failed to deliver a Preferred Stock Certificate to the holder on
or prior to the Preferred Stock Delivery Date, the product of (y) the number of
shares of Common Stock issuable upon conversion of the Preferred Shares
represented by such Preferred Stock Certificate, as of the Preferred Stock
Delivery Date and (z) the Closing Bid Price of the Common Stock on the Preferred
Stock Delivery Date. If the Company fails to pay the additional damages set
forth in this Section 2(d)(v) within five Business Days of the date incurred,
then the holder entitled to such payments shall have the right at any time, so
long as the Company continues to fail to make such payments, to require the
Company, upon written notice, to immediately issue, in lieu of such cash
damages, the number of shares of Common Stock equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided by (Y) the
Conversion Price in effect on such Conversion Date as specified by the holder in
the Conversion Notice. The foregoing notwithstanding, the damages set forth in
this Section 2(d)(v)(A) shall be stayed with respect to the number of shares of
Common Stock and, if applicable, the Preferred Stock Certificate for which there
is a good faith dispute being resolved pursuant to, and within the time periods
provided for in Section 2(d)(iii), pending the resolution of such dispute.
Notwithstanding the foregoing, the Company shall not be obligated to make
payments pursuant to this Section 2(d)(v)(A) in excess of $500,000 (the "Cash
Cap Amount"). Each Purchaser (as defined in Section 15 below) shall not be
entitled to receive cash damages pursuant to this Section 2(d)(v)(A) in excess
of the product of (A) the Cash Cap Amount and (B) a fraction, the numerator of
which is the number of Initial Preferred Shares and Mandatory Preferred Shares
(each as defined in the Securities Purchase Agreement) issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all the Initial Preferred Shares and the Mandatory
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "Cash Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cash
Allocation Amount. In the event that any holder of Preferred Shares shall have
converted all of such holder's Preferred Shares and received the Common Stock
issuable upon such conversions prior to such holder receiving all of its Cash
Allocation Amount, then the difference between such holder's Cash Allocation
Amount and the cash damages actually paid to such holder pursuant to this
Section 2(d)(v)(A) shall be allocated to the respective Cash Allocation Amounts
of the remaining holders of Preferred Shares on a pro rata basis in proportion
to the number of Preferred Shares then held by each such holder.
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(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason a holder has not received all of the shares
of Common Stock prior to the tenth (10th) Business Day after the Share Delivery
Date with respect to a conversion of Preferred Shares, then the holder, upon
written notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any Preferred Shares that have not been converted pursuant to such holder's
Conversion Notice; provided that the voiding of a holder's Conversion Notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise. Thereafter, the Fixed Conversion Price of any Preferred Shares
returned or retained by the holder for failure to timely convert shall be
adjusted to the lesser of (I) the Fixed Conversion Price as in effect on the
date on which the holder voided the Conversion Notice and (II) the lowest
Closing Bid Price during the period beginning on the Conversion Date and ending
on the date such holder voided the Conversion Notice.
(C) Redemption. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) Business
Day after the Share Delivery Date with respect to a conversion of Preferred
Shares (a "Conversion Failure"), then the holder, upon written notice to the
Company, may require that the Company redeem, subject to and in accordance with
Section 3, all Preferred Shares held by such holder, including the Preferred
Shares previously submitted for conversion and with respect to which the Company
has not delivered shares of Common Stock.
(vi) Pro Rata Conversion. In the event the Company
receives a Conversion Notice from more than one holder of Preferred Shares for
the same Conversion Date and the Company can convert some, but not all, of such
Preferred Shares, the Company shall convert from each holder of Preferred Shares
electing to have Preferred Shares converted at such time a pro rata amount of
such holder's Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such holder relative
to the number of Preferred Shares submitted for conversion on such date.
(vii) Mandatory Conversion or Redemption at Maturity.
If any Preferred Shares remain outstanding on the Maturity Date, then all such
Preferred Shares, at the Company's option, either (i) shall be converted at the
Maturity Date Conversion Price (as defined below) for such Preferred Shares as
of such date without the holders of such Preferred Shares being required to give
a Conversion Notice on the Maturity Date (a "Maturity Date Mandatory
Conversion"), or (ii) shall be redeemed as of such date for an amount in cash
per Preferred Share (the "Maturity Date Redemption Price") equal to the
Liquidation Preference (as defined in Section 11) (a "Maturity Date Mandatory
Redemption"). The Company shall be deemed to have elected a Maturity Date
Mandatory Redemption unless it delivers written notice to each holder of
Preferred Shares at least 20 Business Days prior to the Maturity Date of its
election to effect a Maturity Date Mandatory Conversion. If the Company elects a
Maturity Date Mandatory Redemption, then on the Maturity Date the Company shall
pay to each holder of Preferred Shares outstanding on the Maturity Date, by wire
transfer of immediately available funds, an amount per Preferred Share equal to
the Maturity Date Redemption Price. If the Company elects a Maturity Date
Mandatory Redemption and fails to redeem all of the Preferred Shares outstanding
on the Maturity Date by payment of the
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Maturity Date Redemption Price, then in addition to any remedy such holder of
Preferred Shares may have under this Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement, (X) the applicable
Maturity Date Redemption Price payable in respect of such unredeemed Preferred
Shares shall bear interest at the rate of 2.0% per month, prorated for partial
months, until paid in full, and (Y) any holder of Preferred Shares shall have
the option to require the Company to convert any or all of such holder's
Preferred Shares that the Company elected (or is deemed to have elected) to
redeem under this Section 2(d)(vii) and for which the Maturity Date Redemption
Price (together with any interest thereon) has not been paid into the number of
shares of Common Stock such holder would have received if such holder had given
a Conversion Notice for such Preferred Shares on the Maturity Date. On the
Maturity Date, all holders of Preferred Shares shall surrender all Preferred
Stock Certificates, duly endorsed for cancellation, to the Company or the
Transfer Agent. If the Company has elected a Maturity Date Mandatory Conversion
or has failed to pay the Maturity Date Redemption Price in a timely manner as
described above, then the Maturity Date shall be extended for any Preferred
Shares for as long as (A) the conversion of such Preferred Shares would violate
the provisions of Section 5, (B) a Triggering Event or a Liquidity Default shall
have occurred and be continuing, or (C) an event shall have occurred and be
continuing which with the passage of time and the failure to cure would result
in a Triggering Event or a Liquidity Default. In addition to the extension
described in the foregoing sentence, the Maturity Date shall be extended by two
(2) days for each day during a Grace Period (as defined in Section 3(u) of the
Registration Rights Agreement). For purposes of this Section 2(d)(vii),
"Maturity Date Conversion Price" means 95% of the arithmetic average of the
Closing Bid Prices of the Common Stock on the 15 consecutive trading days
immediately preceding the Maturity Date.
(viii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in accordance
with the terms hereof, the holder thereof shall not be required to physically
surrender the certificate representing the Preferred Shares to the Company
unless the full number of Preferred Shares represented by the certificate are
being converted. The holder and the Company shall maintain records showing the
number of Preferred Shares so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the holder and the
Company, so as not to require physical surrender of the certificate representing
the Preferred Shares upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and determinative
in the absence of manifest error. Notwithstanding the foregoing, if Preferred
Shares represented by a certificate are converted as aforesaid, the holder may
not transfer the certificate representing the Preferred Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares to
the Company, whereupon the Company will forthwith issue and deliver upon the
order of the holder a new certificate of like tenor, registered as the holder
may request, representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated of the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF
THE COMPANY'S CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
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RIGHTS OF THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE,
INCLUDING SECTION 2(d)(viii) THEREOF. THE NUMBER OF PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF
PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION
2(d)(viii) OF THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS.
(e) Taxes. The Company shall pay any and all taxes other
than capital gain taxes or other income taxes that may be payable with respect
to the issuance and delivery of Common Stock upon the conversion of Preferred
Shares.
(f) Adjustments to Conversion Price. The Conversion Price
will be subject to adjustment from time to time as provided in this Section
2(f).
(i) Adjustment of Fixed Conversion Price upon Issuance
of Common Stock. If and whenever on or after the date of issuance of the
Preferred Shares, the Company issues or sells, or in accordance with this
Section 2(f) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding (a) the Excluded Securities (as
defined below) and (b) shares of Common Stock deemed to have been issued by the
Company in connection with an Approved Stock Plan (as defined below) or upon
conversion of the Preferred Shares or exercise of the Warrants) for a
consideration per share less than a price (the "Applicable Price") equal to the
Fixed Conversion Price in effect immediately prior to such time, then
immediately after such issue or sale, the Fixed Conversion Price then in effect
shall be reduced to an amount equal to such consideration per share. For
purposes of determining the adjusted Fixed Conversion Price under this Section
2(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any
manner grants or sells any Options (as defined below) and the lowest price per
share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange of any Convertible Securities (as
defined below) issuable upon exercise of such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting or sale of
such Option for such price per share. For purposes of this Section 2(f)(i)(A),
the "lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Option" shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Fixed Conversion Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
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(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance of sale of such Convertible
Securities for such price per share. For the purposes of this Section
2(f)(i)(B), the "lowest price per share for which one share of Common Stock is
issuable upon such conversion or exchange" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Fixed Conversion Price shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Fixed Conversion Price had been or are to be made pursuant to other provisions
of this Section 2(f)(i), no further adjustment of the Fixed Conversion Price
shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion.
If the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time, the Fixed
Conversion Price in effect at the time of such change shall be adjusted to the
Fixed Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this Section 2(f)(i)(C),
if the terms of any Option or Convertible Security that was outstanding as of
the date of issuance of the Preferred Shares are changed in the manner described
in the immediately preceding sentence, then such Option or Convertible Security
and the Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such change. No
adjustment shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect.
(D) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company will be the Market Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
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Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of a majority of the Preferred Shares
then outstanding. If such parties are unable to reach agreement within 10 days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of a
majority of the Preferred Shares then outstanding. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne equally by the Company and
the holders of the Preferred Shares.
(E) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(F) Certain Definitions. For purposes of this
Section 2(f)(i), the following terms have the respective meanings set forth
below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company.
(II) "Common Stock Deemed Outstanding" means,
at any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(f)(i)(A) and 2(f)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon conversion of the Preferred Shares or exercise of the
Warrants.
(III) "Convertible Securities" means any stock
or securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(IV) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(V) "Excluded Securities" means (A) provided
such security is issued at a price which is greater than or equal to the
arithmetic average of the Closing Bid Prices of the Common Stock for the ten
(10) consecutive trading days immediately preceding the date of issuance, any of
the following (i) any issuance by the Company of securities in connection with a
strategic partnership or a joint venture (the primary purpose of which is not to
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raise equity capital) and (ii) any issuance by the Company of securities as
consideration for a merger or consolidation or the acquisition of a business,
product, license, or other assets of another person or entity, (B) any warrants
or options outstanding as of the Initial Issuance Date which have not been
modified or amended since such Initial Issuance Date and (C) options to purchase
shares of Common Stock, provided (I) such options are issued after the Initial
Issuance Date to employees of the Company within 30 days of such employee
starting their employment with the Company, (II) an aggregate of no more than
1,000,000 options are issued in reliance on this exclusion and (III) the
exercise price of such options is not less than 75% of the market price of the
Common Stock on the date of issuance of such options..
(ii) Adjustment of the Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Holder's Right of Alternative Floating
Conversion Price Following Issuance of Convertible Securities. If the Company in
any manner issues or sells any Options or Convertible Securities after the
applicable Issuance Date that are convertible into or exchangeable or
exercisable for Common Stock at a price which may vary with the market price of
the Common Stock, including by way of one or more resets to the conversion,
exchange or exercise price of such Convertible Security or Option (the
formulation for such variable price being herein referred to as, the "Variable
Price"), the Company shall provide written notice thereof via facsimile and
overnight courier to each holder of the Preferred Shares ("Variable Notice") on
the date of issuance of such Convertible Securities. From and after the date the
Company issues any such Convertible Securities with a Variable Price, a holder
of Preferred Shares shall have the right, but not the obligation, in its sole
discretion to substitute the Variable Price for the Floating Conversion Price
upon conversion of any Preferred Shares by designating in the Conversion Notice
delivered upon conversion of such Preferred Shares that solely for purposes of
such conversion the holder is relying on the Variable Price rather than the
Floating Conversion Price then in effect. A holder's election to rely on a
Variable Price for a particular conversion of Preferred Shares shall not
obligate the holder to rely on a Variable Price for any future conversions of
Preferred Shares.
(iv) Adjustment of the Conversion Price Upon Major
Corporate Event Announcement. In the event (A) the Company makes a public
announcement that it proposes or intends to consolidate or merge with or into
another Person or engage in a business combination involving the issuance or
exchange of more than 30% of the Company's outstanding Common Stock, (B) the
Company makes a public announcement that it intends to sell or transfer all or
substantially all of the Company's assets, or (C) any Person (including the
Company) publicly announces a purchase, tender or exchange offer for more than
30% of the Company's outstanding Common Stock (the transactions described in
clauses (A), (B) and (C) above are hereinafter referred to as "Major Corporate
Events" and the date of the announcement referred to in clause (A), (B) or (C)
is hereinafter referred to as the "Announcement Date"), then the Fixed
Conversion Price shall,
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effective upon the Announcement Date and continuing through and including the
Adjusted Conversion Price Termination Date (as defined below), be equal to the
Conversion Price which would have been applicable for a conversion by the holder
on the Announcement Date. From and after the Adjusted Conversion Price
Termination Date, the Fixed Conversion Price shall be determined as set forth in
Section 2. For purposes hereof, "Adjusted Conversion Price Termination Date"
shall mean, with respect to any proposed Major Corporate Event for which a
public announcement as contemplated by this Section 2(f)(iv) has been made, the
date upon which the Company or other Person (in the case of clause (C) above)
consummates or publicly announces the termination or abandonment of the proposed
Major Corporate Event which was the subject of the previous public announcement.
(v) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 2(f) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each holder of
Preferred Shares, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(B) The Company will give written notice to each
holder of Preferred Shares at least ten (10) Business Days prior to the date on
which the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(C) The Company will also give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior to the
date on which any Organic Change, dissolution or liquidation will take place,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
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(3) Redemption at Option of Holders.
(a) Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) 125% of the Liquidation Preference and (ii) the product of
(A) the Conversion Rate in effect at such time as such holder delivers a Notice
of Redemption at Option of Buyer (as defined below) and (B) the Closing Bid
Price of the Common Stock on the date immediately preceding such Triggering
Event on which the Principal Market is open for trading ("Redemption Price"),
which redemption shall be subject to and in accordance with the provisions of
this Section 3.
(b) "Triggering Event". A "Triggering Event" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the applicable Registration
Statement (as defined in the Registration Rights Agreement) to be declared
effective by the SEC on or prior to the date that is 20 days after the
applicable Effectiveness Deadline (as defined in the Registration Rights
Agreement), provided that such Triggering Event occurs on or prior to November
30, 2000;
(ii) while the Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of the Preferred Shares for sale of all of the Registrable
Securities (as defined in the Registration Rights Agreement) in accordance with
the terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five consecutive trading days or for more than an
aggregate of 10 trading days in any 365-day period, excluding days during an
Allowable Grace Period (as defined in the Registration Rights Agreement),
provided that such Triggering Event occurs on or prior to November 30, 2000;
(iii) the Company's notice or the Transfer Agent's
notice, at the Company's direction to any holder of Preferred Shares, including
by way of public announcement, at any time, of its intention not to comply with
a request for conversion of any Preferred Shares into shares of Common Stock
that is tendered in accordance with the provisions of this Certificate of
Designations, excluding, however, notices that relate solely to a dispute under
resolution pursuant to Section 2(d)(iii), provided that such dispute has not
been publicly disclosed, provided that such Triggering Event occurs on or prior
to June 30, 2001;
(iv) a Conversion Failure (as defined in Section
2(d)(v)(C)) other than a Conversion Failure which results solely from the
Company not being obligated to issue shares of Common Stock upon the conversion
of Preferred Shares due to the provisions of Section 15, provided that such
Triggering Event occurs on or prior to June 30, 2001;
(v) the Company shall have failed to receive the
Stockholder Approval (as defined in the Securities Purchase Agreement) on or
prior to the Stockholder Meeting
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Deadline (as defined in the Securities Purchase
Agreement) in accordance with Section 4(m) of the Securities Purchase Agreement,
provided that such Triggering Event occurs on or before November 30, 2000; or
(vi) the Company breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants or this Certificate
of Designations, except to the extent that such breach would not have a Material
Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement)
and except, in the case of a breach of a covenant which is curable, only if such
breach continues for a period of at least 10 days, provided that such Triggering
Event occurs on or before June 30, 2001.
(c) Mechanics of Redemption at Option of Buyer. Within one
(1) Business Day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of Preferred Shares and to the Designated
Senior Debt Representative. In addition, within one (1) Business Day after the
occurrence of a Triggering Event described in Section 3(b)(v), the Company shall
notify each holder of Preferred Shares and to the Designated Senior Debt
Representative by facsimile of the Company's irrevocable election to either (i)
redeem all Preferred Shares submitted for redemption pursuant to this Section
3(c) based on the Triggering Event described in Section 3(b)(v), or (ii) to
delist from the Principal Market within five Business Days of the occurrence of
such Triggering Event described in Section 3(b)(v) so that the Exchange Cap no
longer applies and is of no force or effect after such fifth Business Day. If
the Company fails to deliver written notice pursuant to the preceding sentence
within one (1) Business Day of the occurrence of such Triggering Event or if the
Company elects to delist the Common Stock from the Principal Market pursuant to
the preceding sentence but fails to delist the Common Stock from the Principal
Market such that the Exchange Cap no longer applies and is of no force or effect
on or prior to such fifth Business Day, then the Company shall be deemed to have
irrevocably elected to redeem all Preferred Shares submitted for redemption
pursuant to this Section 3(c) based on the Triggering Event described in Section
3(b)(v). Except as otherwise described in the two preceding sentences, at any
time after the earlier of a holder's receipt of a Notice of Triggering Event and
such holder becoming aware of a Triggering Event, any holder of Preferred Shares
then outstanding may require the Company to redeem up to all of such holder's
Preferred Shares by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer") to the Company and
the Designated Senior Debt Representative provided that such Notice of
Redemption at Option of Buyer upon Triggering Event may only be sent during the
period beginning on and including the date of the occurrence of the Triggering
Event and ending on and including the later of the date which is (a) 30 days
after the date on which such holder of the Preferred Shares receives a Notice of
Triggering Event from the Company with respect to such Triggering Event and (b)
the date on which such Triggering Event is cured and such holder receives
written notice from the Company confirming such Triggering Event has been cured
and, provided further, that any notice required to be delivered to the
Designated Senior Debt Representative by the holders of the Preferred Shares
pursuant to this Section 3(c) shall be delivered to Nortel Networks Inc., GMS
991 15 A40, 2221 Lakeside Blvd., Richardson, Texas 75082-4399, Attention Paul D.
Day, Vice President, Customer Finance North America and Charles M. Helm, Esq.
(Telephone: 972-684-2271, Facsimile: 972-684-3679), and Mail Stop 468/05/B40,
2100 Lakeside Blvd., Richardson, Texas 75083-3858, Attention: Kimberly Poe,
Director, Loan Administration (Telephone: 972-684-7687, Facsimile: 972-685-3255)
or such other
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address or facsimile number as may be specified in writing from time to time by
the Designated Senior Debt Representative and provided to each holder of
Preferred Shares at least five (5) Business Days prior to the date on which a
holder sends a Notice of Redemption at Option of Buyer. A Notice of Redemption
at Option of Buyer shall indicate (i) the number of Preferred Shares that such
holder is electing to redeem and (ii) the applicable Redemption Price, as
calculated pursuant to Section 3(a) above. Notwithstanding the foregoing, no
holder of Preferred Shares shall be entitled to deliver a Notice of Redemption
at Option of Buyer after (i) with respect to a Triggering Event described in
Section 3(b)(i), Section 3(b)(ii) or Section 3(b)(v), November 30, 2000, or (ii)
with respect to a Triggering Event described in Section 3(b)(iii), Section
3(b)(iv) or Section 3(b)(vi), June 30, 2001.
(d) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer from any holder of
Preferred Shares, the Company shall immediately notify each other holder of
Preferred Shares and the Designated Senior Debt Representative by facsimile of
the Company's receipt of such notices. Each holder which has sent such a notice
shall, if required pursuant to Section 2(d)(viii), promptly submit to the
Transfer Agent such holder's Preferred Stock Certificates which such holder has
elected to have redeemed. Subject to Section 3(i), the Company shall deliver the
applicable Redemption Price to such holder on the date which is ten (10)
Business Days after the Company's and the Designated Senior Debt
Representative's receipt of a Notice of Redemption at Option of Buyer (such
notice shall be deemed to have been received by the Company and the Designated
Senior Debt Representative if delivered in accordance with Section 9(f) of the
Securities Purchase Agreement to the address set forth in Section 3(c) above or
pursuant to an effective subsequent notice of change of address); provided that
a holder's Preferred Stock Certificates shall have been so delivered to the
Transfer Agent. Subject to Section 3(i), if the Company is unable to redeem all
of the Preferred Shares submitted for redemption, the Company shall (i) redeem a
pro rata amount from each holder of Preferred Shares based on the number of
Preferred Shares submitted for redemption by such holder relative to the total
number of Preferred Shares submitted for redemption by all holders of Preferred
Shares and (ii) in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations and the Securities Purchase
Agreement, pay to each holder interest at the rate of 2.0% per month (prorated
for partial months) in respect of each unredeemed Preferred Share until paid in
full.
(e) Void Redemption. In the event that the Company does
not pay the Redemption Price within the time period set forth in Section 3(d),
at any time thereafter and until the Company pays such unpaid applicable
Redemption Price in full, a holder of Preferred Shares shall have the option
(the "Voidable Redemption Option") to, in lieu of redemption, require the
Company to promptly return to such holder any or all of the Preferred Shares
that were submitted for redemption by such holder under this Section 3 and for
which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Company via facsimile
(the "Voidable Redemption Notice"). Upon the Company's receipt of such Voidable
Redemption Notice, (i) the Notice of Redemption at Option of Buyer shall be null
and void with respect to those Preferred Shares subject to the Voidable
Redemption Notice, and (ii) the Company shall immediately return any Preferred
Shares subject to the Voidable Redemption Notice, and (iii) the delivery of the
Voidable Redemption Notice shall constitute a Liquidity Default described in
Section 3(g)(vii) with respect to the returned Preferred Shares.
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(f) Disputes; Miscellaneous. In the event of a dispute as
to the determination of the Closing Bid Price or the arithmetic calculation of
the Redemption Price, such dispute shall be resolved pursuant to Section
2(d)(iii) above with the term "Closing Bid Price" being substituted for the term
"Market Price" and the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Voidable Redemption Notice and
exercise of its rights following such notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of such
notice. In the event of a redemption pursuant to this Section 3 of less than all
of the Preferred Shares represented by a particular Preferred Stock Certificate,
the Company shall promptly cause to be issued and delivered to the holder of
such Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been redeemed.
(g) Liquidity Defaults. A "Liquidity Default" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the applicable Registration
Statement to be declared effective by the SEC on or prior to the date that is 20
days after the applicable Effectiveness Deadline, provided that with respect to
a particular holder of Preferred Shares, such holder has not delivered a Notice
of Redemption at Option of Holder pursuant to Section 3(b)(i) with respect to
such event on or before November 30, 2000;
(ii) while any Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of such Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of five
consecutive trading days or for more than an aggregate of 10 trading days in any
365-day period, excluding days during an Allowable Grace Period, provided that
with respect to a particular holder of Preferred Shares, such holder has not
delivered a Notice of Redemption at Option of Holder pursuant to Section
3(b)(ii) with respect to such event on or before November 30, 2000;
(iii) the Company's notice or the Transfer Agent's
notice, at the Company's direction, to any holder of Preferred Shares, including
by way of public announcement, at any time, of its intention not to comply with
a request for conversion of any Preferred Shares into shares of Common Stock
that is tendered in accordance with the provisions of this Certificate of
Designations, excluding, however, notices that relate solely to a dispute under
resolution pursuant to Section 2(d)(iii), provided that such dispute has not
been publicly disclosed, and further provided that with respect to a particular
holder of Preferred Shares, such holder has not delivered a Notice of Redemption
at Option of Holder pursuant to Section 3(b)(iii) with respect to such event on
or before June 30, 2001;
(iv) a Conversion Failure other than a Conversion
Failure which results from the Company not being obligated to issue shares of
Common Stock upon the conversion of Preferred Shares due to the provisions of
Section 15, provided that with respect to a particular
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holder of Preferred Shares, such holder has not delivered a Notice of Redemption
at Option of Holder pursuant to Section 3(b)(iv) with respect to such event on
or before June 30, 2001;
(v) the suspension from trading or failure of the
Common Stock to be listed on the Nasdaq National Market or The New York Stock
Exchange, Inc. for a period of five (5) consecutive trading days or for more
than an aggregate of 10 trading days in any 365-day period; or
(vi) with respect to a particular holder of Preferred
Shares, such holder's delivery of a Voidable Redemption Notice to the Company.
As soon as practicable but in no event later than one (1) day after the
occurrence of a Liquidity Default, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "Company's Liquidity Default
Notice") to each holder of Preferred Shares.
(h) Rights of the Holders of the Preferred Shares upon the
Occurrence of a Liquidity Default. In addition to any other remedies the holders
of the Preferred Shares may have at law or in equity, if a Liquidity Default
occurs then:
(i) if the Liquidity Default is pursuant to Section
3(g)(i), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage of the Preferred
Shares relating to the Registration Statement which is the subject of such
Liquidity Default and in effect immediately prior to such Liquidity Default
shall be permanently reduced (subject to further reduction pursuant to this
Certificate of Designations subsequent to such reduction) by 25 percentage
points and (z) the Fixed Conversion Price of the Preferred Shares relating to
the Registration Statement which is the subject of such Liquidity Default shall
be permanently adjusted (subject to further adjustment pursuant to this
Certificate of Designations subsequent to such adjustment) to equal the lesser
of (I) the Fixed Conversion Price in effect for such Preferred Shares on the
date which is 15 days after the applicable Effectiveness Deadline or (II) the
product of (a) 0.68 multiplied by (b) the lowest Unadjusted Floating Conversion
Price (as defined below) during the period beginning on and including the
applicable Effectiveness Deadline and ending on and including ((alpha)) on any
date prior to the date the Registration Statement is declared effective by the
SEC, the Conversion Date or other date of determination with respect to which
the determination is being made with respect to this Section 3(h)(i) and
((beta)) on any date on or after the date the Registration Statement is declared
effective by the SEC, the date the Registration Statement was declared effective
by the SEC;
(ii) if the Liquidity Default is pursuant to Section
3(g)(ii), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage of the Preferred
Shares relating to the Registration Statement which is the subject of such
Liquidity Default and in effect immediately prior to such Liquidity Default
shall be permanently reduced (subject to further reduction pursuant to this
Certificate of Designations subsequent to such reduction) by 25 percentage
points and (z) the Fixed Conversion Price of the Preferred Shares of the
Preferred Shares relating to the Registration Statement which is the subject of
such Liquidity Default shall be permanently adjusted (subject to further
adjustment pursuant to this Certificate of Designations subsequent to such
adjustment) to equal the lesser of (I)
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<PAGE>
the Fixed Conversion Price in effect for such Preferred Shares on the date of
the initial occurrence of such Liquidity Default or (II) the product of (a) 0.68
multiplied by (b) the lowest Unadjusted Floating Conversion Price during the
period beginning on and including the date of the initial occurrence of such
Liquidity Default and ending on and including ((alpha)) on any date prior to the
date on which the Company cures such Liquidity Default and delivers written
notice to each holder of Preferred Shares stating that such Liquidity Default
has been cured, the Conversion Date or other date of determination with respect
to which the determination is being made with respect to this Section 3(h)(ii)
and ((beta)) on any date on or after the date on which the Company cures such
Liquidity Default and delivers written notice to each holder of Preferred Shares
stating that such Liquidity Default has been cured, the date on which the
Company cured such Liquidity Default and delivered written notice to each holder
of Preferred Shares stating that such Liquidity Default had been cured;
(iii) if the Liquidity Default is pursuant to Section
3(g)(iii), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage in effect
immediately prior to such Liquidity Default shall be permanently reduced
(subject to further reduction pursuant to this Certificate of Designations
subsequent to such reduction) by 25 percentage points and (z) the Fixed
Conversion Price of the Preferred Shares shall be permanently adjusted (subject
to further adjustment pursuant to this Certificate of Designations subsequent to
such adjustment) to equal the lesser of (I) the Fixed Conversion Price in effect
for such Preferred Shares on the date of the initial occurrence of such
Liquidity Default or (II) the product of (a) 0.68 multiplied by (b) the lowest
Unadjusted Floating Conversion Price during the period beginning on and
including the date of the initial occurrence of such Liquidity Default and
ending on and including ((alpha)) on any date prior to the date on which the
Company announces that it is resuming, and in fact resumes, honoring conversions
of the Preferred Shares in compliance with this Certificate of Designations, the
Conversion Date or other date of determination with respect to which the
determination is being made with respect to this Section 3(h)(iii) and ((beta))
on any date on or after the date on which the Company announces that it was
resuming, and it in fact resumed, honoring conversions of the Preferred Shares
in compliance with this Certificate of Designations, the date on which the
Company announced that it was resuming, and it in fact resumed, honoring resumed
conversions of the Preferred Shares in compliance with this Certificate of
Designations;
(iv) if the Liquidity Default is pursuant to clause
(iv) or (v) of Section 3(g), then immediately upon the occurrence of such a
Liquidity Default (and from time to time as applicable), (y) the Conversion
Percentage in effect immediately prior to such Liquidity Default shall be
permanently reduced (subject to further reduction pursuant to this Certificate
of Designations subsequent to such reduction) by 25 percentage points and (z)
the Fixed Conversion Price of the Preferred Shares shall be permanently adjusted
(subject to further adjustment pursuant to this Certificate of Designations
subsequent to such adjustment) to equal the lesser of (I) the Fixed Conversion
Price in effect for such Preferred Shares on the date of the initial occurrence
of such Liquidity Default or (II) the product of (a) 0.68 multiplied by (b) the
lowest Unadjusted Floating Conversion Price during the period beginning on and
including the date of the initial occurrence of such Liquidity Default and
ending on and including ((alpha)) on any date prior to the date on which the
Company cures such Liquidity Default and delivers written notice to each holder
of Preferred Shares stating that such Liquidity Default has been cured, the
Conversion Date or other date of determination with respect to which the
determination is being made with respect to this Section
20
<PAGE>
3(h)(iv) and ((beta)) on any date on or after the date on which the Company
cures such Liquidity Default and delivers written notice to each holder of
Preferred Shares stating that such Liquidity Default has been cured, the date on
which the Company cured such Liquidity Default and delivered written notice to
each holder of Preferred Shares stating that such Liquidity Default had been
cured;
(v) if the Liquidity Default is pursuant to Section
3(g)(vi), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage in effect
immediately prior to such Liquidity Default shall be permanently reduced
(subject to further reduction pursuant to this Certificate of Designations
subsequent to such reduction) by 25 percentage points and (z) the Fixed
Conversion Price of the Preferred Shares shall be permanently adjusted (subject
to further adjustment pursuant to this Certificate of Designations subsequent to
such adjustment) to equal the lesser of (I) the Fixed Conversion Price in effect
for such Preferred Shares on the date of such Liquidity Default or (II) the
product of (a) 0.68 multiplied by (b) the lowest Unadjusted Floating Conversion
Price during the period beginning on and including the date of the initial
occurrence of the Triggering Event with respect to which the holder delivered
the Voidable Redemption Notice resulting in such Liquidity Default and ending on
and including the date the holder delivered the Voidable Redemption Notice
resulting in such Liquidity Default.
"Unadjusted Floating Conversion Price" means, with respect to any Liquidity
Default, the Floating Conversion Price of the applicable Preferred Shares prior
to adjustment for the change in Conversion Percentage pursuant to clause (y) of
the applicable provision of this Section 3(h) which resulted from the Liquidity
Default with respect to which an adjustment is being determined under this
Section 3(h).
(i) Subordinations of Payments and Rights. The Company and each holder
of Preferred Shares hereby agree that, notwithstanding anything to the contrary
contained in this Certificate of Designations, those present or future rights or
claims of such holder of Preferred Shares to require the Company to repurchase,
redeem or otherwise make payments, or to pay dividends, distributions, penalties
or other payments with respect to or in connection with the Preferred Shares
pursuant to Section 2(d)(v)(C), Section 3 and Section 4(b) hereof and Section 8
of the Securities Purchase Agreement now or hereafter owned by such holder or
any purchaser, transferee or assignee of such holder with respect to any
Preferred Shares (the "Subordinated Claims") shall be subordinate and junior in
right of payment to the payment in full of all Owed Designated Senior Debt.
Furthermore, the Company will not directly or indirectly make or pay, and
neither shall any holder of Preferred Shares take, accept or receive, any
payment or other amounts (except payments or amounts made in shares of Common
Stock or pursuant to Sections 4(c) or 13) with respect to or in connection with
the Subordinated Claims of such Person unless and until all Owed Designated
Senior Debt has been paid in full. Furthermore, in the event that any payment or
other amounts (except payments or amounts made in shares of Common Stock or
pursuant to Sections 4(c) or 13) with respect to or in connection with the
Subordinated Claims of any such holder of Preferred Shares is received by such
holder in contravention of this Section 3(i), then such holder of Preferred
Shares will forthwith deliver the same to the Designated Senior Debt
Representative and, until so delivered, the same shall be held in trust by such
holder for the benefit of the holders of the Designated Senior Debt. All
covenants and agreements contained in this Section 3(i) shall bind the Company,
the holders of the Preferred Shares and their successors and
21
<PAGE>
assigns and shall inure to the benefit of the holders of the Designated Senior
Debt, the Designated Senior Debt Representatives and their respective successors
and assigns.
(4) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") a written agreement (in form and substance
satisfactory to the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding) to deliver to each holder of Preferred Shares in exchange for
such shares, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance to the Preferred Shares,
including, without limitation, having a stated value and liquidation preference
equal to the Stated Value and the Liquidation Preference of the Preferred Shares
held by such holder, and satisfactory to the holders of a at least two-thirds
(2/3) of the Preferred Shares then outstanding. Prior to the consummation of any
other Organic Change, the Company shall make appropriate provision (in form and
substance satisfactory to the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).
(b) Optional Redemption Upon Change of Control. In
addition to the rights of the holders of Preferred Shares under Section 4(a),
upon a Change of Control (as defined below) of the Company each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to the greater of (A) 125% of the Liquidation
Preference and (B) the Product of (I) the Conversion Rate on the date the holder
of Preferred Shares gives a Notice of Redemption upon Change of Control and (II)
the arithmetic average of the Closing Bid Prices of the Common Stock during the
five trading days immediately preceding such date ("Change of Control Redemption
Price"). At least 20 Business Days prior to the consummation of a Change of
Control, the Company shall deliver written notice thereof via facsimile and
overnight courier (a "Notice of Change of Control") to each holder of Preferred
Shares and the Designated Senior Debt Representative. The Company shall
publically announce such Change of Control on or prior to the date the Company
provides a Notice of Change of Control, which public announcement shall include
all information included in the Notice of Change of Control. At any time during
the period beginning
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after receipt of a Notice of Change of Control (or, in the event a Notice of
Change of Control is not delivered at least 20 Business Days prior to a Change
of Control, at any time on or after the date which is 20 Business Days prior to
the Change of Control) and ending on and including the date which is 10 Business
Days prior to the date of such Change of Control, any holder of the Preferred
Shares then outstanding may require the Company to redeem all or a portion of
the holder's Preferred Shares then outstanding by delivering written notice
thereof via facsimile and overnight courier (a "Notice of Redemption Upon Change
of Control") to the Company and the Designated Senior Debt Representative, which
Notice of Redemption Upon Change of Control shall indicate (i) the number of
Preferred Shares that such holder is submitting for redemption, and (ii) the
applicable Change of Control Redemption Price, as calculated pursuant to this
Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Change of Control from any holder of Preferred Shares, the Company shall
promptly, but in no event later than one (1) Business Day following such
receipt, notify each holder of Preferred Shares by facsimile of the Company's
receipt of such Notice(s) of Redemption Upon Change of Control. Subject to
Section 3(i), the Company shall deliver the applicable Change of Control
Redemption Price simultaneous with the consummation of the Change of Control;
provided that, if required by Section 2(d)(viii), a holder's Preferred Stock
Certificates shall have been so delivered to the Company. Notwithstanding
anything to the contrary in this Section 4(b) or Section 3(i), after June 30,
2001, the Company will not directly or indirectly make or pay, and neither shall
any holder of Preferred Shares take, accept or receive, any payment or other
amounts pursuant to this Section 4(b) with respect to or in connection with a
Change of Control that is consummated after June 30, 2001 unless and until
either (i) all Designated Senior Debt has been paid in full and the Company has
terminated the Nortel Networks Credit Agreement or (ii) the Designated Senior
Debt Representative consents to such payments in writing. In the event that the
Company receives a Notice of Redemption Upon Change of Control with respect to a
Change of Control to be consummated after June 30, 2001, the Company shall pay
down all Designated Senior Debt and terminate the Nortel Networks Credit
Agreement with ten (10) Business Days of the Company's receipt of such Notice of
Redemption Upon Change of Control. Furthermore, in the event that any payment or
other amounts paid by the Company pursuant to this Section 4(b) with respect to
or in connection with a Change of Control which is consummated after June 30,
2001 is received by a holder of Preferred Shares in contravention of this
Section 4(b), then such holder of Preferred Shares will forthwith deliver the
same to the Designated Senior Debt Representative and, until so delivered, the
same shall be held in trust by such holder for the benefit of the holders of the
Designated Senior Debt. All covenants and agreements contained in this Section
4(b) shall bind the Company, the holders of the Preferred Shares and their
successors and assigns and shall inure to the benefit of the holders of the
Designated Senior Debt, the Designated Senior Debt Representatives and their
respective successors and assigns. Payments provided for in this Section 4(b)
shall have priority to payments to other stockholders in connection with a
Change of Control. Notwithstanding the above, but subject to Section 5, any
holder of Preferred Shares may convert any Preferred Shares (including any
Preferred Share designated for redemption) into Common Stock pursuant to Section
2 at any time prior to such Change of Control. Notwithstanding anything to the
contrary in this Section 4(b), at any time prior to a Change of Control, a
holder of Preferred Shares shall have the option (the "Change of Control
Voidable Redemption Option") to require the Company to promptly return to such
holder any or all of the Preferred Shares that were submitted for redemption by
such holder under this Section 4(b) by sending written notice thereof to the
Company and the Designated Senior Debt Representative via facsimile (the "Change
of Control Voidable Redemption Notice"). Upon the Company's receipt of such
Change of Control
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Voidable Redemption Notice, (i) the Notice of Redemption upon Change of Control
shall be null and void with respect to those Preferred Shares subject to the
Change of Control Voidable Redemption Notice, and (ii) the Company shall
immediately return any Preferred Shares subject to the Change of Control
Voidable Redemption Notice. For purposes of this Section 4(b), "Change of
Control" means (i) the consolidation, merger or other business combination of
the Company with or into another Person (other than (A) a consolidation, merger
or other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company), (ii) the sale or transfer of all
or substantially all of the Company's assets, or (iii) a purchase, tender or
exchange offer made to and accepted by the holders of more than the 50% of the
outstanding shares of Common Stock.
(c) Purchase Rights. If at any time the Company grants,
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holders of Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Preferred Shares (without taking into account any
limitations or restrictions on the convertibility of the Preferred Shares)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(5) Limitations on Conversion.
(a) Limitation on Beneficial Ownership. The Company shall
not effect any conversion of Preferred Shares and no holder of Preferred Shares
shall have the right to convert Preferred Shares in excess of that number of
Preferred Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the total outstanding shares of Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
Preferred Shares beneficially owned by the holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants or
convertible preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 2(a), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 2(a), in determining the number of outstanding shares
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as
the case may be, (2) a more recent public
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<PAGE>
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such request,
confirm in writing to any such holder the number of shares Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversions of Preferred Shares and
exercise of Warrants (as defined below) by such holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported.
(b) Conversion Restrictions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to Section 2(b) shall be
limited as set forth below. Subject to the exceptions described below, without
the prior consent of the Company, no holder of Preferred Shares shall be
entitled to convert any Preferred Shares during the period beginning on the
Issuance Date of such Preferred Shares and ending on and including the date
which is 182 days after such Issuance Date. Notwithstanding the foregoing, the
conversion restrictions set forth in this Section 5(b) shall not apply: (a) with
respect to any conversion of Preferred Shares at a price equal to the Fixed
Conversion Price then in effect; (b) at any time after the first date after the
applicable Issuance Date on which the Closing Bid Price of the Common Stock is
less than 50% of applicable Closing Price (equitably adjusted for stock splits,
stock dividends, stock combinations and other similar transactions) for any 10
trading days during the 12 consecutive trading days immediately preceding such
date of determination; (c) on and after any date on which the Common Stock is
not listed or quoted on the Nasdaq National Market or The New York Stock
Exchange, Inc. or has been suspended from trading on any such exchange
(excluding suspensions of not more than one day resulting from business
announcements by the Company), or any such delisting or suspension is threatened
or pending either (I) in writing by such exchanges or (II) by falling below the
minimum listing maintenance requirements of such exchanges; (d) on or after any
date on which there shall have occurred an event constituting a Change of
Control or a Triggering Event or a Liquidity Default or an event that with the
passage of time and without being cured would constitute a Triggering Event or a
Liquidity Default; (e) on or after any date on which there shall have been an
announcement of a pending, proposed or intended Change of Control; (f) on or
after any date on which the Company issues or sells or is deemed to have issued
or sold any Convertible Securities or Options that are convertible into or
exercisable or exchangeable for shares of Common Stock at a conversion or
exercise price which varies or may vary with the market price of the Common
Stock, including by way of one or more reset(s) to a fixed price; (g) on or
after the Stockholder Meeting Deadline if the Company fails to receive the
Stockholder Approval (as defined in Section 4(m) of the Securities Purchase
Agreement) on or before the Stockholder Meeting Deadline; (h) on or after the
date the Company delivers a First Company's Election Conversion Notice (as
defined in Section 7) to a holder of Preferred Shares, with respect to a number
of Preferred Shares equal to such holder's First Required Conversion Amount (as
defined in Section 7); or (i) on or after the date the Company delivers a Second
Company's Election Conversion Notice (as defined in Section 8) to a holder of
Preferred Shares, with respect to a number of Preferred Shares equal to such
holder's Second Required Conversion Amount (as defined in Section 8).
(6) Company Redemptions.
(a) Redemption at the Company's Election. At any time
during the period beginning on the applicable Issuance Date and ending on and
including the date which is 182
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days after such Issuance Date, the Company shall have the right, in its sole
discretion, to require that some or all of the outstanding Preferred Shares
issued on such Issuance Date be redeemed ("Redemption at Company's Election"),
for consideration per Preferred Share equal to 110% of the Liquidation
Preference for such Preferred Share (the "Company's Election Redemption Price");
provided that the Conditions to Redemption at the Company's Election (as set
forth below) are satisfied as of the Company's Election Redemption Date (as
defined below). The Company may exercise its right to Redemption at Company's
Election only by providing each holder of Preferred Shares issued on such
Issuance Date written notice ("Notice of Redemption at Company's Election") at
least 10 but not more than 30 days prior to the date of consummation of such
redemption ("Company's Election Redemption Date"). If the Company elects to
require redemption of some, but not all, of the Preferred Shares issued on such
Issuance Date then outstanding, the Company shall require redemption of the pro
rata amount from each holder of such Preferred Shares based on the number of
Preferred Shares purchased by such holder on such Issuance Date relative to the
total number of Preferred Shares purchased on such Issuance Date (such amount
with respect to each holder being referred to herein as its "Pro Rata Redemption
Amount"). The Company's Notice of Redemption at Company's Election shall
indicate (x) the aggregate number of Preferred Shares the Company has elected to
redeem from all holders of Preferred Shares, (y) the date selected by the
Company for the Company's Election Redemption Date, and (z) each holder's Pro
Rata Redemption Amount of the Preferred Shares selected for redemption. If the
Company has exercised its right of Redemption at Company's Election and the
conditions of this Section 6(a), including the Conditions to Redemption at
Company's Election, have been satisfied, then each holder's Pro Rata Redemption
Amount of the Preferred Shares selected for redemption which remain outstanding
on the Company's Election Redemption Date shall be redeemed as of the Company's
Election Redemption Date by payment by the Company to each such holder of
Preferred Shares of the Company's Election Redemption Price. If required by
Section 2(d)(viii), all such holders of the Preferred Shares being redeemed
shall thereupon and within two (2) Business Days after the Company's Election
Redemption Date, or such earlier date as the Company and each such holder of
Preferred Shares mutually agree, surrender all Preferred Shares being redeemed
on such date to the Company. If the Company fails to pay the full Company's
Election Redemption Price on the Company's Election Redemption Date with respect
to a Preferred Share selected for redemption, then the Redemption at Company's
Election shall be null and void with respect to such Preferred Share and the
Holder shall be entitled to all the rights of a holder of outstanding Preferred
Shares. "Conditions to Redemption at the Company's Election" means the following
conditions: (i) during the period beginning on the applicable Issuance Date and
ending on and including the Company's Election Redemption Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
to the holders of the Preferred Shares on a timely basis as set forth in Section
2(d)(ii); (ii) on each day during the period beginning 30 days prior to the date
of Notice of Redemption at Company's Election and ending on and including the
Company's Election Redemption Date the Registration Statement shall be effective
and available for the sale of at least all of the Registrable Securities (as
defined in the Registration Rights Agreement); (iii) on each day during the
period beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date, the
Common Stock is designated for quotation on the Nasdaq National Market or listed
on The New York Stock Exchange, Inc. and is not suspended from trading
(excluding suspensions of not more than one day resulting from business
announcements by the Company); (iv) during the period beginning on and including
the Issuance Date and ending on and including the Company's Election Redemption
Date, there shall
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not have occurred a Triggering Event or a Liquidity Default or an event that
with the passage of time and without being cured would constitute a Triggering
Event or a Liquidity Default; (v) during the period beginning on the applicable
Issuance Date and ending on and including the Company's Election Redemption
Date, there shall not have occurred the consummation of a Change of Control or
the public announcement of a pending, proposed or intended Change of Control;
(vi) the Company otherwise shall have been in compliance in all material
respects with this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement and shall not have
breached in any material respect any provision of this Certificate of
Designations, the Securities Purchase Agreement, the Warrants or the
Registration Rights Agreement; (vii) the Company's Election Redemption Date is
not later than the date which is 182 days after the applicable Issuance Date;
and (xiii) if the Company's Election Redemption Date occurs after the
Stockholder Meeting Deadline, then the Company shall have received the
Stockholder Approval. Notwithstanding the above, but subject to Section 5, any
holder of Preferred Shares may convert any Preferred Shares (including Preferred
Shares selected for redemption) into Common Stock pursuant to Section 2 on or
prior to the date immediately preceding the Company's Election Redemption Date.
If the Company fails to timely pay any Company's Election Redemption Price in
accordance with this Section 6(a), then the Company shall not be permitted to
submit another Notice of Redemption at Company's Election without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding.
(b) Redemption at the Company's Election Upon a Qualified
Offering. At any time during the period beginning on the Initial Issuance Date
and ending on and including the date which is 180 days after the Initial
Issuance Date, the Company shall have the right, in its sole discretion, to
require that all of the Preferred Shares outstanding on the Company's Offering
Redemption Date (as defined below) be redeemed ("Company's Offering Redemption")
concurrent with the closing of a Qualified Offering (as defined below); provided
that the Conditions to a Company's Offering Redemption (as set forth below) are
satisfied as of the Company's Offering Redemption Date (as defined below). The
redemption price per Preferred Share upon a Company's Offering Redemption shall
be equal to the Company's Offering Redemption Price (as defined below). The
Company shall exercise its right to Company's Offering Redemption by providing
each holder of Preferred Shares written notice ("Notice of Company's Offering
Redemption") at least 20 days prior to the Company's Offering Redemption Date
but not prior to the filing with the SEC of the registration statement for the
Qualified Offering. The Notice of Company's Offering Redemption shall indicate
the anticipated Company's Redemption Date and the name of the managing
underwriters of the proposed Qualified Offering. The date of the consummation of
the Company's Offering Redemption (the "Company's Offering Redemption Date")
shall be the date of the closing of the Qualified Offering. If the Company has
exercised its right of Company's Offering Redemption and the conditions to such
Company's Offering Redemption have been satisfied, then all Preferred Shares
outstanding at the time of the consummation of the Qualified Offering shall be
redeemed as of the Company's Offering Redemption Date by payment by the Company
to each holder of Preferred Shares then outstanding of the Company's Offering
Redemption Price concurrent with the closing of the Qualified Offering. All
holders of Preferred Shares shall thereupon and within two (2) Business Days
after the Company's Offering Redemption Date, or such earlier date as the
Company and each holder of Preferred Shares mutually agree, surrender all
outstanding Preferred Stock Certificates, duly endorsed for cancellation, to the
Company. If the Company fails to pay the full Company's Offering Redemption
Price with respect
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to any Preferred Shares concurrently with the closing of the Qualified Offering,
then the Company's Offering Redemption shall be null and void with respect to
such Preferred Shares and the holder of such Preferred Shares shall be entitled
to all the rights of a holder of outstanding Preferred Shares set forth in this
Certificate of Designations. "Conditions to Company's Offering Redemption" means
the following conditions: (i) on each day during the period beginning 30 days
prior to the date of the Company's Notice of Company's Offering Redemption and
ending on and including the Company's Offering Redemption Date, the Common Stock
is designated for quotation on the Nasdaq National Market or The New York Stock
Exchange, Inc. and is not suspended from trading; (ii) during the period
beginning on the Initial Issuance Date and ending on and including the Company's
Offering Redemption Date, there shall not have occurred a Triggering Event or a
Liquidity Default or an event that with the passage of time and without being
cured would constitute a Triggering Event or a Liquidity Default; (iii) during
the period beginning on the Initial Issuance Date and ending on and including
the Company's Offering Redemption Date, there shall not have occurred the
consummation of a Change of Control or the public announcement of a pending,
proposed or intended Change of Control; and (iv) the Company has satisfied its
obligations in all material respects and is not in default in any material
respect under this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. For purposes of
this Section 9, "Qualified Offering" means a firm commitment, underwritten
public offering , or "Rule 144A" offering, of Common Stock by the Company which
(a) is an offering which generates aggregate gross proceeds to the Company (as
reflected in the preliminary prospectus and the final prospectus for such
offering) of at least $25,000,000 and (b) is completed at a price per share to
the public of at least $20.00 (subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions) as reflected in
the preliminary prospectus or other offering document and the final prospectus
or offering document for such Qualified Offering. For purposes of this Section
9, "Company's Offering Redemption Price" means the greater of (a) the product of
(i) the Liquidation Preference, multiplied by (ii) 1.20, (b) the product of (i)
the Conversion Rate in effect on the date immediately preceding the Company's
Offering Redemption Date and (ii) the Closing Bid Price of the Common Stock on
the trading day immediately preceding the Company's Offering Redemption Date on
which the Principal Market is open for trading, and (c) the product of (i) the
Conversion Rate in effect on the date immediately preceding the Company's
Offering Redemption Date and (ii) the price per share to the public of the
Common Stock as reflected in the final prospectus for such Qualified Offering.
(7) First Conversion at the Company's Election. On the date
which is 30 days after the Initial Registration Statement (as defined in the
Registration Rights Agreement) has been declared effective by the SEC ("First
Company's Election Conversion Date"), the Company shall have the right, in its
sole discretion, to require that 25% of the Initial Preferred Shares which are
convertible into shares of Common Stock covered by such Registration Statement
shall have been converted ("First Company's Conversion Election") at the
applicable Conversion Price on or prior to the First Company's Election
Conversion Date; provided that the Conditions to First Conversion at the
Company's Election (as set forth below) are satisfied as of the First Company's
Election Conversion Date. The Company shall exercise its right to First
Company's Conversion Election by providing each holder of Initial Preferred
Shares covered by such Registration Statement written notice ("First Company's
Conversion Election Notice") by facsimile and overnight courier at least 10
trading days prior to the First Company's Election Conversion Date. The date on
which each of such holders of the Initial Preferred Shares actually receives the
First Company's Conversion
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Election Notice is referred to herein as the "First Company's Conversion
Election Notice Date." The First Company's Conversion Election Notice shall
indicate (x) confirmation of the First Company's Election Conversion Date, which
date shall be the date which is 30 days after the applicable Registration
Statement is declared effective by the SEC, and (z) confirmation of the number
of Initial Preferred Shares that each holder is required to have converted on or
prior to the First Company's Election Conversion Date, which number shall be 25%
of the Initial Preferred Shares such holder purchased on the applicable Issuance
Date (each such number of Initial Preferred Shares being referred to as a
holder's "First Required Conversion Amount"). Subject to the satisfaction of all
the conditions of this Section 7 and except to the extent restricted by Section
5(a), on the First Company's Election Conversion Date each holder of Initial
Preferred Shares selected for conversion will be deemed to have submitted a
Conversion Notice in accordance with Section 2(d)(i) for a number of Preferred
Shares equal to the result of (a) such holder's First Required Conversion
Amount, minus (b) the number of such Initial Preferred Shares converted by such
holder during the period beginning on the applicable Issuance Date and ending on
and including the date immediately preceding the First Company's Election
Conversion Date. "Conditions to First Conversion at the Company's Election"
means the following conditions: (i) the Initial Registration Statement shall
have been declared effective by the SEC on or prior to the Initial Effectiveness
Deadline (as defined in the Registration Rights Agreement); (ii) on each day
during the period beginning on and including the date the Initial Registration
Statement is declared effective by the SEC and ending on and including the First
Company's Election Conversion Date, the Registration Statement which includes
the Registrable Securities relating to the Initial Preferred Shares selected for
conversion shall be effective and available for the sale of no less than all the
Registrable Securities required to be included in such Registration Statement;
(iii) on each day during the period beginning on the Initial Issuance Date and
ending on and including the First Company's Election Conversion Date, the Common
Stock is designated for quotation on the Nasdaq National Market or listed on The
New York Stock Exchange, Inc. and shall not have been suspended from trading on
such exchanges nor shall delisting or suspension by such exchanges (other than
suspensions of not more than one day and occurring prior to the First Company's
Conversion Election Notice Date due to business announcements by the Company)
have been threatened either (A) in writing by such exchanges or (B) by falling
below the minimum listing maintenance requirements of such exchanges; (iv)
during the period beginning on the Initial Issuance Date and ending on and
including the First Company's Election Conversion Date, there shall not have
occurred (A) an event constituting a Change of Control or a Triggering Event or
a Liquidity Default, (B) an event that with the passage of time and without
being cured would constitute a Triggering Event a Liquidity Default, or (C) the
public announcement of a pending, proposed or intended Change of Control; (v)
each holder of Initial Preferred Shares selected for conversion shall have
received the First Company's Election Conversion Notice at least 10 trading days
prior to the First Company's Election Conversion Date; (vi) during the period
beginning on the Initial Issuance Date and ending on and including the First
Company's Election Conversion Date, the Company shall have delivered shares of
Common Stock upon conversion of the Preferred Shares and upon exercise of the
Warrants to the holders on a timely basis as set forth in Section 2(d)(ii)
hereof and Sections 2(a) and 2(b) of the Warrants, respectively; (vii) the
Company otherwise shall have been in compliance in all material respects with
this Certificate of Designations, the Securities Purchase Agreement, the
Warrants and the Registration Rights Agreement and shall not have breached in
any material respect any provision of this Certificate of Designations, the
Securities Purchase Agreement, the Warrants or the Registration Rights
Agreement; (viii) the Company shall have received the Stockholder Approval on or
prior to
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the Stockholder Meeting Deadline; and (ix) on each day during the period
beginning on and including the First Company's Election Conversion Notice Date
(which date shall be at least 10 trading days prior to the First Company's
Election Conversion Date) and ending on and including the First Company's
Election Conversion Date, Closing Bid Price of the Common Stock is greater than
125% of the Closing Price for such Preferred Share (appropriately adjusted for
stock splits, stock dividends, stock combinations and other similar events).
(8) Second Conversion at the Company's Election. On the date
which is 90 days after the Initial Registration Statement has been declared
effective by the SEC ("Second Company's Election Conversion Date"), the Company
shall have the right, in its sole discretion, to require that 25% (or in the
event that the Company previously delivered a First Company's Election
Conversion Notice and all of the Conditions to First Conversion at Company's
Election were satisfied as of the First Company's Election Conversion Date, then
50%) of the Initial Preferred Shares which are convertible into shares of Common
Stock covered by such Registration Statement shall have been converted ("Second
Company's Conversion Election") at the applicable Conversion Price on or prior
to the Second Company's Election Conversion Date; provided that the Conditions
to Second Conversion at the Company's Election (as set forth below) are
satisfied as of the Second Company's Election Conversion Date. The Company shall
exercise its right to Second Company's Conversion Election by providing each
holder of Initial Preferred Shares covered by such Registration Statement
written notice ("Second Company's Conversion Election Notice") by facsimile and
overnight courier at least 10 trading days prior to the Second Company's
Election Conversion Date. The date on which each of such holders of the Initial
Preferred Shares actually receives the Second Company's Conversion Election
Notice is referred to herein as the "Second Company's Conversion Election Notice
Date." The Second Company's Conversion Election Notice shall indicate (x)
confirmation of the Second Company's Election Conversion Date, which date shall
be the date which is 90 days after the applicable Registration Statement is
declared effective by the SEC, and (z) confirmation the number of Initial
Preferred Shares that each holder is required to have converted on or prior to
the Second Company's Election Conversion Date, which number shall be 25% (or in
the event that the Company previously delivered a First Company's Election
Conversion Notice and all of the Conditions to First Conversion at Company's
Election were satisfied as of the First Company's Election Conversion Date, then
50%) of the Initial Preferred Shares such holder purchased on the applicable
Issuance Date (each such number of Initial Preferred Shares being referred to as
a holder's "Second Required Conversion Amount"). Subject to the satisfaction of
all the conditions of this Section 8 and except to the extent restricted by
Section 5(a), on the Second Company's Election Conversion Date each holder of
Initial Preferred Shares selected for conversion will be deemed to have
submitted a Conversion Notice in accordance with Section 2(d)(i) for a number of
Initial Preferred Shares equal to the result of (a) such holder's Second
Required Conversion Amount, minus (b) the number of such Initial Preferred
Shares converted by such holder during the period beginning on the applicable
Issuance Date and ending on and including the date immediately preceding the
Second Company's Election Conversion Date. "Conditions to Second Conversion at
the Company's Election" means the following conditions: (i) the Initial
Registration Statement shall have been declared effective by the SEC on or prior
to the Initial Effectiveness Deadline (as defined in the Registration Rights
Agreement); (ii) on each day during the period beginning on and including the
date the Registration Statement is declared effective by the SEC and ending on
and including the Second Company's Election Conversion Date, the Initial
Registration Statement which includes the Registrable Securities relating to the
Initial Preferred Shares selected for conversion shall be
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effective and available for the sale of no less than all the Registrable
Securities required to be included in such Registration Statement; (iii) on each
day during the period beginning on the Initial Issuance Date and ending on and
including the Second Company's Election Conversion Date, the Common Stock is
designated for quotation on the Nasdaq National Market or listed on The New York
Stock Exchange, Inc. and shall not have been suspended from trading on such
exchanges nor shall delisting or suspension by such exchanges (other than
suspensions of not more than one day and occurring prior to the Second Company's
Conversion Election Notice Date due to business announcements by the Company)
have been threatened either (A) in writing by such exchanges or (B) by falling
below the minimum listing maintenance requirements of such exchanges; (iv)
during the period beginning on the Initial Issuance Date and ending on and
including the Second Company's Election Conversion Date, there shall not have
occurred (A) an event constituting a Change of Control or a Triggering Event or
a Liquidity Default, (B) an event that with the passage of time and without
being cured would constitute a Triggering Event a Liquidity Default, or (C) the
public announcement of a pending, proposed or intended Change of Control; (v)
each holder of Initial Preferred Shares selected for conversion shall have
received the Second Company's Election Conversion Notice at least 10 trading
days prior to the Second Company's Election Conversion Date; (vi) during the
period beginning on the Initial Issuance Date and ending on and including the
Second Company's Election Conversion Date, the Company shall have delivered
shares of Common Stock upon conversion of the Preferred Shares and upon exercise
of the Warrants to the holders on a timely basis as set forth in Section
2(d)(ii) hereof and Sections 2(a) and 2(b) of the Warrants, respectively; (vii)
the Company otherwise shall have been in compliance in all material respects
with this Certificate of Designations, the Securities Purchase Agreement, the
Warrants and the Registration Rights Agreement and shall not have breached in
any material respect any provision of this Certificate of Designations, the
Securities Purchase Agreement, the Warrants or the Registration Rights
Agreement; (viii) the Company shall have received the Stockholder Approval on or
prior to the Stockholder Meeting Deadline; and (ix) on each day during the
period beginning on and including the Second Company's Election Conversion
Notice Date (which date shall be at least 10 trading days prior to the Second
Company's Election Conversion Date) and ending on and including the Second
Company's Election Conversion Date, Closing Bid Price of the Common Stock is
greater than 150% of the Closing Price for such Preferred Share (appropriately
adjusted for stock splits, stock dividends, stock combinations and other similar
events).
(9) Reservation of Shares.
(a) Reservation. The Company shall, so long as any of the
Preferred Shares are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than 200%
of the number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on conversions) (the
"Required Reserve Amount"). The initial number of shares of Common Stock
reserved for conversions of the Preferred Shares and each increase in the number
of shares so reserved shall be allocated pro rata among the holders of the
Preferred Shares based on the number of Preferred Shares held by each holder at
the time of issuance of the Preferred Shares or increase in the number of
reserved shares, as the case may be. In the event a holder shall sell or
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otherwise transfer any of such holder's Preferred Shares, 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 allocated
to any Person which ceases to hold any Preferred Shares shall be allocated to
the remaining holders of Preferred Shares, pro rata based on the number of
Preferred Shares then held by such holders.
(b) Insufficient Authorized Shares. If at any time while
any of the Preferred Shares remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy
its obligation to reserve for issuance upon conversion of the Preferred Shares
at least a number of shares of Common Stock equal to the Required Reserve Amount
(an "Authorized Share Failure"), then the Company shall immediately take all
action necessary to increase the Company's authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Preferred Shares then outstanding. Without limiting the generality of
the foregoing sentence, as soon as practicable after the date of the occurrence
of an Authorized Share Failure, but in no event later than 60 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the authorization of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders' approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.
(10) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly provided in
this Certificate of Designations.
(11) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Liquidation Funds"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (a) the Stated
Value and (b) the Additional Amount for such Preferred Share (such sum being
referred to as the "Liquidation Preference"); provided that, if the Liquidation
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "Pari Passu Shares"), then each holder of Preferred
Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full amount of
Liquidation Funds payable to all holders of Preferred Shares and Pari Passu
Shares. In addition to the receipt of the Liquidation Preference, in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to receive
Liquidation Funds distributed to holders of Common Stock, after the Liquidation
Preference has been paid, to the same extent as if such holders of Preferred
Shares had converted the
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Preferred Shares into Common Stock (without regard to any limitations on
conversions herein or elsewhere) and had held such shares of Common Stock on the
record date for such distribution of the remaining Liquidation Funds. The
purchase or redemption by the Company of stock of any class, in any manner
permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the consolidation
or merger of the Company with or into any other Person, nor the sale or transfer
by the Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Preferred Shares shall be entitled to receive any amounts
with respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein; provided that a holder of
Preferred Shares shall be entitled to all amounts previously accrued with
respect to amounts owed hereunder.
(12) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior or equal rank to the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of Incorporation or
bylaws, or file any resolution of the board of directors of the Company with the
Delaware Secretary of State or enter into any agreement containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the holders
of the Common Stock or the holders of any other class of capital stock. In the
event of the merger or consolidation of the Company with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(13) Participation. Subject to the rights of the holders, if
any, of the Pari Passu Shares, the holders of the Preferred Shares shall, as
holders of Preferred Stock, be entitled to such dividends paid and distributions
made to the holders of Common Stock to the same extent as if such holders of
Preferred Shares had converted the Preferred Shares into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock.
(14) Restriction on Redemption and Cash Dividends. Until all
of the Preferred Shares have been converted or redeemed as provided herein, the
Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, its capital stock (other than the Preferred Shares)
Common Stock without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Preferred Shares.
(15) Limitation on Number of Conversion Shares. The Company
shall not be obligated to issue any shares of Common Stock upon conversion of
the Preferred Shares if the
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issuance of such shares of Common Stock would exceed that number of shares of
Common Stock which the Company may issue upon Conversion of the Preferred Shares
(the "Exchange Cap") without breaching the Company's obligations under the rules
or regulations of the Principal Market, except that such limitation shall not
apply in the event that the Company (a) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market, (or any successor
rule or regulation) for issuances of Common Stock in excess of such amount or
(b) obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding.
Until such approval or written opinion is obtained, no purchaser of Preferred
Shares pursuant to the Securities Purchase Agreement (the "Purchasers") shall be
issued, upon conversion of Preferred Shares, shares of Common Stock in an amount
greater than the product of (i) the Exchange Cap amount multiplied by (ii) a
fraction, the numerator of which is the number of Preferred Shares issued to
such Purchaser pursuant to the Securities Purchase Agreement and the denominator
of which is the aggregate amount of all the Preferred Shares issued to the
Purchasers pursuant to the Securities Purchase Agreement (the "Cap Allocation
Amount"). In the event that any Purchaser shall sell or otherwise transfer any
of such Purchaser's Preferred Shares, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event that any
holder of Preferred Shares shall convert all of such holder's Preferred Shares
into a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap Allocation Amount and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Cap Allocation Amounts of
the remaining holders of Preferred Shares on a pro rata basis in proportion to
the number of Preferred Shares then held by each such holder.
(16) Vote to Change the Terms of Preferred Shares. 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 two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (a) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares and (b) the issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement. So long as the
Nortel Networks Credit Agreement is in force, the Company and the requisite
holders of the Preferred Shares shall not be entitled to amend or modify this
Certificate of Designations unless either (i) the Designated Senior Debt
Representative consents in writing to such amendment or modification, or (ii)
such amendment or modification is not substantive or material and is not adverse
to the rights of the lenders under the Nortel Networks Credit Facility.
(17) Lost or Stolen Certificates. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company in customary form 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 Preferred Shares into
Common Stock.
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(18) 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. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. 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
Preferred Shares 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 Preferred Shares 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.
(19) 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 Buyers
and shall not be construed against any person as the drafter hereof.
(20) Failure or Indulgence Not Waiver. No failure or delay on
the part of a holder of Preferred Shares 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.
(21) Notice. Whenever notice is required to be given pursuant
to this Certificate of Designations, unless otherwise provided herein, such
notice shall be given in accordance with Section 9(f) of the Securities Purchase
Agreement.
35
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by David Paolo, its President, as of the 23rd day of
February, 2000.
LOG ON AMERICA, INC.
By: /s/ David Paolo
-----------------------
Name: David Paolo
Its: President
36
<PAGE>
EXHIBIT I
LOG ON AMERICA, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Log On America, Inc. for its Series A Convertible Preferred Stock (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series A Convertible Preferred Stock, par value $0.01 per share
(the "Preferred Shares"), of Log On America, Inc., a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of the Company, as of the date specified below.
Date of Conversion:
--------------------------------------------
Number of Preferred Shares to be converted:
-------
Stock certificate no(s). of Preferred Shares to be converted:
---------
Please confirm the following information:
Conversion Price:
--------------------------------------------
Number of shares of Common Stock to be issued:
-----------------------
Is the alternative Floating Conversion Price being relied on pursuant
to Section 2(f)(iii) of the Certificate of Designations? (check one)
YES ____ No ____
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):
-----------
<PAGE>
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated ___________ ___,
2000 from the Company and acknowledged and agreed to by [TRANSFER AGENT].
LOG ON AMERICA, INC.
By:
--------------------
Title:
--------------------
<PAGE>
Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of February
23, 2000, by and among Log On America, Inc., a Delaware corporation, with
headquarters located at Three Regency Plaza, Providence, Rhode Island 02903 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement 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 "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized the following new series of its preferred
stock, par value $0.01 per share: the Company's Series A Convertible Preferred
Stock (the "Preferred Stock"), which shall be convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Preferred
Stock, substantially in the form attached hereto as Exhibit A (the "Certificate
of Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of up to 15,000 shares of the Preferred
Stock (the "Initial Preferred Shares") in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers and warrants, substantially
in the form attached hereto as Exhibit B (the "Initial Warrants"), to acquire a
number of shares of Common Stock for each Initial Preferred Share purchased
equal to 39.6136 (as exercised, collectively, the "Initial Warrant Shares"), as
set forth opposite each Buyers name on the Schedule of Buyers;
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers will be required to buy and the Company will be required to sell an
aggregate of 10,000 shares of Preferred Stock (pro rata based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares purchased) (the "Mandatory Preferred Shares") and
warrants, substantially in the form attached hereto as Exhibit B (the "Mandatory
Warrants") to acquire a number of shares of Common Stock for each Mandatory
Preferred Share purchased equal to the product of (i) the quotient of (a) $1,000
divided by (b) the Closing Price for the Mandatory Preferred Shares multiplied
by (ii) 0.65, (as exercised, collectively, the "Mandatory Warrant Shares");
E. Subject to the terms and conditions set forth in this Agreement,
each Buyer may have the right to purchase and the Company may be required to
sell up to an aggregate of 5,000 shares of Preferred Stock (pro rata based on
the number of Initial Preferred Shares each Buyer purchased in relation to the
total number of Initial Preferred Shares) (collectively, the "Additional
Preferred
<PAGE>
Shares") and warrants, substantially in the form attached hereto as Exhibit B
(the "Additional Warrants") to acquire a number of shares of Common Stock for
each Additional Preferred Share purchased equal to the product of (i) the
quotient of (a) $1,000 divided by (b) the Closing Price for the Additional
Preferred Shares multiplied by (ii) 0.65 (as exercised, collectively, the
"Additional Warrant Shares");
F. Subject to the terms and conditions set forth in this Agreement,
each Buyer may have the right to purchase and the Company may be required to
sell up to an aggregate of 5,000 shares of Preferred Stock (pro rata based on
the number of Initial Preferred Shares each Buyer purchased in relation to the
total number of Initial Preferred Shares) (collectively, the "Call Preferred
Shares") and warrants, substantially in the form attached hereto as Exhibit B
(the "Call Warrants") to acquire a number of shares of Common Stock for each
Call Preferred Share purchased equal to the product of (i) the quotient of (a)
$1,000 divided by (b) the Closing Price for the Call Preferred Shares multiplied
by (ii) 0.65 (as exercised, collectively, the "Call Warrant Shares"). The
Initial Preferred Shares, the Mandatory Preferred Shares, the Additional
Preferred Shares and the Call Preferred Shares collectively are referred to in
this Agreement as the "Preferred Shares"; the Initial Warrants, the Mandatory
Warrants, the Additional Warrants and the Call Warrants collectively are
referred to in this Agreement as the "Warrants"; and the Initial Warrant Shares,
the Mandatory Warrant Shares, the Additional Warrant Shares and the Call Warrant
Shares are collectively referred to as the "Warrant Shares"; and
G. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6(a) and 7(a) below, the
Company shall issue and sell to each Buyer and each Buyer severally agrees to
purchase from the Company the respective number of Initial Preferred Shares set
forth opposite such Buyer's name on the Schedule of Buyers, along with the
related Initial Warrants (the "Initial Closing"). Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 1(c), 6(b) and 7(b), each
Buyer shall buy and the Company shall issue and sell that number of Mandatory
Preferred Shares equal to such
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<PAGE>
Buyer's pro rata portion of an aggregate of 10,000 Mandatory Preferred Shares
(based on the number of Initial Preferred Shares each Buyer purchased in
relation to the total number of Initial Preferred Shares purchased), along with
the related Mandatory Warrants (the "Mandatory Closing"). Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 1(d), 6(c) and
7(c), at the option of each Buyer, the Company shall issue at multiple closings,
if applicable, and sell to each such Buyer and each such Buyer may purchase from
the Company that number of Additional Preferred Shares equal to such Buyer's pro
rata portion of an aggregate of 5,000 Additional Preferred Shares (based on the
number of Initial Preferred Shares each Buyer purchased in relation to the total
number of Initial Preferred Shares issued), along with the related Additional
Warrants (each an "Additional Closing"). Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 1(e), 6(d) and 7(d), at the option of
each Buyer, the Company shall issue at multiple closings, if applicable, and
sell to each such Buyer and each such Buyer may purchase from the Company that
number of Call Preferred Shares equal to such Buyer's pro rata portion of an
aggregate of 5,000 Call Preferred Shares (based on the number of Initial
Preferred Shares each Buyer purchased in relation to the total number of Initial
Preferred Shares issued), along with the related Call Warrants (each a "Call
Closing" and collectively with the Initial Closing, the Mandatory Closing and
the Additional Closings, the "Closings"). The purchase price (the "Purchase
Price") of each Preferred Share and the related Warrants at each of the Closings
shall be an aggregate of $1,000. "Business Days" means any day other than
Saturday, Sunday or other day on which commercial banks in the City of New York
are authorized or required by law to remain closed.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Central Time, within
three (3) Business Days following the date hereof, subject to the satisfaction
(or waiver) of the conditions to the Initial Closing set forth in Sections 6(a)
and 7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of Katten Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois 60661-3693.
c. The Mandatory Closing Date. The date and time of the
Mandatory Closing (an "Mandatory Closing Date") shall be 10:00 a.m. Central
Time, on July 17, 2000, subject to satisfaction (or waiver) of the conditions to
the Mandatory Closing set forth in Sections 6(b) and 7(b) and the conditions
contained in this Section 1(c) (or such later date as is mutually agreed to by
the Company and the Buyers). On July 3, 2000 (the "Mandatory Share Notice
Date"), subject to the satisfaction of the requirements and the conditions
contained in this Section 1(c), the Company shall deliver written notice to each
Buyer (a "Mandatory Share Notice"). The Mandatory Share Notice shall set forth
(A) the number of Mandatory Preferred Shares and the number of related Mandatory
Warrant Shares subject to Mandatory Warrants each Buyer is required to purchase
at the Mandatory Closing and (B) the aggregate Purchase Price for the Mandatory
Preferred Shares and the related Mandatory Warrants to be purchased.
Notwithstanding the foregoing, no Buyer shall be required to purchase the
Mandatory Preferred Shares and the related Mandatory Warrants and the Company
shall not issue a Mandatory Share Notice unless each of the following conditions
is satisfied: (i) the Initial Registration Statement (as defined in the
Registration Rights Agreement) registering all the Registrable Securities (as
defined in the Registration Rights Agreements) related to the Initial Preferred
Shares and the Initial Warrants is filed on or before April 25, 2000; (ii)
during the period beginning on the date of this Agreement and ending on and
including the Mandatory Closing Date, there shall not have occurred either (I)
the consummation of a Change of Control (as defined in Section 4(b) of the
Certificate of Designations) or a public announcement of a pending, proposed or
intended Change of Control which has not been abandoned or terminated or (II) a
Triggering Event (as defined in Section 3(b) of the Certificate of Designations)
or a Liquidity Default (as defined in Section 3(g) of the Certificate of
Designations) or an event that with the passage of
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<PAGE>
time or giving of notice and without being cured would constitute a Triggering
Event or a Liquidity Default; (iii) at all times during the period beginning on
the date of this Agreement and ending on and including the Mandatory Closing
Date, the Common Stock shall have been designated for quotation on the Nasdaq
National Market ("Nasdaq") or listed on The New York Stock Exchange, Inc.
("NYSE") or The American Stock Exchange ("AMEX") and shall not have been
suspended from trading on such exchanges nor shall delisting or suspension by
such exchanges have been threatened either (I) in writing by such exchanges or
(II) by falling below the minimum listing maintenance requirements of such
exchanges; (iv) during the period beginning on the Initial Closing Date and
ending on and including the Mandatory Closing Date, the Company shall have
delivered Conversion Shares and Warrant Shares upon conversion or exercise, as
the case may be, of the Preferred Shares and the Warrants on a timely basis as
set forth in Section 2(d)(ii) of the Certificate of Designations or Section 2(a)
of the Warrants and otherwise shall have been in compliance with and shall not
have breached any provision of the Transaction Documents (as defined below) and
the Certificate of Designations; (v) the Company shall have received the
approval of the Company's stockholders, pursuant to Section 4(m), to issue the
Conversion Shares upon the conversion of the Preferred Shares in excess of the
Exchange Cap (as defined in the Certificate of Designation); (vi) the arithmetic
average of the Closing Bid Prices (as defined in the Certificate of
Designations) of the Common Stock for the fifteen (15) consecutive trading days
ending on the including July 17, 2000 shall equal or exceed $25.00 (as adjusted
for stock split, stock dividends, stock combination or similar transactions);
and (vii) on each day during the period beginning on the Mandatory Share Notice
Date and ending on and including the Mandatory Closing Date the Closing Bid
Price of the Common Stock shall equal or exceed $23.00 (as adjusted for stock
splits, stock dividends, stock combinations and similar transactions). The
Mandatory Closing shall occur on an Mandatory Closing Date at the offices of
Katten Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693.
d. The Additional Closing Date. The date and time of each
Additional Closing (an "Additional Closing Date") shall be 10:00 a.m. Central
time, on the date specified in the Additional Share Notice (as defined below),
subject to satisfaction (or waiver) of the conditions to each Additional Closing
set forth in Sections 6(c) and 7(c) and the conditions contained in this Section
1(d) (or such later date as is mutually agreed to by the Company and the
Buyers). At any time during the period beginning on the Initial Closing Date and
ending on and including the date which is 90 days after the date on which the
Initial Registration Statement is declared effective by the SEC (as defined
below), but subject to the requirements of Sections 6(c) and 7(c) and the
conditions contained in this Section 1(d); each Buyer may purchase, at such
Buyer's option, Additional Preferred Shares and related Additional Warrants by
delivering written notice to the Company (a "Additional Share Notice") at least
five Business Days (the "Additional Share Notice Date") prior to the Additional
Closing Date set forth in the Additional Share Notice. The Additional Share
Notice shall set forth (i) the number of Additional Preferred Shares and the
number of related Additional Warrant Shares subject to the Additional Warrant
such Buyer will purchase, which number shall not exceed such Buyers pro rata
portion (based on the number of Initial Preferred Shares each Buyer purchased in
relation to the total number of Initial Preferred Shares purchased by all the
Buyers) of the aggregate number of Additional Preferred Shares which may be
purchased at all Additional Closings, (ii) the aggregate Purchase Price for the
Additional Preferred Shares and the related Additional Warrants to be purchased
and (iii) the Additional Closing Date. The Additional
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<PAGE>
Closing shall occur on an Additional Closing Date at the offices of Katten
Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
e. The Call Closing Date. The date and time of each Call
Closing (a "Call Closing Date" and collectively with the Initial Closing Date,
the Mandatory Closing Date and the Additional Closing Dates, the "Closing
Dates") shall be 10:00 a.m. Central time, on the date specified in the Call
Share Notice (as defined below), subject to satisfaction (or waiver) of the
conditions to each Call Closing set forth in Sections 6(d) and 7(d) and the
conditions contained in this Section 1(e) (or such later date as is mutually
agreed to by the Company and the Buyers). At any time during the period
beginning on the Initial Closing Date and ending on and including the date which
is 90 days after the date on which the Initial Registration Statement is
declared effective by the SEC, but subject to the requirements of Sections 6(d)
and 7(d) and the conditions contained in this Section 1(e); each Buyer may
purchase, at such Buyer's option, Call Preferred Shares and related Call
Warrants by delivering written notice to the Company (a "Call Share Notice") at
least five Business Days (the "Call Share Notice Date") prior to the Call
Closing Date set forth in the Call Share Notice. The Call Share Notice shall set
forth (i) the number of Call Preferred Shares and the number of related Call
Warrant Shares subject to the Call Warrant such Buyer will purchase, which
number shall not exceed such Buyers pro rata portion (based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares purchased by all the Buyers) of the aggregate number of
Call Preferred Shares which may be purchased at all Call Closings, (ii) the
aggregate Purchase Price for the Call Preferred Shares and the related Call
Warrants to be purchased and (iii) the Call Closing Date. Notwithstanding the
foregoing, the Company shall not be required to issue the Call Preferred Shares
and the related Call Warrants and a Buyer shall not deliver a Call Share Notice
unless, on each of the 5 consecutive trading days ending on and including the
Call Share Notice Date, the Closing Bid Price of the Common Stock is greater
than or equal to $20.00 (subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions). The Call Closing
shall occur on an Call Closing Date at the offices of Katten Muchin Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
f. Form of Payment. On each of the Closing Dates, (i) each
Buyer shall pay the Purchase Price to the Company for the Preferred Shares and
the related Warrants to be issued and sold to such Buyer at such Closing, by
wire transfer of immediately available funds in accordance with the Company's
written wire instructions, less any amount withheld for expenses pursuant to
Section 4(i), and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "Preferred
Stock Certificates") representing such number of the Preferred Shares which such
Buyer is then purchasing hereunder along with warrants representing the related
Warrants, duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.
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<PAGE>
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares issuable upon conversion thereof and (iii)
upon exercise of the Warrants, will acquire the Warrant Shares issuable upon
exercise thereof (the Preferred Shares, the Conversion Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the "Securities"), for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or
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<PAGE>
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act, as amended, (or a successor rule thereto) ("Rule
144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
Notwithstanding the foregoing, the Securities may be pledged in connection with
a bona fide margin account or other loan secured by the securities.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities 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. Such Buyer
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acknowledges, covenants and agrees to sell Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act or (ii) advice of counsel to
such Buyer that such sale is exempt from the registration requirements of
Section 5 of the 1933 Act.
h. Authorization; Enforcement; Validity. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Buyer and are valid and binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country
specified in its address on the Schedule of Buyers.
j. Ownership of the Company's Common Stock. Neither such Buyer
nor such Buyer's Affiliates (as defined below) has traded in the Company's
Common Stock during the 60 consecutive days ending on the Initial Closing Date
and as of the Initial Closing Date, neither will such Buyer nor such Buyer's
Affiliates have any short position. Notwithstanding the foregoing, an Affiliate
of Marshall Capital Management, Inc. (a Buyer) shall not be subject to the
representations or restrictions set forth in this Section 2(k) solely to the
extent that such Affiliate is not acting in concert with, or at the direction
of, Marshall Capital Management, Inc. "Affiliate" for purposes of this Sections
2(k) means, with respect to any person or entity, another person or entity that,
directly or indirectly, (i) controls that person or entity, (ii) is controlled
by that person or entity or (iii) shares common control with that person or
entity. "Control" or "controls" for purposes of this Section 2(j) means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below). The Company has no Subsidiaries except as set forth on Schedule 3(a).
b. Authorization; Enforcement; Validity. (i) The Company has
the requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Warrants
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents and the execution and filing of the Certificate of Designations by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Preferred Shares and
the Warrants and the reservation for issuance and the issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise thereof, have
been duly authorized and unanimously approved by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) this Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company, (iv) the Transaction Documents, upon execution and delivery thereof,
will constitute the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies, and (v) prior to the Initial Closing Date, the Certificate of
Designations has been filed with the Secretary of State of the State of Delaware
and will be in full force and effect, enforceable against the Company in
accordance with its terms and shall not have been amended unless in compliance
with its terms.
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c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 125,000,000 shares of Common Stock,
of which as of the date hereof, 8,289,793 shares are issued and outstanding,
2,500,000 shares are reserved for issuance pursuant to the Company's stock
option and purchase plans and 995,667 shares are issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and the
Warrants) exercisable or exchangeable for, or convertible into, shares of Common
Stock and (ii) 25,000,000 shares of Preferred Stock, of which as of the date
hereof, no shares are issued and outstanding. All of such outstanding shares
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), (A) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (B)
there are no outstanding debt securities issued by the Company; (C) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (D) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (E) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (G) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's Bylaws, as amended and as in effect on the date hereof (the "Bylaws"),
and the terms of all securities convertible into or exercisable for Common Stock
and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. At least 2,500,000
shares of Common Stock (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(f) below) have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants. Upon conversion or exercise in accordance with the Certificate of
Designations or the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from
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registration under the 1933 Act, assuming that the representations and
warranties of each of the Buyers contained in Section 2 are true and correct as
to factual matters.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the 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 material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party; (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the Principal Market (as defined below)) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e), neither
the Company nor its Subsidiaries is in violation of any term of its Certificate
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or Bylaws or their
organizational charter or bylaws, respectively. Except as disclosed in Schedule
3(e), neither the Company or any of its Subsidiaries is in violation or any term
of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except where such
violation would not result, either individually or in the aggregate, in a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, ordinance
or regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents or to perform its
obligations under the Certificate of Designations, in each case in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3(e), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company is not in violation of the listing requirements of the
Principal Market, including, without limitation, the requirements set forth in
Rule 4310(c)(25)(H) of the Principal Market and has no actual knowledge of any
facts which would reasonably lead to delisting or suspension of the Common Stock
by the Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since April 22, 1999,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein
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being hereinafter referred to as the "SEC Documents"). The Company has delivered
to the Buyers or their respective representatives true and complete copies of
the SEC Documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, 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 exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d), contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Buyers with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since April 22, 1999 there has been no material adverse change and no
material adverse development in the business, properties, assets, operations,
results of operations, financial conditions or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
Except as disclosed in Schedule 3(g), since April 22, 1999 the Company has not
declared or paid any dividends, sold any assets, individually or in the
aggregate, in excess of $2,000,000 outside of the ordinary course of business or
had capital expenditures, individually or in the aggregate, in excess of
$2,000,000.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry (except for inquiries that would not have, individually or
in the aggregate, a Material Adverse Effect) or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Subsidiaries or any of the Company's or the Subsidiaries' officers or directors
in their capacities as such, except as expressly set forth in Schedule 3(h).
Except as set forth in Schedule 3(h), to the knowledge of the Company none of
the directors or officers of the Company have been involved in securities
related litigation during the past five years.
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i. Acknowledgment Regarding Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the Certificate of Designation and the transactions
contemplated hereby and thereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
Certificate of Designation and the transactions contemplated hereby and thereby
and any advice given by any of the Buyers or any of their respective
representatives or agents in connection with the Transaction Documents and the
Certificate of Designation and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Stock and Warrants
contemplated by this Agreement, no event, liability, development or circumstance
has occurred or exists, or is contemplated to occur, with respect to the Company
or its Subsidiaries or their respective business, properties, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement on Form
SB-2 filed with the SEC relating to an issuance and sale by the Company of its
Common Stock and which has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in 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 and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement
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<PAGE>
and the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer, to
the best knowledge of the Company and its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted. Except as set forth on
Schedule 3(o), none of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, trade secrets or other intellectual property rights of
others, or of any development of similar or identical trade secrets or technical
information by others and, except as set forth on Schedule 3(o), there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its Subsidiaries regarding
its trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
or infringement of other intellectual property rights; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
p. Environmental Laws. Except in such instances as could not,
either individually or in the aggregate, have a Material Adverse Effect, the
Company and its Subsidiaries (i) are in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to
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conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
q. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(q) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries.
r. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect, taken as a
whole.
s. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
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<PAGE>
v. Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes), (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and for which the Company has made appropriate reserves for on its
books, and (iii) has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations (referred to in clause (i) above) apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the date
hereof, and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the Buyers
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyers'
ownership of the Securities.
y. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
z. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate,
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payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
aa. Year 2000 Compliance. The Company has initiated a review
and assessment of all areas within its and each Subsidiary's business and
operations that could be materially adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the Company or
any of the Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on the foregoing, the Company believes that the
computer applications that are currently material to its or any Subsidiary's
business and operations are reasonably expected to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000.
bb. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
cc. Fees and Expenses. As of the Initial Closing Date and the
Initial Funding Date (as defined in the Credit Agreement (as defined in Section
7(a)(xv))), the aggregate amount of fees, costs and/or expenses paid or payable
by the Company relating to the issuance of the Preferred Shares does not and
will not exceed $250,000.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at each of the Closings pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the Buyers on or prior to the Closing Dates. The Company shall make all filings
and reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following each of the Closing Dates.
c. Reporting Status. Until the later of (i) the date which is
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date which is five (5) years from
the last Closing Date to occur (the "Reporting Period"), the Company shall file
all reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
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d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for substantially the same purposes and in
substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Reporting Period: (i) within two (2) days after the filing
thereof with the SEC (unless available on the EDGAR System, in which case within
seven (7) days after the filing thereof with the SEC), a copy of its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on
Form 8-K and any registration statements (other than on Form S-8) or amendments
filed pursuant to the 1933 Act, provided that if any such report is not filed
with the SEC through EDGAR then the Company shall deliver a copy of such report
to each Investor by facsimile on the same day it is filed with the SEC; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon conversion of all
outstanding Preferred Shares (without regard to any limitations on conversions)
and 100% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon exercise of all outstanding Warrants
(without regard to any limitations on exercises).
g. Additional Financing; Right of First Refusal. Subject to
the exceptions described below, the Company and its Controlled Subsidiaries (as
defined below) agree that during the period beginning on the date hereof and
ending six (6) months following the Initial Closing Date (the "Lock-Up Period"),
neither the Company nor the Controlled Subsidiaries will, without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, negotiate or contract with any party for any equity
financing (including any debt financing with an equity component) or issue any
equity securities of the Company or any Controlled Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or any
Controlled Subsidiary (including debt securities with an equity component) in
any form (a "Future Offering"). In addition, subject to the exceptions described
below, the Company and its Controlled Subsidiaries agrees that during the period
beginning on the date hereof and ending on and including the date which is one
(1) year after the Initial Closing Date, neither the Company nor its Controlled
Subsidiaries will negotiate or contract with any party for any Future Offering
unless it shall have first delivered to each Buyer or a designee appointed by
such Buyer written notice (the "Future Offering Notice") describing the proposed
Future Offering, including the buyer and terms and conditions thereof, and
providing each Buyer an option to purchase its Aggregate Percentage (as defined
below) of the securities to be issued in such Future Offering (the limitations
referred to in this and the preceding sentence are collectively referred to as
the "Capital Raising Limitations"). For purposes
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of this Section 4(g), "Aggregate Percentage" shall mean the percentage obtained
by dividing (i) the aggregate number of Preferred Shares initially issued to
such Buyer by (ii) the aggregate number of Preferred Shares initially issued to
all the Buyers. A Buyer can exercise its option to participate in a Future
Offering by delivering written notice to the Company within ten (10) Business
Days after receipt of a Future Offering Notice, which notice shall state whether
such Buyer will purchase its Aggregate Percentage, and that number of securities
such Buyer is willing to purchase in excess of its Aggregate Percentage. In the
event that one or more Buyers fail to elect to purchase each of such Buyer's
Aggregate Percentage, then each Buyer which has indicated that it is willing to
purchase a number of securities in such Future Offering in excess of its
Aggregate Percentage shall be entitled to purchase its pro rata portion
(determined in the same manner as described in the preceding sentence) of the
securities in the Future Offering which one or more of the Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section 4(g) and
such Future Offering includes gross proceeds to the Company in excess of $25
million, the Company shall not be obligated to sell any of the Future Offering
to the Buyer and shall have 45 days thereafter to sell the securities in such
Future Offering upon terms and conditions, no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Buyers
fail to elect to fully participate in the Future Offering within the periods
described in this Section 4(g) and such Future Offering includes gross proceeds
to the Company equal to or less than $25 million, the Company shall have 45 days
thereafter to sell the securities in the Future Offering that the Buyers did not
elect to purchase upon terms and conditions, no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Company
has not sold such securities of the Future Offering within such 45 day period,
the Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(g). The Capital Raising Limitations shall not apply to (i) a loan from a
commercial bank which does not have any equity feature, (ii) any transaction
involving the Company's issuances of securities (A) as consideration in a merger
or consolidation, (B) in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or (C) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof and (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings. "Controlled Subsidiaries" means any
entity in which the Company, directly or indirectly, owns at least 50% of the
capital stock, equity or similar interest of such entity.
h. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time
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issuable under the terms of the Transaction Documents and the Certificate of
Designations. The Company shall maintain the Common Stock's authorization for
quotation on Nasdaq or listed on NYSE or AMEX (as applicable, the "Principal
Market"). Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock from the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at the Initial
Closing, the Company shall pay an expense allowance of $40,000 to HFTP
Investment L.L.C. (a Buyer) which amount shall be withheld by such Buyer from
its Purchase Price to be paid at the Initial Closing.
j. Filing of Form 8-K. On or before the third (3rd) Business
Day following the Initial Closing Date, the Company shall file a Form 8-K with
the SEC describing the terms of the transactions contemplated by the Transaction
Documents and including as exhibits to such 8-K this Agreement, the Certificate
of Designation, the Registration Rights Agreement and the Form of Warrant, in
the form required by the 1934 Act. On or before the first (1st) Business Day
following the Mandatory Closing Date, each Additional Closing Date, each Call
Closing Date, each Additional Share Notice Date and each Call Share Notice Date,
the Company shall file a Form 8-K with the SEC describing the transaction
consummated or proposed on such date. The Company shall also file a Form 8-K
with the SEC prior to or concurrent with the Form 8-K referred to in the first
sentence of this Section 4(j), disclosing the financing with Nortel Networks,
Inc. and including as an exhibit the Credit Agreement (as defined in Section
7(a)(xv)).
k. Transactions With Affiliates. So long as (i) any Preferred
Shares or Warrants are outstanding or (ii) any Buyer owns Conversion Shares or
Warrant Shares with a market value equal to or greater than $500,000, the
Company shall not, and shall cause each of its Controlled Subsidiaries not to,
enter into, amend, modify or supplement any agreement, transaction, commitment
or arrangement with any of its or any Controlled Subsidiary's officers,
directors, persons who were officers or directors at any time during the
previous two years, stockholders who beneficially own 5% or more of the Common
Stock, or affiliates of the Company or its Controlled Subsidiaries or with any
individual related by blood, marriage or adoption to any such individual or with
any entity in which any such entity or individual owns a 5% or more beneficial
interest (each a "Related Party"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or any
Controlled Subsidiary shall not be a disinterested director with respect to any
such agreement, transaction, commitment or arrangement. "Affiliate" for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (i) has a 5% or more equity interest in that
person or entity, (ii) has 5% or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common control with
that person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
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l. Capital and Surplus; Special Reserves. The Company agrees
that the capital of the Company (as such term is used in Section 154 of the
General Corporation Law of Delaware) in respect of the Preferred Shares shall be
equal to the aggregate par value of such Preferred Shares and that it shall not
increase the capital of the Company with respect to any shares of the Company's
capital stock at anytime on or after the date of this Agreement. The Company
also agrees that it shall not create any special reserves under Section 171 of
the General Corporation Law of Delaware without the prior written consent of
each holder of Preferred Shares. As any Preferred Shares remain outstanding, the
Company shall not account for as surplus or transfer to or otherwise allocate to
the Company's surplus account for purposes of the Delaware General Corporation
Law any of the capital represented by the Preferred Shares, including, without
limitation, for the purpose of reducing any of its capital stock as contemplated
by Section 244 of the Delaware General Corporation Law. The amount to be
represented in the capital account for the Preferred Stock at all times for each
outstanding Preferred Share shall be an amount equal to the product of (i) the
Liquidation Preference (as defined in the Certificate of Designations) and (ii)
125%.
m. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
occur on or before the earlier of (A) the date on which the Company holds its
next annual meeting of stockholders and (B) May 31, 2000 (the "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such annual stockholder meeting for approval of the
Company's issuance of all of the Securities as described in this Agreement in
accordance with applicable law and the rules and regulations of the Principal
Market (such affirmative approval being referred to herein as the "Stockholder
Approval"), and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal. Such proxy statement shall not seek approval of any matters other
than the approval described in the preceding sentence and the election of
directors.
n. Corporate Existence. So long as a Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or substantially
all of the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on Nasdaq, AMEX or NYSE.
o. Restriction on Short Sales. Each Buyer agrees that, subject
to the exceptions described below, during the period beginning on the Initial
Closing Date and ending on but excluding the earlier of (i) the first date on
which such Buyer no longer holds any Preferred Shares and (ii) the date which is
180 days after the Initial Closing Date, neither such Buyer nor any of its
affiliates shall engage in any transaction constituting a "short sale" (as
defined in Rule 3b-3 of the 1934 Act) of the Common Stock (collectively, "Short
Sales"); provided, however, that each Buyer
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and its Affiliates are entitled to engage in transactions which constitute Short
Sales to the extent that following such transaction the aggregate net short
position of such Buyer and its Affiliates does not exceed the sum of (a) the
number of shares of Common Stock equal to the aggregate number of Warrant Shares
which such Buyer and its Affiliates have the right to acquire upon exercise of
the Warrants held by such Buyer and its Affiliates (without regard to any
limitations on exercises of the Warrants), plus (b) during the period beginning
on and including the First Company's Conversion Election Notice Date (as defined
in Section 7 of the Certificate of Designations) and ending on and including the
First Company's Election Conversion Date (as defined in Section 7 of the
Certificate of Designations), that number of shares of Common Stock equal to the
number of shares of Common Stock issuable upon conversion of such Buyer's First
Required Conversion Amount (as defined in Section 7 of the Certificate of
Designations) (without regard to any limitations on conversions), plus (c)
during the period beginning on and including the Second Company's Conversion
Election Notice Date (as defined in Section 8 of the Certificate of
Designations) and ending on and including the Second Company's Election
Conversion Date (as defined in Section 8 of the Certificate of Designations),
that number of shares of Common Stock equal to the number of shares of Common
Stock issuable upon conversion of such Buyers Second Required Conversion Amount
(as defined in Section 8 of the Certificate of Designations) (without regard to
any limitations on conversions). Notwithstanding the foregoing, the restriction
on Short Sales set forth in the first sentence of this Section 4(o) shall not
apply (a) with respect to any Short Sale at a price greater than or equal to the
Fixed Conversion Price (as defined in the Certificate of Designations) of the
Initial Preferred Shares then in effect; (b) at any time after the first date
after the Initial Closing Date on which the Closing Bid Price of the Common
Stock is less than 50% of applicable Closing Price (as defined in the
Certificate of Designations) (equitably adjusted for stock splits, stock
dividends, stock combinations and other similar transactions) for any 10 trading
days during the 12 consecutive trading days immediately preceding such date of
determination; (c) on and after any date on which the Common Stock is not listed
or quoted on the Nasdaq National Market or The New York Stock Exchange, Inc. or
has been suspended from trading on any such exchange (excluding suspensions of
not more than one day resulting from business announcements by the Company), or
any such delisting or suspension is threatened or pending either (I) in writing
by such exchanges or (II) by falling below the minimum listing maintenance
requirements of such exchanges; (d) on or after any date on which there shall
have occurred an event constituting a Change of Control or a Triggering Event or
a Liquidity Default or an event that with the passage of time and without being
cured would constitute a Triggering Event or a Liquidity Default; (e) on or
after any date on which there shall have been an announcement of a pending,
proposed or intended Change of Control; (f) on or after any date on which the
Company issues or sells or is deemed to have issued or sold any Convertible
Securities or Options (both as defined in the Certificate of Designations) that
are convertible into or exercisable or exchangeable for shares of Common Stock
at a conversion or exercise price which varies or may vary with the market price
of the Common Stock, including by way of one or more reset(s) to a fixed price;
(g) on or after the Stockholder Meeting Deadline if the Company fails to receive
the Stockholder Approval on or before the Stockholder Meeting Deadline; or (h)
with respect to a short sale so long as the Buyer delivers a Conversion Notice
(as defined in the Certificate of Designations) within two Business Days of such
Short Sale entitling such Buyer to receive a number of shares of Common Stock at
least equal to the number of shares of Common Stock sold in such Short Sale.
Notwithstanding the foregoing, an Affiliate of Marshall Capital Management, Inc.
(a Buyer) shall not be subject to the restrictions set forth in this Section
4(o) solely to the extent that such Affiliate
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is not acting in concert with, or at the direction of, Marshall Capital
Management, Inc. "Affiliate" for purposes of this Sections 4(o) means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (i) controls that person or entity, (ii) is controlled by that
person or entity or (iii) shares common control with that person or entity.
"Control" or "controls" for purposes of this Section 4(o) means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
p. Local Exchange Carrier. The Company has been approved as a
competitive local exchange carrier in the states of Rhode Island and
Massachusetts, and will use its best efforts to maintain such designations.
q. Nortel Agreement. So long as any Preferred Shares or
Warrants are outstanding, the Company shall comply in all respects with the
Credit Agreement (as defined in Section 7(a)(xv)) and shall immediately pay all
amounts due and owing under the Credit Agreement. The Company shall not amend,
modify, increase, supplement, renew, extend, restate or refinance the Credit
Agreement unless, after giving affect to such amendment, modification, increase,
supplement, renewal, extension, restatement or refinancing, the Company would
still have the ability to borrow up to $30 million (including previous
drawdowns) under the Credit Agreement upon the issuance of the Initial Preferred
Shares and up to $45 million (including previous drawdowns) under the Credit
Agreement upon the issuance of no less than $10 million of additional Preferred
Shares (including, without limitation, all of the Mandatory Preferred Shares).
The Company shall not amend, modify, increase, supplement, renew, extend,
restate or refinance the Credit Agreement, except for such amendments,
modifications, increases, supplements, renewals, extensions, restatements or
refinancings which do not (i) amend Section 9.4(d), Section 9.4(e), Section
9.4(f), Section 9.4(g) or Section 9.4(h) of the Credit Agreement (or the
analogous provisions of any refinancing agreement) in any manner that would
adversely affect the rights of the holders of the Preferred Shares to receive
Restricted Payments (as defined in the Credit Agreement) pursuant to any such
Section (or the analogous provisions of any refinancing agreement) or otherwise
amend the Credit Agreement in any manner that would effectively accomplish any
of the foregoing referred to in this clause (i), or (ii) amend Section 11.1(q),
Section 11.1(t) or Section 11.1(u) of the Credit Agreement (or the analogous
provisions of any refinancing agreement) in any manner that would allow the
Designated Senior Debt Representative (as defined in the Certificate of
Designations) or any of the Lenders (as defined in the Credit Agreement) to
claim that an Event of Default (as defined in Section 11.1 of the Credit
Agreement (or the analogous provisions of any refinancing agreement)) has
occurred under any such Section (or the analogous provisions of any refinancing
agreement) which such person would not have, absent such amendment, been able to
claim prior to such amendment or otherwise amend the Credit Agreement in any
manner that would effectively accomplish any of the foregoing referred to in
this clause (ii).
5. TRANSFER AGENT INSTRUCTIONS.
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The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and the Warrant Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 2(f) (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act) will be given by
the Company to its transfer agent and that the Securities 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. If a Buyer
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act or the Buyer provides the
Company with reasonable assurances that the Securities 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 and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Buyer and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyers 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.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company to
issue and sell the Initial Preferred Shares and the Initial Warrants to each
Buyer at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed
with the Secretary of State of the State of Delaware.
(iii) Such Buyer shall have delivered to the Company the
Purchase Price (less, in the case of HFTP Investment LLC, the amounts
withheld pursuant to Section 4(i)) for the
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Initial Preferred Shares and the Initial Warrants being purchased by
such Buyer at the Initial Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to the
Closing Date.
b. Mandatory Closing Date. The obligation of the Company
hereunder to issue and sell the Mandatory Preferred Shares and the Mandatory
Warrants to each Buyer at the Mandatory Closing is subject to the satisfaction,
at or before such Mandatory Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Mandatory Preferred Shares and the related
Mandatory Warrants being purchased by such Buyer at the Mandatory
Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the Mandatory Closing Date.
c. Additional Closing Date. The obligation of the Company
hereunder to issue and sell the Additional Preferred Shares and the Additional
Warrants to each Buyer at each Additional Closing is subject to the
satisfaction, at or before such Additional Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Additional Preferred Shares and the related
Additional Warrants being purchased by such Buyer at the applicable
Additional Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the applicable
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such
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Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by
such Buyer at or prior to the applicable Additional Closing Date.
d. Call Closing Date. The obligation of the Company hereunder
to issue and sell the Call Preferred Shares and the Call Warrants to each Buyer
at each Call Closing is subject to the satisfaction, at or before such Call
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have delivered to the Company the
Purchase Price for the Call Preferred Shares and the related Call
Warrants being purchased by such Buyer at the applicable Call Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the applicable Call
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Buyer at
or prior to the applicable Call Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Shares and the Initial Warrants from
the Company at the Initial Closing is subject to the satisfaction, at or before
the Initial Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents and delivered the same to such Buyer.
(ii) The Certificate of Designations, shall have been filed
with the Secretary of State of the State of Delaware, and a copy
thereof certified by such Secretary of State shall have been delivered
to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on the Principal Market
nor shall suspension by the SEC or the Principal Market have been
threatened either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of
the Principal Market; and the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise of the Initial Preferred Shares be
shall be listed upon the Principal Market.
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(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, without limitation, an
update as of the Closing Date regarding the representation contained in
Section 3(c) above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the Initial Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for the Initial Preferred
Shares and the Initial Warrants being purchased by such Buyer at the
Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Initial Preferred Shares
and the exercise of the Initial Warrants, at least 2,500,000 shares of
Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such entity's state of incorporation or
organization issued by the Secretary of State of such state of
incorporation or organization as of a date within ten days of the
Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware as of a date within ten
days of the Initial Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate, dated as the Closing Date, as to (A) the
Resolutions, (B) the Certificate of Incorporation and (C) the Bylaws,
each as in effect at the Initial Closing.
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(xiii) The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate
the issuance of the Securities pursuant to this Agreement in compliance
with such laws.
(xiv) Each Buyer shall have delivered the Purchase Price for
the Initial Preferred Shares and the Initial Warrants to be purchased
by such Buyer at the Initial Closing pursuant to this Agreement.
(xv) The Company and Nortel Networks, Inc., a Delaware
corporation ("Nortel"), shall have entered into the Credit Agreement,
dated January 31, 2000 by and among the Company and Nortel in the form
last delivered to such Buyer prior to the date of this Agreement (the
"Credit Agreement").
(xvi) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
b. Mandatory Closing Date. The obligation of each Buyer
hereunder to purchase the Mandatory Preferred Shares and the Mandatory Warrants
from the Company at the Mandatory Closing is subject to the satisfaction, at or
before the Mandatory Closing Date, of each of the following conditions, provided
that these conditions are for each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(c).
(ii) The Certificate of Designations shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of the
State of Delaware shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on or delisted from the
Principal Market nor shall delisting or suspension by such Principal
Market have been threatened either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market; and all of the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Mandatory Preferred Shares and the Mandatory Warrants,
as the case may be, shall be listed upon the Principal Market.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Mandatory
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied in all respects with the
covenants, agreements
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and conditions required by the Transaction Documents or the Certificate
of Designations to be performed, satisfied or complied with by the
Company at or prior to the Mandatory Closing Date. Such Buyer shall
have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Mandatory Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of the
applicable Mandatory Closing Date regarding the representation
contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the Mandatory Closing Date, in
form, scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for the Mandatory Preferred
Shares and the Mandatory Warrants being purchased by such Buyer at the
Mandatory Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the Mandatory Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, a
number of shares of Common Stock equal to at least 200% of the number
of shares of Common Stock which would be issuable upon conversion in
full of the then outstanding Preferred Shares (without regard to any
limitations on conversions) and 100% of the number of shares of Common
Stock which would be issuable upon exercise in full of the then
outstanding Warrants (without regard to any limitations on exercises),
including for such purposes the Mandatory Preferred Shares and the
Mandatory Warrants to be issued at the Mandatory Closing.
(ix) The Irrevocable Transfer Agent Instructions shall remain
in effect as of the Mandatory Closing Date and the Company shall cause
its Transfer Agent to deliver a letter to the Buyers to that effect.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten days of
the Mandatory Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
Mandatory Closing Date.
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(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at
the Mandatory Closing.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Mandatory
Closing Date.
(xiv) The Initial Registration Statement covering the resale
of all the Registrable Securities related to the Initial Preferred
Share and the Initial Warrants, in accordance with the Registration
Rights Agreement, shall have been filed on or before April 25, 2000.
(xv) Each Buyer shall have delivered the Purchase Price for
the Mandatory Preferred Shares and the Mandatory Warrants to be
purchased by such Buyer at the Mandatory Closing pursuant to this
Agreement.
(xvi) The Company shall have received the Stockholder Approval
on or prior to the Stockholder Meeting Deadline.
(xvii) An Event of Default (as defined in the Credit
Agreement) shall not have occurred on or prior to the Mandatory Closing
Date, no event that with the passage of time and without being cured
would constitute an Event of Default shall have occurred and be
continuing on the Mandatory Closing Date and the Company shall
otherwise be in compliance in all material respects with all of its
obligations and covenants under the Credit Agreement as of the
Mandatory Closing Date.
(xviii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
c. Additional Closing Dates. The obligation of each Buyer
hereunder to purchase the Additional Preferred Shares and the Additional
Warrants from the Company at each of the applicable Additional Closings is
subject to the satisfaction, at or before each of the Additional Closing Dates,
of each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(d).
(ii) The Certificate of Designations shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of the
State of Delaware shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on or delisted from the
Principal Market
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nor shall delisting or suspension by such Principal Market have been
threatened either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of
the Principal Market; and all of the Conversion Shares and the Warrant
Shares issuable upon conversion or exercise of the Additional Preferred
Shares and the Additional Warrants, as the case may be, shall be listed
upon the Principal Market.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the applicable
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by the Transaction Documents or the Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the applicable Additional Closing Date. Such Buyer shall
have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Additional Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by
such Buyer including, without limitation, an update as of the
applicable Additional Closing Date regarding the representation
contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the applicable Additional Closing
Date, in form, scope and substance reasonably satisfactory to such
Buyer and in substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for the Additional Preferred
Shares and the Additional Warrants being purchased by such Buyer at the
applicable Additional Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the applicable Additional Closing Date, the
Company shall have reserved out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, a number of shares of Common Stock equal to at least
200% of the number of shares of Common Stock which would be issuable
upon conversion in full of the then outstanding Preferred Shares
(without regard to any limitations on conversions) and 100% of the
number of shares of Common Stock which would be issuable upon exercise
in full of the then outstanding Warrants (without regard to any
limitations on exercises), including for such purposes the Additional
Preferred Shares and the Additional Warrants to be issued at such
Additional Closing.
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(ix) The Irrevocable Transfer Agent Instructions shall remain
in effect as of the Additional Closing Date and the Company shall cause
its Transfer Agent to deliver a letter to the Buyers to that effect.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten days of
the applicable Additional Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
applicable Additional Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at
the applicable Additional Closing.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the
applicable Additional Closing Date.
(xiv) The Initial Registration Statement covering the resale
of the Conversion Shares and Warrant Shares has been declared effective
by the SEC and at all times since being declared effective other than
during an Allowable Grace Period and has been effective and available
for the sale of no less than the sum of (A) 200% of the number of
Conversion Shares then issuable upon the conversion of all outstanding
Initial Preferred Shares (without regard to any limitations on
conversions), (B) 100% of the number of Warrant Shares into which all
outstanding Initial Warrants are then exercisable (without regard to
any limitations on exercises) and (C) the number of Conversion Shares
and Warrant Shares outstanding, which were acquired upon conversion or
exercise of the Initial Preferred Shares or the Initial Warrants, as
the case may be, and held by the Buyers at such time.
(xv) The Company shall have received the Stockholder Approval
on or prior to the Stockholder Meeting Deadline.
(xvi) An Event of Default (as defined in the Credit Agreement)
shall not have occurred on or prior to the Additional Closing Date, no
event that with the passage of time and without being cured would
constitute an Event of Default shall have occurred and be continuing on
the applicable Additional Closing Date and the Company shall otherwise
be in compliance in all material respects with all of its obligations
and covenants under the Credit agreement as of the applicable
Additional Closing Date.
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(xvii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
d. Call Closing Dates. The obligation of each Buyer hereunder
to purchase the Call Preferred Shares and the Call Warrants from the Company at
each of the applicable Call Closings is subject to the satisfaction, at or
before each of the Call Closing Dates, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion:
(i) The Company shall have complied with and satisfied all of
the requirements of Section 1(e).
(ii) The Certificate of Designations shall be in full force
and effect and shall not have been amended since the Initial Closing
Date, and a copy thereof certified by the Secretary of State of the
State of Delaware shall have been delivered to such Buyer.
(iii) The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended
by the SEC or the Principal Market from trading on or delisted from the
Principal Market nor shall delisting or suspension by such Principal
Market have been threatened either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market; and all of the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Call Preferred Shares and the Call Warrants, as the
case may be, shall be listed upon the Principal Market.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the applicable
Call Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by the Transaction Documents or the Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the applicable Call Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Call Closing Date, to the foregoing effect and
as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the applicable Call
Closing Date regarding the representation contained in Section 3(c)
above.
(v) Such Buyer shall have received the opinion of Silverman,
Collura & Chernis, P.C. dated as of the applicable Call Closing Date,
in form, scope and substance reasonably satisfactory to such Buyer and
in substantially the form of Exhibit D attached hereto.
(vi) The Company shall have executed and delivered to such
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as such Buyer shall request) for
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the Call Preferred Shares and the Call Warrants being purchased by such
Buyer at the applicable Call Closing.
(vii) The Board of Directors of the Company shall have
adopted, and shall not have amended, the Resolutions.
(viii) As of the applicable Call Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred
Shares, a number of shares of Common Stock equal to at least 200% of
the number of shares of Common Stock which would be issuable upon
conversion in full of the then outstanding Preferred Shares (without
regard to any limitations on conversions) and 100% of the number of
shares of Common Stock which would be issuable upon exercise in full of
the then outstanding Warrants (without regard to any limitations on
exercises), including for such purposes the Call Preferred Shares and
the Call Warrants to be issued at such Call Closing.
(ix) The Irrevocable Transfer Agent Instructions shall remain
in effect as of the Call Closing Date and the Company shall cause its
Transfer Agent to deliver a letter to the Buyers to that effect.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in the state of such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten days of
the applicable Call Closing Date.
(xi) The Company shall have delivered to such Buyer a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
applicable Call Closing Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the Bylaws, each as in effect at
the applicable Call Closing.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the
applicable Call Closing Date.
(xiv) The Initial Registration Statement covering the resale
of the Conversion Shares and Warrant Shares has been declared effective
by the SEC and at all times since being declared effective, other than
during an Allowable Grace Period, has been effective and available for
the sale of no less than the sum of (A) 200% of the number of
Conversion Shares then issuable upon the conversion of all outstanding
Initial Preferred Shares (without regard to any limitations on
conversions), (B) 100% of the number of Warrant Shares into which all
outstanding Initial Warrants are then exercisable (without regard to
any limitations
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on exercises) and (C) the number of Conversion Shares and Warrant
Shares outstanding, which were acquired upon conversion or exercise of
the Initial Preferred Shares or the Initial Warrants, as the case may
be, and held by the Buyers at such time.
(xv) The Company shall have received the Stockholder Approval
on or prior to the Stockholder Meeting Deadline.
(xvi) An Event of Default (as defined in the Credit Agreement)
shall not have occurred on or prior to the Call Closing Date, no event
that with the passage of time and without being cured would constitute
an Event of Default shall have occurred and be continuing on the Call
Closing Date and the Company shall otherwise be in compliance in all
material respects with all of its obligations and covenants under the
Credit Agreement as of the Call Closing Date.
(xvii) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (d) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or (e) the status of such Buyer or holder of the
Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 8 shall be the same as those set forth
in Sections 6(a) and (d) of the
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Registration Rights Agreement, including, without limitation, those procedures
with respect to the settlement of claims and the Company's rights to assume the
defense of claims. Each Buyer's rights to receive payments for indemnification
pursuant to this Section 8 shall be subject to Section 3(i) of the Certificate
of Designations. A Buyer shall provide the Designated Senior Debt Representative
(as defined in the Certificate of Designations) written notice ("Notice of
Indemnification Claim") via facsimile and overnight courier at least 10 Business
Days prior to a payment by the Company to such Buyer pursuant to this Section 8.
Subject to Section 3(i) of the Certificate of Designations, the Company shall
deliver any payment due under this Section 8 to such Buyer on the date which is
ten (10) Business Days after the Designated Senior Debt Representative's receipt
of a Notice of Indemnification Claim. Any notice required to be delivered to the
Designated Senior Debt Representative by a Buyer pursuant to this Section 8
shall be delivered to Nortel Networks, Inc., GMS 991 15 A40, 2221 Lakeside
Blvd., Richardson, Texas 75082-4399, Attention Paul D. Day, Vice President,
Customer Finance North America and Charles M. Helm, Esq. (Telephone:
972-684-2271, Facsimile: 972-684-3679), and Mail Stop 468/05/B40, 2100 Lakeside
Blvd., Richardson , Texas 75083-3858, Attention: Kimberly Poe, Director, Loan
Administration (Telephone: 972-684-7687, Facsimile: 972-685-3255) or such other
address or facsimile number as may be specified in writing from time to time by
the Designated Senior Debt Representative and provided to each Buyer at least
five (5) Business Days prior to the date on which a holder sends a Notice of
Indemnification Claim.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws
of the State of Delaware shall govern all issues concerning the relative rights
of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
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b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Initial Preferred
Shares on the Initial Closing Date or, if prior to the Initial Closing Date, the
Buyers listed on the Schedule of Buyers as being obligated to purchase at least
two-thirds (2/3) of the Initial Preferred Shares, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares or Warrants
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 also is offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
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If to the Company:
Log On America, Inc.
Three Regency Plaza
Providence, Rhode Island 02903
Telephone: (401) 453-6100
Facsimile: (401) 459-6222
Attention: President
With a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
Telephone: (212) 779-8600
Facsimile: (212) 779-8858
Attention: Peter Silverman, Esq.
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
Two Broadway, 19th Floor
New York, New York 10004
Telephone: (212) 509-4000
Facsimile: (212) 616-7616
Attention: Roger Bernhammer
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, including by merger or consolidation, except pursuant
to a Change of Control (as defined in Section 4(c) of the Certificate of
Designations) with respect to which the
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Company is in compliance with Section 4 of the Certificate of Designations. A
Buyer may assign some or all of its rights hereunder without the consent of the
Company, provided, however, that any such assignment shall not release such
Buyer from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption, which
consent shall not be unreasonably withheld. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Buyers shall be entitled to
pledge the Securities in connection with a bona fide margin account or other
loan secured by Securities.
h. 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.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closings. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law, regulation, or rule of the NASD or Principal
Market (although each Buyer shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its release and shall
be provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall
not have occurred with respect to a Buyer on or before five (5) Business Days
from the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6(a) and 7(a) above (and the nonbreaching
party's failure to waive such unsatisfied condition(s)), the nonbreaching party
shall have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain obligated to reimburse
any nonbreaching Buyers for the expenses described in Section 4(i) above.
m. Placement Agent. The Company has not engaged a placement
agent in connection with the sale of the Preferred Shares and the related
Warrants. The Company shall be responsible for the payment of any placement
agent's fees or broker's commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
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<PAGE>
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Designations and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Registration
Rights Agreement, the Certificate of Designations or Warrants or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
-40-
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
- -------- -------
LOG ON AMERICA, INC. HFTP INVESTMENT L.L.C.
By: /s/ David Paolo By: Promethean Asset Management L.L.C.
------------------------------
Name: David Paolo Its: Investment Manager
Title: President
By: /s/
------------------------------
Name: Jamie F. O'Brien, Jr.
Title: Managing Member
MARSHALL CAPITAL MANAGEMENT, INC.
By: /s/
------------------------------
Name: Al Weine
Title: President
FISHER CAPITAL LTD.
By: /s/
------------------------------
Name: Kenneth A. Simpler
Its: Vice President
WINGATE CAPITAL LTD.
By: /s/
------------------------------
Name: Kenneth A. Simpler
Its: Vice President
<PAGE>
SCHEDULE OF BUYERS
Investor Address
Investor's Name and Facsimile Number
- -------------------------------- ----------------------------------------
HFTP Investment L.L.C. c/o Promethean Asset Management,
L.L.C.
750 Lexington Avenue, 22nd Floor
New York, NY 10022
Attention: David M. Kittay
John Floegel
Telephone: (212) 702-5200
Facsimile: (212) 758-9334
Residence: New York
Marshall Capital Management, Inc. Marshall Capital Management, Inc.
C/O Credit Suisse First Boston
11 Madison Ave., 7th Floor
New York, NY 10010
Attention: Allan Weine
Charles Gassenheimer
Telephone: (212) 325-0038
Facsimile: 212 325-6519
Facsimile: 312 750-1031
Residence: New York
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C.
225 West Washington Street, Suite 1600
Chicago, Illinois 60606
Attention: Daniel Hopkins
Telephone: (312) 696-2100
Facsimile: (312) 338-0780
Residence: Cayman Islands
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C.
225 West Washington Street, Suite 1600
Chicago, Illinois 60606
Attention: Daniel Hopkins
Telephone: (312) 696-2100
Facsimile: (312) 338-0780
Residence: Cayman Islands
<TABLE>
<CAPTION>
Number of Number of
Intial Initial Investor's Legal Representatives'
Investor's Name Preferred Warrant Address and Facsimile Number
Shares Shares
- -------------------------------- --------- --------- -------------------------------------
<S> <C> <C> <C>
HFTP Investment L.L.C. 3,750 148,551 Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
Marshall Capital Management, Inc. 7,500 297,102 Solomon, Zauderer, Ellenhorn,
Frischer & Sharp
45 Rockefeller Plaza
New York, New York 10111
Attention: Robert Mazzeo
Telephone: (212) 956-3700
Facsimile: (212) 956-4068
Fisher Capital Ltd. 2,325 92,102 Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
Wingate Capital Ltd. 1,425 56,449 Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February
23, 2000, by and among LOG ON AMERICA, INC., a Delaware corporation, with
headquarters located at Three Regency Plaza, Providence, Rhode Island 02903 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers (I) up to 15,000
shares of the Company's Series A Convertible Preferred Stock, par value $0.01
per share (the "Initial Preferred Shares"), which will be convertible into
shares (as converted, the "Initial Conversion Shares") of the Company's common
stock, par value $0.01 per share (the "Common Stock"), in accordance with the
terms of the Company's Certificate of Designations, Preferences and Rights of
the Series A Convertible Preferred Stock (the "Certificate of Designations"),
and (II) warrants to purchase shares of Common Stock (the "Initial Warrants"
and, as exercised, the "Initial Warrant Shares").
B. In connection with the Securities Purchase Agreement, the Buyers
shall buy and the Company shall issue and sell to the Buyers, upon the terms and
subject to the conditions of the Securities Purchase Agreement (I) up to 10,000
additional Preferred Shares (the "Mandatory Preferred Shares"), which will be
convertible into Common Stock (as converted, the "Mandatory Conversion Shares")
in accordance with the Certificate of Designations, and (II) warrants to
purchase shares of Common Stock (the "Mandatory Warrants" and, as exercised the
"Mandatory Warrant Shares")
C. In connection with the Securities Purchase Agreement, the Buyers may
have the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to issue and sell to the Buyers (I)
up to 5,000 additional Preferred Shares (the "Additional Preferred Shares"),
which will be convertible into Common Stock (as converted, the "Additional
Conversion Shares") in accordance with the Certificate of Designations, and (II)
warrants to purchase shares of Common Stock (the "Additional Warrants" and, as
exercised the "Additional Warrant Shares").
D. In connection with the Securities Purchase Agreement, the Buyers may
have the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to issue and sell to the Buyers (I)
up to 5,000 additional Preferred Shares (the "Call Preferred Shares" and,
collectively with the Initial Preferred Shares, the Mandatory Preferred Shares
and the Additional Preferred Shares, the "Preferred Shares"), which will be
convertible into Common Stock (as converted, the "Call Conversion Shares" and,
collectively with the Initial
<PAGE>
Conversion Shares, the Mandatory Conversion Shares and the Call Conversion
Shares, the "Conversion Shares") in accordance with the Certificate of
Designations, and (II) warrants to purchase shares of Common Stock (the "Call
Warrants" and, collectively with the Initial Warrants, the Mandatory Warrants
and the Additional Warrants, the "Warrants" and, as exercised the "Call Warrant
Shares" and, collectively with the Initial Warrant Shares, the Mandatory Warrant
Shares and the Additional Warrant Shares, the "Warrant Shares").
E. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, (ii) the Warrant
Shares issued or issuable upon exercise of the Warrants and (iii) any shares of
capital stock issued or issuable with respect to the Conversion Shares, the
Preferred Shares, the Warrant Shares or the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of Preferred Shares or
exercises of Warrants.
2
<PAGE>
e. "Initial Registration Statement" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Initial Preferred Shares and the
Initial Warrants.
f. "Mandatory Registration Statement" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Mandatory Preferred Shares and
the Mandatory Warrants.
g. "Additional Registration Statement" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Additional Preferred Shares and
the Additional Warrants.
h. "Call Registration Statement" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Call Preferred Shares and the
Call Warrants.
i. "Registration Statement" means Initial Registration
Statement, the Mandatory Registration Statement, the Additional Registration
Statement and the Call Registration Statement.
h. "Filing Deadline" means the Initial Filing Deadline, the
Mandatory Filing Deadline, the Additional Filing Deadline or the Call Filling
Deadline, as applicable.
i. "Effectiveness Deadline" means the Initial Effectiveness
Deadline, Mandatory Effectiveness Deadline, the Additional Effectiveness
Deadline or the Call Effectiveness Deadline, as applicable.
2. REGISTRATION.
a. Mandatory Registration.
(i) Initial Registration. The Company shall prepare, and,
as soon as practicable but in no event later than April 25, 2000 (the "Initial
Filing Deadline"), file with the SEC an Initial Registration Statement or
Initial Registration Statements (as necessary) on Form S-3 covering the resale
of all of the Registrable Securities relating to the Initial Preferred Shares
and the related Initial Warrants. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2(d). Any initial
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the sum of (A) the product
of (x) 2.0 and (y) the number of Conversion Shares issuable upon conversion of
the Initial Preferred Shares (without regard to any limitations on conversions)
as of the date immediately preceding the date the Registration Statement is
initially filed with the SEC and (B) the number of Initial Warrant Shares
issuable upon conversion of the Initial Warrants (without regard to any
limitations on exercises) as of a date immediately preceding the date the
Registration Statement is initially filed with the SEC,
3
<PAGE>
subject to adjustment as provided in Section 2(f). The Company shall use its
best efforts to cause such Initial Registration Statement to be declared
effective by the SEC as soon as practicable, but in no event later than 180 days
after the Initial Closing Date (the "Initial Effectiveness Deadline").
(ii) Mandatory Registration. The Company shall prepare,
and, as soon as practicable but in no event later than 40 days after the
Mandatory Closing Date (as defined in the Securities Purchase Agreement) (the
"Mandatory Filing Deadline"), file with the SEC an Mandatory Registration
Statement or Mandatory Registration Statements (as necessary) on Form S-3
covering the resale of all of the Registrable Securities relating to the
Mandatory Preferred Shares and the related Mandatory Warrants which were issued
on such Mandatory Closing Date. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2(d). Any Mandatory
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the sum of (A) the product
of (x) 2.0 and (y) the number of Conversion Shares issuable upon conversion of
such Mandatory Preferred Shares (without regard to any limitations on
conversions) as of the date immediately preceding the date the Mandatory
Registration Statement is initially filed with the SEC and (B) number of
Mandatory Warrant Shares issuable upon exercise of the Mandatory Warrants
(without regard to any limitations on exercises) as of the date immediately
preceding the date the Mandatory Registration Statement is filed, subject to
adjustment as provided in Section 2(f). The Company shall use its best efforts
to cause such Registration Statement to be declared effective by the SEC as soon
as practicable, but in no event later than 100 days after the Mandatory Closing
Date (the "Mandatory Effectiveness Deadline").
(iii) Additional Registration. The Company shall prepare,
and, as soon as practicable but in no event later than 40 days after an
Additional Closing Date (as defined in the Securities Purchase Agreement) (the
"Additional Filing Deadline"), file with the SEC an Additional Registration
Statement or Additional Registration Statements (as necessary) on Form S-3
covering the resale of all of the Registrable Securities relating to the
Additional Preferred Shares which were issued on such Additional Closing Date
and the related Additional Warrants. In the event that Form S-3 is unavailable
for such a registration, the Company shall use such other form as is available
for such a registration, subject to the provisions of Section 2(d). Any
Additional Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the sum of (A)
the product of (x) 2.0 and (y) the number of Conversion Shares issuable upon
conversion of such Additional Preferred Shares (without regard to any
limitations on conversions) as of the date immediately preceding the date the
Additional Registration Statement is initially filed with the SEC and (B) number
of Additional Warrant Shares issuable upon exercise of the Additional Warrants
(without regard to any limitations on exercises) as of the date immediately
preceding the date the Additional Registration Statement is filed, subject to
adjustment as provided in Section 2(f). The Company shall use its best efforts
to cause such Registration Statement to be declared effective by the SEC as soon
as practicable, but in no event later than 100 days after the applicable
Additional Closing Date (the "Additional Effectiveness Deadline").
4
<PAGE>
(iv) Call Registration. The Company shall prepare, and, as
soon as practicable but in no event later than 40 days after a Call Closing Date
(as defined in the Securities Purchase Agreement) (the "Call Filing Deadline"),
file with the SEC a Call Registration Statement or Call Registration Statements
(as necessary) on Form S-3 covering the resale of all of the Registrable
Securities relating to the Call Preferred Shares which were issued on such Call
Closing Date and the related Call Warrants. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(d).
Any Call Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the sum of (A)
the product of (x) 2.0 and (y) the number of Conversion Shares issuable upon
conversion of such Call Preferred Shares (without regard to any limitations on
conversions) as of the date immediately preceding the date the Call Registration
Statement is initially filed with the SEC and (B) number of Call Warrant Shares
issuable upon exercise of the Call Warrants (without regard to any limitations
on exercises) as of the date immediately preceding the date the Call
Registration Statement is filed, subject to adjustment as provided in Section
2(f). The Company shall use its best efforts to cause such Registration
Statement to be declared effective by the SEC as soon as practicable, but in no
event later than 100 days after the applicable Call Closing Date (the "Call
Effectiveness Deadline").
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
c. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
d. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form reasonably acceptable to the holders of a majority of the
Registrable Securities and (ii) undertake to register the Registrable Securities
on Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the
5
<PAGE>
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
e. Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement. If (i) a Registration Statement
covering all the Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before 30 days
after the applicable Filing Deadline or (B) declared effective by the SEC on or
before the applicable Effectiveness Deadline or (ii) on any day after the
Registration Statement has been declared effective by the SEC, sales of all the
Registrable Securities required to be included on such Registration Statement
cannot be made pursuant to the Registration Statement (including, without
limitation, because of a failure to keep the Registration Statement effective,
to disclose such information as is necessary for sales to be made pursuant to
the Registration Statement, to register sufficient shares of Common Stock),
then, as partial relief for the damages to any holder by reason of any such
delay in or reduction of its ability to sell the underlying shares of Common
Stock (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of Preferred Shares an
amount in cash per Preferred Share held equal to the product of (i) $1,000
multiplied by (ii) the sum of (A) .02, if the Registration Statement is not
filed by the Filing Deadline, plus (B) .02, if the Registration Statement is not
declared effective by the Effectiveness Deadline, plus, (C) the product of (I)
.00067 multiplied by (II) the sum of (x) the number of days after the Filing
Deadline that such Registration Statement is not filed with the SEC, plus (y)
the number of days after the Effectiveness Deadline that the Registration
Statement is not declared effective by the SEC, plus (z) the number of days
after the Registration Statement has been declared effective by the SEC that
such Registration Statement is not available for the sale of at least all the
Registrable Securities required to be included on such Registration Statement.
The payments to which a holder shall be entitled pursuant to this Section 2(e)
are referred to herein as "Registration Delay Payments." Registration Delay
Payments shall be paid on the earlier of (I) the last day of the calendar month
during which such Registration Delay Payments are incurred and (II) the third
business day after the event or failure giving rise to the Registration Delayed
Payments is cured. In the event the Company fails to make Registration Delay
Payments in a timely manner, such Registration Delay Payments shall bear
interest at the rate of 2.0% per month (prorated for partial months) until paid
in full. Notwithstanding the foregoing, the Company shall not be obligated to
make payments for Registration Delay Payments or interest pursuant to this
Section 2(e) in excess of the Penalty Cap Amount. "Penalty Cap Amount" means the
sum of (A) $300,000 plus (B) to the extent the Company has issued the Mandatory
Preferred Shares, $200,000. Each Buyer shall not be entitled to receive
Registration Delay Payments pursuant to this Section 2(e) in excess of the
product of (A) the Penalty Cap Amount and (B) a fraction, the numerator of which
is the number of Initial Preferred Shares and Mandatory Preferred Shares issued
to such Purchaser pursuant to the Securities Purchase Agreement and the
denominator of which is the aggregate amount of all the Initial Preferred Shares
and the Mandatory Preferred Shares issued to the Purchasers pursuant to the
Securities Purchase Agreement (the "Penalty Allocation Amount"). In the event
that any Purchaser shall sell or otherwise transfer any of such Purchaser's
Preferred Shares, the transferee shall be allocated a pro rata portion of such
Purchaser's Penalty Allocation Amount. In the event that any holder of Preferred
Shares shall convert all of such holder's Preferred Shares prior to such holder
receiving all of its Penalty Allocation Amount, then the difference between such
holder's Penalty
6
<PAGE>
Allocation Amount and the Registration Delay Payments actually paid to such
holder pursuant to this Section 2(e) shall be allocated to the respective
Penalty Allocation Amounts of the remaining holders of Preferred Shares on a pro
rata basis in proportion to the number of Preferred Shares then held by each
such holder.
f. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities which
such Registration Statement is required to cover or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least 200% of such Registrable Securities (based on the market price of the
Common Stock on the trading day immediately preceding the date of filing of such
amendment or new Registration Statement), in each case, as soon as practicable,
but in any event not later than fifteen (15) days after the necessity therefor
arises. The Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Preferred Shares and
exercise of the Warrants covered by such Registration Statement is greater than
the quotient determined by dividing (i) the number of shares of Common Stock
available for resale under such Registration Statement by (ii) 1.5. For purposes
of the calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares or exercise of the Warrants shall be
disregarded and such calculation shall assume that the Preferred Shares are then
convertible into, and the Warrants are then exercisable for, shares of Common
Stock at the then prevailing Conversion Rate (as defined in the Company's
Certificate of Designations) or Exercise Price (as defined in the Warrants),
respectively.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Sections 2(a) or 2(f), the Company will use
its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities (as
soon as practicable but in no event later than the applicable Filing Deadline)
and use its best efforts to cause such Registration Statement relating to the
Registrable Securities to become effective as soon as practicable after such
filing (but in no event later than the applicable Effectiveness Deadline). The
Company shall keep each Registration Statement effective pursuant to Rule 415 at
all times until the earlier of (i) the date as of which the Investors may sell
all of the Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto) or (ii) the date on which the Investors shall have sold all the
Registrable Securities covered by such Registration Statement (the "Registration
Period"), which Registration Statement
7
<PAGE>
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within three business days after the Company
learns that no review of a particular Registration Statement will be made by the
staff of the SEC or that the staff has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
such Registration Statement to a time and date not later than 48 hours after the
submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 Act"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and
comment upon (i) the Initial Registration Statement, the Mandatory Registration
Statement, the Additional Registration Statements and the Call Registration
Statements at least seven (7) days prior to its filing with the SEC and (ii) all
other Registration Statements and all amendments and supplements to all such
Registration Statements (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K and any similar or
successor reports) within a reasonable number of days prior to the their filing
with the SEC and (b) not file any document in a form to which Legal Counsel
reasonably objects. The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without
charge, (i) any correspondence from the SEC or the staff of the SEC to the
Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments
8
<PAGE>
and supplements thereto. The Company shall reasonably cooperate with Legal
Counsel in performing the Company's obligations pursuant to this Section 3.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any such Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
e. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(e), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify Legal
Counsel and each Investor who holds Registrable Securities of the receipt by the
Company of any notification with respect to the suspension of the registration
or qualification of any of the Registrable Securities for sale under the
securities or "blue sky" laws of any jurisdiction in the United States or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.
f. As promptly as practicable after becoming aware of such
event or development, the Company shall notify Legal Counsel and each Investor
in writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, nonpublic information), and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to Legal Counsel and each Investor (or such other number
of copies as Legal Counsel or such Investor may reasonably request). The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or
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<PAGE>
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
on the same day of such effectiveness), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction within the United States of
America and, if such an order or suspension is issued, to obtain the withdrawal
of such order or suspension at the earliest possible moment and to notify Legal
Counsel and each Investor who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
h. At the reasonable request of any Investor, the Company
shall furnish to such Investor, on the date of the effectiveness of the
Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the Investors.
i. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree, and each Investor hereby
agrees, to hold in strict confidence and shall not make any disclosure (except
to an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
and the Investor has knowledge. Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
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j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market or, if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
m. Intentionally Left Blank
n. If requested by an Investor, the Company shall (i) as soon
as practicable incorporate in a prospectus supplement or post-effective
amendment such information as an Investor requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) as soon as practicable make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or
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<PAGE>
make amendments to any Registration Statement if reasonably requested by an
Investor of such Registrable Securities.
o. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
r. Within two (2) business days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
s. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
t. Notwithstanding anything to the contrary in Section 3(f),
at any time after the applicable Registration Statement has been declared
effective by the SEC, the Company may delay the disclosure of material
non-public information concerning the Company, the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
and its counsel, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a "Grace Period"); provided, that
the Company shall promptly (i) notify the Investors in writing of the existence
of material non-public information giving rise to a Grace Period (provided that
in each notice the Company will not disclose the content of such material
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that no Grace Period shall exceed 15
consecutive days and during any 365 day period such Grace Periods shall not
exceed an aggregate of 30 days and the first day of any Grace Period must be at
least two trading days after the last day of any prior Grace Period (an
"Allowable Grace Period"). For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the holders
receive the notice referred to in clause (i) above and shall end on and include
the later of the date the holders receive the notice referred to in clause (ii)
and the date referred to in such notice. The provisions of Section 3(g) hereof
shall not be applicable during the period of any
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<PAGE>
Allowable Grace Period. Upon expiration of the Grace Period, the Company shall
again be bound by the first sentence of Section 3(g) with respect to the
information giving rise thereto unless such material non-public information is
no longer applicable.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor in writing of the information the Company reasonably requires from each
such Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g),
3(t) or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required or that a Grace Period has ended. Notwithstanding anything to the
contrary, the Company shall cause its transfer agent to deliver unlegended
shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale prior to the Investor's receipt of a notice from the Company
of the happening of any event of the kind described in Section 3(g), 3(t) or the
first sentence of 3(f) and for which the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be paid by the Company. In addition, the Company shall reimburse the
Investors for the reasonable fees and disbursements of Legal Counsel in
connection with registrations, filings or qualifications pursuant to Section 2
and 3 of this Agreement which amount.
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6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act") (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts
paid in settlement or expenses, joint or several, (collectively, "Claims")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or disbursements or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not be available to the extent such Claim is
based on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably
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<PAGE>
withheld. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each an "Indemnified Party"), against any Claim or Indemnified Damages to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in the prospectus was corrected and such new prospectus
was delivered to each Investor prior to such Investor's use of the prospectus to
which the Claim relates.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified
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<PAGE>
Person or Indemnified Party and any other party represented by such counsel in
such proceeding. In the case of an Indemnified Person, legal counsel referred to
in the immediately preceding sentence shall be selected by the Investors holding
a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The Indemnified Party or
Indemnified Person 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 or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
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<PAGE>
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor 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) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall
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<PAGE>
be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. 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 this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Log On America, Inc.
Three Regency Plaza
Providence, Rhode Island 02903
Telephone: (401) 453-6100
Facsimile: (401) 459-6222
Attention: Kenneth M. Cornell
With a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
Telephone: (212) 779-8600
Facsimile: (212) 779-8858
Attention: Peter Silverman, Esq.
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If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of Delaware shall govern
all issues concerning the relative rights of the Company and the Buyers as its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or
19
<PAGE>
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the
Warrants and the Certificate of Designations constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement, the Warrants and the Certificate of Designations
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares and the Warrants then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitation on conversions of the Preferred Shares or
exercises of the Warrants.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
20
<PAGE>
l. 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.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
- ------- ------
LOG ON AMERICA, INC. HFTP INVESTMENT L.L.C.
By: /s/ David Paolo By: Promethean Asset Management L.L.C.
--------------------------- Its: Investment Manager
Name: David Paolo
Title: President
By: /s/
--------------------------------------
Name: Jamie F. O'Brien, Jr.
Title: Managing Member
MARSHALL CAPITAL MANAGEMENT, INC.
By: /s/
--------------------------------------
Name: Al Weine
Title: President
FISHER CAPITAL LTD.
By: /s/
--------------------------------------
Name: Kenneth A. Simpler
Its: Vice President
WINGATE CAPITAL LTD.
By: /s/
--------------------------------------
Name: Kenneth A. Simpler
Its: Vice President
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Investor Address Investor's Representatives' Address
Investor Name and Facsimile Number and Facsimile Number
- ------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management L.L.C. c/o Promethean Asset Management L.L.C.
750 Lexington Avenue, 22nd Floor 750 Lexington Avenue, 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: David M. Kittay Attn: David M. Kittay
John Floegel John Floegel
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Marshall Capital Management, Inc. Marshall Capital Management, Inc. Marshall Capital Management, Inc.
227 West Monroe Street 227 West Monroe Street
41st Floor 41st Floor
Chicago, IL 60606 Chicago, IL 60606
Attention: Al Weine Attention: Al Weine
Facsimile: (312) 750-1823 Facsimile: (312) 750-1823
Telephone: (312) 750-3239 Telephone: (312) 750-3239
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel Hopkins Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street, Suite 1600
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel Hopkins Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
</TABLE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:
--------------------
Re: Log On America, Inc.
Ladies and Gentlemen:
We are counsel to Log On America, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Series A
Convertible Preferred Stock, par value $0.01 per share (the "Preferred Shares")
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common Stock") and Warrants (the "Warrants") to acquire shares of Common
Stock. Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrants, under the Securities Act of 1933,
as amended (the "1933 Act"). In connection with the Company's obligations under
the Registration Rights Agreement, on ____________ ____, the Company filed a
Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
--------------------------
cc: [LIST NAMES OF HOLDERS]
<PAGE>
Exhibit 4.3
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
LOG ON AMERICA, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: Number of Shares:
----------------------- --------
Date of Issuance: _____________ __, _____
Log On America, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein) ___________________ (________) [INSERT for (I) Initial Closing - Pro
Rata amount of 594,204 based on the number of Initial Preferred Shares purchased
compared to the number of Initial Preferred Shares issued and (II) for all other
Closings $1,000 / Closing Price (as defined in the Certificate of Designations)
of the Common Stock for the applicable Preferred Shares*0.65] fully paid
nonassessable shares of Common Stock (as defined herein) of the Company (the
"Warrant Shares") at the purchase price per share provided in Section 1(b)
below; provided, however, that in no event shall the holder be entitled to
exercise this Warrant for a number of Warrant Shares in excess of that number of
Warrant Shares which, upon giving effect to such exercise, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which
-1-
<PAGE>
the determination of such proviso is being made, but shall exclude shares of
Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised Warrants beneficially owned by the holder and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by the holder and its
affiliates (including, without limitation, any convertible notes or preferred
stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining the number of outstanding
shares of Common Stock a holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form
10-K, as the case may be, (2) a more recent public announcement by the Company
or (3) any other notice by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written request of any
holder, the Company shall promptly, but in no event later than one (1) Business
Day following the receipt of such notice, confirm in writing to any such holder
the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
conversions of Preferred Shares and exercise of Warrants (as defined below) by
such holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "Preferred Share Warrants") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of February 23, 2000, among the
Company and the Buyers referred to therein (the "Securities Purchase
Agreement").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "Approved Stock Plan" shall mean any employee benefit
plan which has been approved by the Board of Directors of the Company, pursuant
to which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(ii) "Business Day" means any day other than Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law to remain closed.
(iii) "Certificate of Designations" means the Company's
Certificate of Designations, Preferences and Rights of the Company's Series A
Convertible Preferred Stock.
(iv) "Common Stock" means (i) the Company's common stock,
par value $0.01 per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(v) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
-2-
<PAGE>
(vi) "Excluded Securities" means, provided such security
is issued at a price which is greater than or equal to the arithmetic average of
the Closing Bid Prices (as defined in the Certificate of Designations) of the
Common Stock for the ten (10) consecutive trading days immediately preceding the
date of issuance, any of the following (a) any issuance by the Company of
securities in connection with a strategic partnership or a joint venture (the
primary purpose of which is not to raise equity capital), (b) any issuance by
the Company of securities as consideration for a merger or consolidation or the
acquisition of a business, product, license, or other assets of another person
or entity and (c) options to purchase shares of Common Stock, provided (I) such
options are issued after the date of this Warrant to employees of the Company
within 30 days of such employee starting their employment with the Company, (II)
an aggregate of no more than 1,000,000 options are issued in reliance on this
exclusion and (III) the exercise price of such options is not less than 75% of
the market price of the Common Stock on the date of issuance of such options.
(vii) "Expiration Date" means the date five (5) years from
the Issuance Date of this Warrant or, if such date falls on a Saturday, Sunday
or other day on which banks are required or authorized to be closed in the City
of New York or the State of New York or on which trading does not take place on
the principal exchange or automated quotation system on which the Common Stock
is traded (a "Holiday"), the next date that is not a Holiday.
(viii) "Issuance Date" means, with respect to each
Warrant, the date of issuance of the applicable Warrant.
(ix) "Issuance Price" means, with respect to any security,
the lesser of (A) the Market Price on the Issuance Date of this Warrant and (B)
$24.13 (as adjusted for stock splits, stock dividends or similar transactions).
(x) "Market Price" means, with respect to any security for
any date of determination, that price which shall be computed as the arithmetic
average of the Weighted Average Price for such security on each of the 5
consecutive trading days immediately preceding such date of determination (all
such determinations to be appropriately adjusted for any stock dividend, stock
split or similar transaction during the pricing period).
(xi) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xii) "Other Securities" means (i) those options and
warrants of the Company issued prior to, and outstanding on, the date of
issuance of this Warrant, (ii) the shares of Common Stock issued upon exercise
of such options and warrants, provided such options and warrants are not amended
after the issuance date of this Warrant, (iii) the Preferred Shares and (iv) the
shares of Common Stock issued upon conversion of the Preferred Shares or
exercise of the Preferred Share Warrants.
-3-
<PAGE>
(xiii) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiv) "Preferred Shares" means the shares of the Company's
Series A Convertible Preferred Shares issued pursuant to the Securities Purchase
Agreement.
(xv) "Principal Market" means the Nasdaq National Market
or if the Common Stock is not traded on the Nasdaq Market, then the principal
securities exchange or trading market for the Common Stock.
(xvi) "Registration Rights Agreement" means that Agreement
dated February 23, 2000 by and among the Company and the Buyers referred to
therein.
(xvii) "Securities Act" means the Securities Act of 1933,
as amended.
(xviii) "Warrant" means this Warrant and all Warrants
issued in exchange, transfer or replacement thereof.
(xix) "Warrant Exercise Price" means, with respect to any
Warrant Share, [Initial Closing - $17.23 // all other Closings - 105% of the
Issuance Price of the Common Stock], subject to adjustment as hereinafter
provided.
(xx) "Weighted Average Price" means, for any security as
of any date, the dollar volume-weighted average price for such security on the
Principal Market (as reported by Bloomberg Financial Markets ("Bloomberg")
through its "Volume at Price" function) or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg, the average of the bid prices of each of the market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for
such security on such date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holders of the Preferred Shares. If the
Company and the holders of the Preferred Shares are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(a) below with the term "Weighted Average Price" being
substituted for the term "Market Price." All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law
-4-
<PAGE>
defined or referred to herein, shall be deemed references to such applicable law
as the same may have been or may be amended or supplemented from time to time.
(ii) When used in this Warrant, the words "herein,"
"hereof," and "hereunder," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words
"Section," "Schedule," and "Exhibit" shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time on any Business Day on or after the
opening of business on the date hereof and prior to 11:59 P.M. Eastern Time on
the Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the applicable Warrant Exercise Price multiplied by the number
of Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash or wire transfer of immediately available funds or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 2(f)) and (iii) the surrender to a
common carrier for overnight delivery to the Company as soon as practicable
following such date, this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction). In the
event of any exercise of the rights represented by this Warrant in compliance
with this Section 2(a), the Company shall on the second Business Day following
the date of receipt of the Exercise Notice, the Aggregate Exercise Price (or
notice of a Cashless Exercise) and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) (the "Exercise Delivery Documents"), 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 The Depository Trust Company; provided,
however, if the holder who submitted the Exercise Notice requested physical
delivery of any or all of the Warrant Shares, then the Company shall, on or
before the second Business Day following receipt of the Exercise Delivery
Documents issue and surrender to a common carrier for overnight delivery to the
address specified in the Exercise Notice, a certificate, registered in the name
of the holder, for the number of shares of Common Stock to which the holder
shall be entitled pursuant to such request. Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (ii)(A) above or notification
to the Company of a Cashless Exercise referred to in Section 2(e), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price or the
Market Price of a security or the arithmetic
-5-
<PAGE>
calculation of the Warrant Shares, 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 within one (1) Business Day of receipt of the holder's subscription
notice. If the holder and the Company are unable to agree upon the determination
of the Warrant Exercise Price or the Market Price or arithmetic calculation of
the Warrant Shares within one day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall immediately
submit via facsimile (i) the disputed determination of the Warrant Exercise
Price or the Market Price to an independent, reputable investment banking firm
or (ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant. The Company shall cause the investment banking
firm 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
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail for any reason or for no
reason to issue to the holder within three (3) Business Days of receipt of the
Exercise Delivery Documents, a certificate for the number of shares of Common
Stock to which the holder is entitled or to credit the holder's balance account
with The Depository Trust Company for such number of shares of Common Stock to
which the holder is entitled upon the holder's exercise of this Warrant, the
Company shall, in addition to any other remedies under this Warrant or the
Securities Purchase Agreement or otherwise available to such holder, including
any indemnification under Section 8 of the Securities Purchase Agreement, for
each occurrence of such failure, return to such holder a portion of the
Aggregate Exercise Price paid by the holder in connection with such exercise, on
each day during the period beginning on and including the fourth (4th) Business
Day following the Company's receipt of the Exercise Delivery Documents and
ending on the date such failure is cured, equal to the product of (A) the
Aggregate Exercise Price paid in connection with such exercise in effect
immediately preceding such date and (B) 0.005. In no event shall the amounts
returned to the holder pursuant to the preceding sentence exceed the Aggregate
Exercise Price paid by the holder in connection with the exercise for which such
amounts are being returned.
(e) If within five (5) Business Days after the Company's
receipt of the Exercise Delivery Documents, the Company fails to deliver a new
Warrant to the holder for the number of
-6-
<PAGE>
shares of Common Stock to which such holder is entitled pursuant to Section 2(b)
hereof, then, in addition to any other available remedies under this Warrant or
the Securities Purchase Agreement including indemnification pursuant to Section
8 thereof or otherwise available to such holder, the Company shall for each
occurrence of such failure reduce the Warrant Exercise Price then in effect for
the Warrant Shares underlying such undelivered Warrant, on each day during the
period beginning on the sixth (6th) Business Day following the Company's receipt
of the Exercise Delivery Documents and ending on the date such failure is cured,
by an amount equal to the product of (A) the Warrant Exercise Price in effect
immediately proceeding such date and (B) 0.005.
(f) If, despite the Company's obligations under the Securities
Purchase Agreement and the Registration Rights Agreement, the Warrant Shares to
be issued are not registered and available for resale pursuant to a registration
statement (including during an Allowable Grace Period (as defined in the
Registration Rights Agreement)) in accordance with the Registration Rights
Agreement, then notwithstanding anything contained herein to the contrary, the
holder of this Warrant may, at its election exercised in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which
this Warrant is then being exercised.
B= the Closing Sale Price (as reported in
Bloomberg) of the Common Stock on the date
immediately preceding the date of the subscription
notice.
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such
exercise.
Section 3. Covenants as to Common Stock. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution
for or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
(b) All Warrant Shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
-7-
<PAGE>
(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate
of Incorporation 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 by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. No impairment of the designations, preferences and
rights of the Preferred Shares contained in the Company's Certificate of
Designations or any waiver thereof which has an adverse effect on the rights
granted hereunder shall be given effect until the Company has taken appropriate
action (satisfactory to the holders of Preferred Share Warrants representing a
majority of the shares of Common Stock issuable upon the exercise of such
Preferred Share Warrants then outstanding) to avoid such adverse effect with
respect to this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Warrant Exercise Price
then in effect, and (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or
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<PAGE>
be deemed the holder of shares of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the holder of
this Warrant of the Warrant Shares which he or she is then entitled to receive
upon the due exercise of this Warrant. In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on such holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of
the Warrant Shares for any minimum or other specific term and reserves the right
to dispose of this Warrant and the Warrant Shares at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act. The holder of this Warrant further represents, by acceptance hereof, that,
as of this date, such holder is an "accredited investor" as such term is defined
in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "Accredited Investor"). Upon exercise of
this Warrant, other than pursuant to a Cashless Exercise the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant, other than pursuant to a Cashless Exercise, that the
Company receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
exercise of this Warrant shall not violate any United States or state securities
laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
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<PAGE>
(b) This Warrant and the rights granted hereunder shall be
assignable by the holder hereof without the consent of the Company.
(c) The Company is obligated to register the Warrant Shares
for resale under the Securities Act pursuant to the Registration Rights
Agreement and the initial holder of this Warrant (and certain assignees thereof)
is entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares
upon Issuance of Common Stock. If and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than (i) Excluded Securities and (ii)
shares of Common Stock which are issued or deemed to have been issued by the
Company in connection with an Approved Stock Plan or upon exercise or conversion
of the Other Securities) for a consideration per share less than a price (the
"Applicable Price") equal to the Warrant Exercise Price in effect immediately
prior to such issuance or sale, then immediately after such issue or sale the
Warrant Exercise Price then in effect shall be reduced to an amount equal to
such consideration per share. Upon each such adjustment of the Warrant Exercise
Price hereunder, the number of shares of Common Stock acquirable upon exercise
of this Warrant shall be adjusted to the number of shares determined by
multiplying the Warrant Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock acquirable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options
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<PAGE>
or upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon the conversion or
exchange thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 8(b)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion or exchange of such Convertible Security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale.
(iii) Change in Option Price or Rate of Conversion. If the
purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time, the
Warrant Exercise Price in effect at the time of such change shall be adjusted to
the Warrant Exercise Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
(c) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Sections 8(a)
and 8(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
marketable securities, in which case the amount of consideration received by the
Company will be
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<PAGE>
the Market Price of such securities on the date of receipt of such securities.
If any Common Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which the Company
is the surviving entity, the amount of consideration therefor will be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
holders of Preferred Share Warrants representing at least two-thirds (2/3) of
the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five Business Days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Preferred Share Warrants representing at least two-thirds (2/3)
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding. The determination of such appraiser shall be final
and binding upon all parties and the fees and expenses of such appraiser shall
be borne jointly by the Company and the holders of Preferred Share Warrants.
(ii) Integrated Transactions. In case any Option is issued
in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.
(iii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into
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<PAGE>
a smaller number of shares, any Warrant Exercise Price in effect immediately
prior to such combination will be proportionately increased and the number of
shares of Common Stock obtainable upon exercise of this Warrant will be
proportionately decreased. Any adjustment under this Section 8(d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Distribution of Assets. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:
(i) any Warrant Exercise Price in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares obtainable
upon exercise of this Warrant shall be increased to a number of shares equal to
the number of shares of Common Stock obtainable immediately prior to the close
of business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 8 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Warrant Exercise Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Preferred Share Warrants; provided that no such adjustment
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<PAGE>
pursuant to this Section 8(f) will increase the Warrant Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 8.
(g) Notices.
(i) Immediately upon any adjustment of a Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) 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 (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the
holder of this Warrant at least ten (10) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case,
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<PAGE>
the "Acquiring Entity") a written agreement (in form and substance satisfactory
to the holders of Preferred Share Warrants representing at least two-thirds
(2/3) of the shares of Common Stock obtainable upon exercise of the Preferred
Share Warrants then outstanding) to deliver to each holder of Preferred Share
Warrants in exchange for such Warrants, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
this Warrant and satisfactory to the holders of the Preferred Share Warrants
(including, an adjusted warrant exercise price equal to the value for the Common
Stock reflected by the terms of such consolidation, merger or sale, and
exercisable for a corresponding number of shares of Common Stock acquirable and
receivable upon exercise of the Preferred Share Warrants (without regard to any
limitations or exercise), if the value so reflected is less than any Warrant
Exercise Price in effect immediately prior to such consolidation, merger or
sale). Prior to the consummation of any other Organic Change, the Company shall
make appropriate provision (in form and substance satisfactory to the holders of
Preferred Share Warrants representing a [majority] of the shares of Common Stock
obtainable upon exercise of the Preferred Share Warrants then outstanding) to
insure that each of the holders of the Preferred Share Warrants will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Preferred Share Warrants (without
regard to any limitations or exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the exercise of such holder's Warrant
as of the date of such Organic Change (without taking into account any
limitations or restrictions on the exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on
receipt of an indemnification undertaking (or, in the case of a mutilated
Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Log On America, Inc.
Three Regency Plaza
Providence, Rhode Island 02903
Telephone: (401) 453-6100
Facsimile: (401) 459-6222
Attention: Kenneth M. Cornell
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<PAGE>
With a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
Telephone: (212) 779-8600
Facsimile: (212) 779-8858
Attention: Peter Silverman, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is ________ __, 2000. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7(c) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
Section 13. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Preferred Share Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Preferred Share Warrants representing at least
two-thirds (2/3) of the shares of Common Stock obtainable upon exercise of the
Preferred Share Warrants then outstanding; provided that no such action may
increase the Warrant Exercise Price of the Preferred Share Warrants or decrease
the number of shares or class of stock obtainable upon exercise of any Preferred
Share Warrants without the written consent of the holder of such Preferred Share
Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law
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<PAGE>
provision or rule (whether of the State of New York, or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
_________________, its ___________________, as of the ______ day of ___________.
LOG ON AMERICA, INC.
By:
--------------------
Name:
-------------------
Title:
------------------
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
LOG ON AMERICA, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Log On
America, Inc., a Delaware corporation (the "Company"), evidenced by the attached
Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to __________
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to ______
Warrant Shares (to the extent permitted by
the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
- --------------------------------
Name of Registered Holder
By:
----------------------------
Name:
Title:
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Log On America, Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, ____
------------------------------------
By:
-----------------------------
Its:
-----------------------------
<PAGE>
================================================================================
CREDIT AGREEMENT
dated as of January 31, 2000
by and among
LOG ON AMERICA, INC.
as the Borrower,
NORTEL NETWORKS INC.
as the Administrative Agent
and
THE LENDERS NAMED HEREIN
$45,000,000 ADVANCING TERM LOAN FACILITY
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 - Definitions........................................................1
Section 1.1 Definitions, etc...........................................1
Section 1.2 Other Definitional Provisions.............................23
Section 1.3 Accounting Terms and Determinations.......................24
Section 1.4 Financial Covenants and Reporting.........................24
ARTICLE 2 - Loans.............................................................25
Section 2.1 Commitments...............................................25
Section 2.2 Notes.....................................................25
Section 2.3 Repayment of Loans........................................26
Section 2.4 Interest..................................................26
Section 2.5 Borrowing Procedure.......................................27
Section 2.6 Optional Prepayments, Conversions and Continuations
of Loans..................................................27
Section 2.7 Mandatory Prepayments.....................................28
Section 2.8 Minimum Amounts...........................................29
Section 2.9 Certain Notices...........................................29
Section 2.10 Use of Proceeds...........................................30
Section 2.11 Fees......................................................30
Section 2.12 Computations..............................................30
Section 2.13 Termination or Reduction of Commitments...................30
ARTICLE 3 - Payments..........................................................31
Section 3.1 Method of Payment and Application of Payments.............31
Section 3.2 Pro Rata Treatment........................................32
Section 3.3 Sharing of Payments, Etc..................................32
Section 3.4 Non-Receipt of Funds by the Administrative Agent..........32
Section 3.5 Taxes.....................................................33
Section 3.6 Withholding Tax Exemption.................................34
Section 3.7 Reinstatement of Obligations..............................34
Section 3.8 No Force Majeure, Disputes................................35
ARTICLE 4 - Yield Protection and Illegality...................................35
Section 4.1 Additional Costs..........................................35
Section 4.2 Limitation on Types of Loans..............................37
Section 4.3 Illegality................................................37
Section 4.4 Treatment of Affected Loans...............................37
Section 4.5 Compensation..............................................38
Section 4.6 Capital Adequacy..........................................38
Section 4.7 Additional Interest on Eurodollar Loans...................39
CREDIT AGREEMENT - Page i
<PAGE>
ARTICLE 5 - Security..........................................................39
Section 5.1 Collateral................................................39
Section 5.2 Guaranties................................................40
Section 5.3 New Subsidiaries; Additional Capital Stock................40
Section 5.4 Mortgaged Properties; Landlord Waivers....................41
Section 5.5 Further Assurances........................................42
Section 5.6 Setoff....................................................42
ARTICLE 6 - Conditions Precedent..............................................42
Section 6.1 Initial Extension of Credit...............................42
Section 6.2 All Extensions of Credit..................................46
Section 6.3 Closing Certificates......................................47
ARTICLE 7 - Representations and Warranties....................................48
Section 7.1 Existence.................................................48
Section 7.2 Financial Statements......................................48
Section 7.3 Corporate Action; No Breach...............................49
Section 7.4 Operation of Business; Licenses...........................49
Section 7.5 Intellectual Property.....................................50
Section 7.6 Litigation and Judgments..................................50
Section 7.7 Rights in Properties; Liens...............................50
Section 7.8 Enforceability............................................50
Section 7.9 Approvals.................................................51
Section 7.10 Debt......................................................51
Section 7.11 Taxes.....................................................51
Section 7.12 Margin Securities.........................................51
Section 7.13 ERISA.....................................................51
Section 7.14 Disclosure................................................52
Section 7.15 Loan Parties; Capitalization..............................52
Section 7.16 Compliance with Laws......................................52
Section 7.17 Investment Company Act....................................52
Section 7.18 Public Utility Holding Company Act........................53
Section 7.19 Environmental Matters.....................................53
Section 7.20 Year 2000 Compliance......................................54
Section 7.21 Labor Disputes and Acts of God............................54
Section 7.22 Material Contracts........................................54
Section 7.23 Bank Accounts.............................................55
Section 7.24 Outstanding Securities....................................55
Section 7.25 Solvency..................................................55
Section 7.26 Employee Matters..........................................55
Section 7.27 Insurance.................................................55
Section 7.28 Common Enterprise.........................................55
Section 7.29 Burdensome Agreements.....................................55
Section 7.30 Fees, Costs and Expenses relating to the Series A
Preferred Stock...........................................56
CREDIT AGREEMENT - Page ii
<PAGE>
ARTICLE 8 - Affirmative Covenants.............................................56
Section 8.1 Reporting Requirements....................................56
Section 8.2 Maintenance of Existence; Conduct of Business.............59
Section 8.3 Maintenance of Properties and Licenses....................60
Section 8.4 Taxes and Claims..........................................60
Section 8.5 Insurance.................................................60
Section 8.6 Inspection Rights.........................................62
Section 8.7 Keeping Books and Records.................................62
Section 8.8 Compliance with Laws......................................62
Section 8.9 Compliance with Agreements................................62
Section 8.10 Further Assurances........................................62
Section 8.11 ERISA.....................................................63
Section 8.12 Non-Consolidation.........................................63
Section 8.13 Year 2000 Compliance......................................63
Section 8.14 Trade Accounts Payable....................................63
Section 8.15 Delivery of Certain Amendments, Material Contracts and
Subordinated Debt Documents...............................64
Section 8.16 Interest Rate Protection..................................64
Section 8.17 Ownership of Telecommunications Assets and
Telecommunications
Business..................................................64
Section 8.18 Unified Cash Management System............................64
Section 8.19 Observation Rights........................................64
Section 8.20 Employment Agreements, etc................................65
Section 8.21 Compliance with Series A Preferred Stock Agreements.......65
Section 8.22 Fees, Costs and Expenses relating to the Series A
Preferred Stock...........................................65
ARTICLE 9 - Negative Covenants................................................65
Section 9.1 Debt. ....................................................65
Section 9.2 Limitation on Liens.......................................67
Section 9.3 Mergers, Etc..............................................67
Section 9.4 Restricted Payments.......................................67
Section 9.5 Investments...............................................69
Section 9.6 Limitation on Issuance of Capital Stock...................70
Section 9.7 Transactions with Affiliates..............................70
Section 9.8 Disposition of Property...................................70
Section 9.9 Sale and Leaseback........................................71
Section 9.10 Lines of Business.........................................71
Section 9.11 Environmental Protection..................................72
Section 9.12 Intercompany Transactions.................................72
Section 9.13 Management Fees...........................................72
Section 9.14 Master Purchase Agreement.................................72
Section 9.15 Modification of Certain Agreements........................72
Section 9.16 ERISA.....................................................73
Section 9.17 No Prepayment of Debt, Etc................................73
CREDIT AGREEMENT - Page iii
<PAGE>
ARTICLE 10 - Financial Covenants..............................................74
Section 10.1 Total Debt to Total Capitalization........................74
Section 10.2 Senior Debt to Total Capitalization.......................74
Section 10.3 Total Debt to Annualized EBITDA...........................74
Section 10.4 Senior Debt to Annualized EBITDA..........................74
Section 10.5 Fixed Charge Coverage.....................................74
Section 10.6 Capital Expenditures......................................75
Section 10.7 Minimum Gross Revenues....................................75
Section 10.8 EBITDA....................................................75
Section 10.9 Annualized EBITDA.........................................75
ARTICLE 11 - Default..........................................................75
Section 11.1 Events of Default.........................................75
Section 11.2 Remedies..................................................78
Section 11.3 Performance by the Administrative Agent, etc..............79
ARTICLE 12 - The Administrative Agent.........................................79
Section 12.1 Appointment, Powers and Immunities........................79
Section 12.2 Rights of Administrative Agent as a Lender................80
Section 12.3 Defaults..................................................81
Section 12.4 INDEMNIFICATION...........................................81
Section 12.5 Independent Credit Decisions..............................82
Section 12.6 Several Commitments.......................................82
Section 12.7 Successor Administrative Agent............................82
ARTICLE 13 - Miscellaneous....................................................83
Section 13.1 Expenses..................................................83
Section 13.2 INDEMNIFICATION...........................................83
Section 13.3 Limitation of Liability...................................84
Section 13.4 No Duty...................................................85
Section 13.5 No Fiduciary Relationship.................................85
Section 13.6 Equitable Relief..........................................85
Section 13.7 No Waiver; Cumulative Remedies............................85
Section 13.8 Successors and Assigns....................................85
Section 13.9 Survival..................................................89
Section 13.10 ENTIRE AGREEMENT..........................................89
Section 13.11 Amendments................................................89
Section 13.12 Maximum Interest Rate.....................................90
Section 13.13 Notices...................................................91
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS........................................92
Section 13.15 Counterparts..............................................92
Section 13.16 Severability..............................................92
Section 13.17 Headings..................................................92
CREDIT AGREEMENT - Page iv
<PAGE>
Section 13.18 Construction..............................................92
Section 13.19 Independence of Covenants.................................93
Section 13.20 Confidentiality...........................................93
Section 13.21 WAIVER OF JURY TRIAL......................................94
Section 13.22 Approvals and Consent.....................................94
Section 13.23 Service of Process........................................94
CREDIT AGREEMENT - Page v
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Note
Exhibit C - Form of Notice of Borrowings, Conversions, Continuations and
Prepayments
Exhibit D - Form of Compliance Certificate
INDEX TO SCHEDULES
------------------
Schedule 1.1(a) - Certain Permitted Holders
Schedule 1.1(b) - Certain Permitted Liens
Schedule 7.4 - Licenses
Schedule 7.5 - Intellectual Property
Schedule 7.6 - Litigation, Etc.
Schedule 7.7 - Real Property
Schedule 7.10 - Existing Debt
Schedule 7.13 - Plans
Schedule 7.15 - Loan Parties; Capitalization
Schedule 7.22 - Material Contracts
Schedule 7.23 - Bank Accounts
Schedule 7.26 - Employee Matters
Schedule 7.27 - Insurance
Schedule 8.13 - Year 2000 Compliance
Schedule 8.17 - Telecommunications Assets Not Owned by the Borrower and its
Subsidiaries
Schedule 9.5 - Certain Investments
Schedule 10.1 - Total Debt to Total Capitalization
Schedule 10.2 - Senior Debt to Total Capitalization
Schedule 10.3 - Total Debt to Annualized EBITDA
Schedule 10.4 - Senior Debt to Annualized EBITDA
Schedule 10.5 - Fixed Charge Coverage
Schedule 10.6 - Capital Expenditures
Schedule 10.7 - Minimum Gross Revenues
Schedule 10.8 - EBITDA
Schedule 10.9 - Annualized EBITDA
CREDIT AGREEMENT - Page vi
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT, dated as of January 31, 2000, is by and among LOG
ON AMERICA, INC., a Delaware corporation (the "Borrower"), each of the lending
entities which is a party hereto (as evidenced by the signature pages of this
Agreement) or which may from time to time become a party hereto as a lender or
any successor or assignee thereof (individually, a "Lender" and, collectively,
the "Lenders"), and NORTEL NETWORKS INC., a Delaware corporation, as
administrative agent for itself and the other Lenders (in such capacity,
together with its successors in such capacity, the "Administrative Agent").
RECITALS:
--------
A. The Borrower desires to obtain a $45,000,000 advancing term loan
facility to finance a portion of the Borrower's costs to purchase Nortel
Networks Goods and Installation Services (as defined herein).
B. The Lender(s) identified on the signature pages of this Agreement
desire to provide such credit facilities with the assistance of the
Administrative Agent upon and subject to the terms and provisions contained in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
-----------
Section 1.1 Definitions, etc. As used in this Agreement, the following
terms shall have the following meanings:
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of one percent) determined by the Administrative Agent to be equal
to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period
divided by (b) one minus the Reserve Requirement for such Eurodollar Loan for
such Interest Period.
"Adjusted Net Income" means, as to any Person (the "subject Person") and
its Consolidated Subsidiaries and for any period, Consolidated Net Income less
the following (without duplication) to the extent that any of the following
shall have been included in Consolidated Net Income for such period: (a) any net
gain or loss arising from the sale of any property, plant or equipment; (b) any
net gain or loss arising from any write-up or write-down of assets; (c) earnings
or losses of any other Person, substantially all of the assets of which have
been acquired by the subject Person or a Consolidated Subsidiary of the subject
Person in any manner, to the extent that such earnings or
CREDIT AGREEMENT - Page 1
<PAGE>
losses were realized by such other Person prior to the date of such acquisition;
(d) earnings or losses of any Person (other than a Consolidated Subsidiary of
the subject Person) in which the subject Person or a Consolidated Subsidiary of
the subject Person has an ownership interest, unless such earnings have actually
been received by the subject Person or such Consolidated Subsidiary in the form
of cash distributions; and (e) any net gain or loss arising from the acquisition
of any securities of the subject Person or a Consolidated Subsidiary of the
subject Person.
"Administrative Agent" means as specified in the introductory paragraph of
this Agreement.
"Administrative Agent's Letter" means the letter agreement dated as of
January 31, 2000 between the Administrative Agent and the Borrower.
"Affiliate" means, as to any Person (the "subject Person"), any other
Person (a) that directly or indirectly through one or more intermediaries
controls or is controlled by, or is under direct or indirect common control
with, the subject Person, (b) that directly or indirectly beneficially owns or
holds ten percent or more of any class of voting Capital Stock of the subject
Person, or (c) ten percent or more of the voting Capital Stock of which is
directly or indirectly beneficially owned or held by the subject Person. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the Loan Documents, neither the
Administrative Agent nor any Lender shall be deemed to be an Affiliate of the
Borrower or any other Loan Party.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions or restatements hereof.
"Amortization Commencement Date" means the earlier to occur of (a)
September 30, 2002, or (b) March 31, 2001, if less than $10,000,000 in aggregate
principal amount of the Loans has been advanced as of such date.
"Annualized EBITDA" means, as to any Person and its Consolidated
Subsidiaries and for the applicable period, EBITDA for the two most recently
completed fiscal quarters multiplied by two.
"Applicable Lending Office" means, for each Lender and each Type of Loan,
the lending office of such Lender (or an Affiliate of such Lender) designated
for such Type of Loan below its name on the signature pages hereof (or, with
respect to a Lender that becomes a party to this Agreement pursuant to an
assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower and
the Administrative Agent as the office by which such Lender's Loans of such Type
are to be made and maintained.
"Applicable Margin" means the rate per annum equal to (a) with respect to
each Base Rate Loan, percent ( %) and (b) with *
respect to each Eurodollar Loan, percent ( %).
CREDIT AGREEMENT - Page 2
* Confidential Treatment Request
<PAGE>
"Approved Fund" means (a) with respect to any Lender which is a fund
primarily engaged in making, purchasing or otherwise investing in commercial
loans, any other fund which is primarily engaged in making, purchasing or
otherwise investing in commercial loans or extending, or investing in extensions
of, credit for its own account in the ordinary course of its business and which
is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor or (b) any other entity which has been
approved by the Administrative Agent and which is (or which is managed by a
manager which manages funds which are) primarily engaged in making, purchasing
or otherwise investing in commercial loans or extending, or investing in
extensions of, credit for its own account in the ordinary course of its
business; provided, however, that Approved Fund shall not include any Affiliate
of the Borrower.
"Asset Disposition" means the disposition of any or all of the Property of
the Borrower or any of its Subsidiaries, whether by sale, lease, transfer,
assignment, condemnation or otherwise, but excluding (a) sales of inventory in
the ordinary course of business, (b) the grant of a Lien as security, (c) any
involuntary disposition resulting from casualty damage to Property, (d)
dispositions of equipment if and to the extent that the equipment disposed of
is, concurrently therewith, exchanged or replaced by equipment of equal or
greater value, and (e) expenditures of cash.
"Assignee" means as specified in Section 13.8(b).
"Assigning Lender" means as specified in Section 13.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 13.8(e), in substantially the form of Exhibit A hereto.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Base Rate" means, at any time, the greater of (a) the rate of interest
per annum then most recently announced or established by the Reference Bank at
its principal office in New York City as its highest commercial prime or base
rate then in effect, or (b) the Federal Funds Rate then in effect plus one-half
of one percent (0.50%). The Base Rate may not necessarily be the lowest rate of
interest charged by the Reference Bank to its commercial borrowers. Each change
in any interest rate provided for herein based upon the prime or base rate or
the Federal Funds Rate resulting from a change in the prime or base rate or the
Federal Funds Rate, respectively, shall take effect without notice to the
Borrower at the time of such change in the prime or base rate or the Federal
Funds Rate, respectively.
"Base Rate Loans" means Loans that bear interest at rates based upon the
Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented and
otherwise modified and in effect from time to time, or any replacement thereof.
CREDIT AGREEMENT - Page 3
<PAGE>
"Board of Directors" means (a) with respect to any Loan Party which is a
corporation, the board of directors of such Loan Party and (b) with respect to
any Loan Party which is not a corporation, an analogous body, officer or
representative of such Loan Party which is the functional equivalent of the
board of directors of a corporation and which has the power and authority to
authorize and effectuate the execution, delivery and performance of the Loan
Documents to be executed by such Loan Party and other actions to be taken by
such Loan Party.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary or analogous officer of any Loan Party, as applicable
based upon the context in which such term appears, to have been duly adopted by
its Board of Directors and to be in full force and effect on the date of such
certification.
"Borrower" means as specified in the initial paragraph of this Agreement.
"Business Day" means (a) any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required by law to close in New
York, New York or Dallas, Texas, and (b) with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods and notices in connection
with Eurodollar Loans, any day which is a Business Day described in clause (a)
above and which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"Business Plan" means the Borrower's marketing and Network build-out
plans, budget and schedule as submitted to and approved by the Administrative
Agent, including financial projections of the Borrower and its Consolidated
Subsidiaries for the ten year period beginning on the Closing Date, certified by
the chief financial officer of the Borrower as being prepared generally in
accordance with GAAP (except for the absence of footnotes), such projections
giving effect to the Debt to be incurred under this Agreement as well as the
other Debt to be incurred by the Borrower and its Consolidated Subsidiaries
during such period. Unless any amendment or modification thereto or replacement
thereof is subsequently approved by the Administrative Agent in accordance with
Section 9.15, the Business Plan dated as of October 14, 1999, with financial
projections attached thereto dated January 28, 2000, shall be the Business Plan
for purposes of this Agreement.
"Capital Expenditures" means, as to any Person and its Consolidated
Subsidiaries, amounts paid or Debt incurred by such Persons in connection with
the purchase or lease by such Persons of Property that would be required to be
capitalized and shown on the balance sheet of such Persons in accordance with
GAAP.
"Capital Lease Obligations" means, as to any Person and its Consolidated
Subsidiaries, the obligations of such Persons to pay rent or other amounts under
a lease of (or other agreement conveying the right to use) real and/or personal
Property, which obligations are classified as a capital lease on a balance sheet
of such Persons under GAAP. For purposes of this Agreement, the amount of such
Capital Lease Obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
CREDIT AGREEMENT - Page 4
<PAGE>
"Capital Stock" means corporate stock and any and all securities, shares,
partnership interests (whether general, limited, special or other partnership
interests), limited liability company interests, membership interests, equity
interests, participations, rights or other equivalents (however designated) of
corporate stock or any of the foregoing issued by any entity (whether a
corporation, a partnership, a limited liability company or another entity) and
includes, without limitation, securities convertible into Capital Stock and
rights, warrants or options to acquire Capital Stock.
"Change in Control" means the existence or occurrence of any of the
following: (a) any Capital Stock of any Subsidiary of the Borrower is owned by
any Person other than the Borrower or a Wholly-Owned Subsidiary of the Borrower,
(b) any Person or two or more Persons (other than the Permitted Holders) acting
as a group (as defined in Section 13d-3 of the Exchange Act) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Exchange Act) of 20% or more of the outstanding
shares of Voting Stock of the Borrower; (c) individuals who, as of the Closing
Date, constitute the Board of Directors of the Borrower (the "Borrower Incumbent
Board") cease for any reason to constitute at least a majority of the Board of
Directors of the Borrower; provided, however, that any individual becoming a
director of Borrower subsequent to the Closing Date whose election or nomination
for election by Borrower' shareholders was approved by a vote of at least a
majority of the directors then comprising the Borrower Incumbent Board shall be
considered as though such individual were a member of the Borrower Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or contest by or on behalf of a Person other than the Board of
Directors of Borrower; or (d) the consummation of any transaction the result of
which is that any Person or group beneficially owns more of the Voting Stock of
Borrower than is beneficially owned, in the aggregate, by the Permitted Holders.
"Closing Date" means January 31, 2000, the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any Person of any nature whatsoever
upon which a Lien is created or purported or required (in accordance with the
Loan Documents) to be created by any Loan Document as security for the
Obligations or any portion thereof.
"Commitment" means, as to any Lender, the obligation of such Lender to
make or continue Loans hereunder in an aggregate principal amount up to but not
exceeding the amount set forth opposite the name of such Lender on the signature
pages hereto under the heading "Commitment" or, if such Lender is party to an
Assignment and Acceptance, the amount of the "Commitment " set forth in the most
recent Assignment and Acceptance of such Lender, as the same may be reduced or
terminated pursuant to Section 2.13 or Section 11.2, and "Commitments " means
such obligations of all Lenders. As of the Closing Date, the aggregate principal
amount of the Commitments is $45,000,000.
CREDIT AGREEMENT - Page 5
<PAGE>
"Commitment Percentage" means, as to any Lender and its Commitment, the
percentage equivalent of a fraction, the numerator of which is the amount of the
outstanding Commitment of such Lender (or if such Commitment has terminated or
expired, the outstanding principal amount of the Loans of such Lender) and the
denominator of which is the aggregate amount of the outstanding Commitments of
all Lenders (or if such Commitments have terminated or expired, the aggregate
outstanding principal amount of the Loans of all Lenders), as adjusted from time
to time in accordance with Section 13.8.
"Commitment Termination Date" means the earlier to occur of (a) June 30,
2002, (b) December 20, 2000, if less than $10,000,000 in aggregate principal
amount of the Loans has been advanced as of such date, or (c) the date upon
which the Loans are fully funded.
"Communications Act" means the Communications Act of 1934, and any similar
or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"Consolidated Fixed Charges" means, as to any Person and its Consolidated
Subsidiaries and for any period, the sum of (without duplication) (a)
Consolidated Interest Expense of such Persons paid or payable in cash during
such period, plus (b) all scheduled payments (as such scheduled payments are
reduced by application of any prepayments) of principal with respect to the
Loans and other outstanding Debt during such period, plus (c) taxes of such
Persons paid or payable in cash during such period, plus (d) the aggregate
amount paid or payable by such Persons in cash during such period on account of
Capital Expenditures.
"Consolidated Interest Expense" means, as to any Person and its
Consolidated Subsidiaries and for any period, and without duplication, all
interest on Debt of such Persons paid or payable in cash during such period,
including the interest portion of payments under Capital Lease Obligations.
"Consolidated Net Income" means, as to any Person and its Consolidated
Subsidiaries and for any period, the net income (or loss) of such Persons for
such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means, with respect to any Person, any
Subsidiary the financial attributes of which are or would be consolidated with
those of such Person in the consolidated financial statements of such Person in
accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the continuation
pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan of the same
Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 13.12(a).
"Contributed Capital" means, as to any Person and its Consolidated
Subsidiaries and as of any date of determination, the sum of (without
duplication) (a) equity contributions made to such Persons as of such date
(including equity contributed on or before the Initial Funding Date), plus
CREDIT AGREEMENT - Page 6
<PAGE>
(b) the amount of cash proceeds of Subordinated Debt received by such Persons as
of such date, minus (c) the aggregate amount of any Restricted Payments paid or
made by such Persons as of such date in cash or other Property other than
Capital Stock of such Person minus (d) the aggregate amount of cash interest
paid on Subordinated Debt of such Persons as of such date.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Current Date" means (a) a date occurring no more than 30 days prior to
the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
"Debt" means as to any Person at any time (without duplication): (a) all
indebtedness, liabilities and obligations of such Person for borrowed money; (b)
all indebtedness, liabilities and obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments (exclusive of obligations of the
Borrower under the Series A Preferred Stock Agreements); (c) all indebtedness,
liabilities and obligations of such Person to pay the deferred purchase price of
Property or services, except trade accounts payable of such Person arising in
the ordinary course of business that are not past due by more than 90 days; (d)
all Capital Lease Obligations of such Person; (e) all Debt of others Guaranteed
by such Person; (f) all indebtedness, liabilities and obligations secured by a
Lien existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person or
are non-recourse to such Person; (g) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments; (h) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of Capital Stock of such Person; (i) all indebtedness, liabilities and
obligations of such Person under Interest Rate Protection Agreements; and (j)
all indebtedness, liabilities and obligations of such Person in respect of
unfunded vested benefits under any pension plans.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan at all times
during which any Default has occurred and is continuing or in respect of any
other amount payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period of such Default or during the
period commencing on the due date of such other amount until such other amount
is paid in full equal to the lesser of (a) the sum of three percent (3.00%) plus
the Base Rate as in effect from time to time plus the Applicable Margin for Base
Rate Loans or (b) the Maximum Rate; provided, however, that if such amount in
default is principal of a Eurodollar Loan and the due date is a day other than
the last day of an Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the due date and to but
excluding the last day of the Interest Period therefor, the lesser of the rate
per annum equal to (i) the sum of * percent * plus the interest rate*
for such Eurodollar Loan for such Interest Period as provided in clause (ii) of
CREDIT AGREEMENT - Page 7
* Confidential Treatment Request
<PAGE>
Section 2.4(a) hereof or (ii) the Maximum Rate and, thereafter, the rate
provided for above in this definition.
"Dollars" and "$" mean lawful money of the U.S.
"EBITDA" means, as to any Person and its Consolidated Subsidiaries and for
any period, without duplication, the sum of the following for such Persons for
such period determined on a consolidated basis in accordance with GAAP: (a)
Adjusted Net Income, plus (b) Consolidated Interest Expense, plus (c) income and
franchise taxes to the extent deducted in determining Adjusted Net Income, plus
(d) depreciation and amortization expense and other non-cash, non-tax items to
the extent deducted in determining Adjusted Net Income, minus (e) non-cash
income (or losses) to the extent included in determining Adjusted Net Income.
"Eligible Assignee" means (a) any Lender or Affiliate of a Lender, (b) any
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership, limited liability company or other entity)
which has been approved by the Administrative Agent as a Lender under this
Agreement or (c) any Approved Fund; provided, however, that (i) Eligible
Assignee shall not include any Affiliate of the Borrower and (ii) Eligible
Assignee shall not include any business competitor of the Borrower engaged in
the same line of business as the Borrower except after the occurrence and during
the continuance of an Event of Default.
"Environmental Law" means any federal, state, provincial, local or foreign
law, statute, code or ordinance, principle of common law, rule or regulation, as
well as any License, order, decree, judgment or injunction issued, promulgated,
approved or entered thereunder, relating to pollution or the protection, cleanup
or restoration of the environment or natural resources, or to the public health
or safety, or otherwise governing the generation, use, handling, collection,
treatment, storage, transportation, recovery, recycling, discharge or disposal
of Hazardous Materials, including, without limitation as to U.S. laws, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C.ss.9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
99-499, 100 Stat. 1613, the Resource Conservation and Recovery Act of 1976, 42
U. S. C.ss.6901 et seq., the Occupational Safety and Health Act, 29 U S.C.ss.651
et seq., the Clean Air Act, 42 U.S.C.ss.7401 et seq., the Clean Water Act, 33 U.
S. C.ss.1251 et seq., the Emergency Planning and Community Right to Know Act, 42
U. S. C.ss.11001 et seq., the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C.ss.136 et seq., and the Toxic Substances Control Act, 15
U.S.C.ss.2601 et seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, License, order or agreement
CREDIT AGREEMENT - Page 8
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with any Governmental Authority or other Person, arising from environmental,
health or safety conditions or the Release or threatened Release of a Hazardous
Material into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon the
Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars in the approximate amount of the
proposed Eurodollar Loan at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If such rate ceases to be available from Telerate News
Service, the Eurodollar Rate shall be determined by the Administrative Agent in
good faith from another financial reporting service, which service shall be
reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 11.1.
"Excess Cash Flow" means, as to any Person and its Consolidated
Subsidiaries and for any fiscal year, and without duplication, the positive
remainder (if any) of (a) EBITDA for such fiscal year minus (b) the sum of (i)
taxes payable in cash for such fiscal year, plus (ii) all principal and cash
interest payments on Debt made during such fiscal year, whether optional,
mandatory or scheduled payments, plus (iii) Capital Expenditures (but only to
the extent paid in cash and not financed) made during such fiscal year.
"Excess Proceeds Amount" means as specified in Section 2.7(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"FCC" means the Federal Communications Commission and any successor
agency.
"FCC Licenses" means all Licenses issued by the FCC.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%))
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be
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determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published on such next succeeding Business Day, the Federal Funds Rate for any
day shall be the average rate which would be charged to the Reference Bank on
such day on such transactions as determined by the Administrative Agent.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, franchise, License or other
directive or requirement of any federal, state, county, municipal, parish,
provincial or other Governmental Authority or any department, commission, board,
court, agency or any other instrumentality of any of them.
"Gross Revenues" means, as to any Person and its Consolidated Subsidiaries
and for any period, gross revenues of such Person and its Consolidated
Subsidiaries determined on a consolidated basis in accordance with GAAP for such
period.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
indebtedness, liability or obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or- pay or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other indebtedness,
liability or obligation as to the payment thereof or to protect the obligee
against loss in respect thereof (in whole or in part), provided that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum anticipated liability in respect thereof (assuming such Person is
required to perform thereunder).
"Guarantors" means each Subsidiary of the Borrower at any time existing
and each other Person which has executed a Guaranty, and "Guarantor" means any
of such Persons.
CREDIT AGREEMENT - Page 10
<PAGE>
"Guaranty" means a guaranty agreement guaranteeing payment and performance
of the Obligations in form and substance satisfactory to the Administrative
Agent executed by a Guarantor in favor of the Administrative Agent and the
Lenders, and any and all amendments, modifications, supplements, renewals,
extensions or restatements thereof.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro- organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is, or
is deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
a pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, including, without limitation,
asbestos, petroleum, underground storage tanks (whether empty or containing any
substance) and polychlorinated biphenyls.
"Initial Funding Date" means the date of the initial advance of the Loans
under this Agreement.
"Insurance Recovery" means, with respect to any Property of the Borrower
or any of its Subsidiaries and any single occurrence or related occurrences with
respect thereto, the receipt or constructive receipt by such Loan Party, or the
payment by an insurance company to the Administrative Agent, of proceeds of any
such Property or casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark and
service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
"Interest Period" means, with respect to any Eurodollar Loan, each period
commencing on the date such Loan is made or Converted from a Base Rate Loan or
(if Continued) the last day of the next preceding Interest Period with respect
to such Loan, and ending on the numerically corresponding day in the third
calendar month thereafter, as the Borrower may select as provided in Section 2.9
hereof, except that each such Interest Period which commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would otherwise
end on a day which is not a Business Day shall end on the next succeeding
Business Day (or, if such succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (b) any Interest Period
which would otherwise extend beyond the Maturity Date with respect to any Loans
shall end on such Maturity Date; (c) no more than five Interest Periods for
Eurodollar Loans shall be in effect at the same time; (d) no Interest Period
shall have a duration of less than one month and, if the Interest Period for any
Eurodollar Loans would otherwise be a shorter period, such Loans shall not be
available hereunder; and (e) no Interest Period for a Loan
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<PAGE>
may commence before, and end after, any principal payment date unless, after
giving effect thereto, the aggregate principal amount of the Eurodollar Loans
having Interest Periods that end after such principal payment date shall be
equal to or less than the amount of the applicable Loans scheduled to be
outstanding hereunder after such principal payment date.
"Interest Rate Protection Agreement" means, with respect to the Borrower,
an interest rate swap, cap or collar agreement or similar arrangement between
the Borrower and one or more Lenders or other counterparties providing for the
transfer or mitigation of interest rate risks either generally or under
specified contingencies.
"Investments" means as specified in Section 9.5.
"Lender" and "Lenders" means as specified in the initial paragraph of this
Agreement.
"License" means any consent, permit, franchise, certificate, approval,
order, license, right-of- way (whether an easement, contract or agreement in any
form) or other authorization, including, without limitation, any FCC License.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, tax
lien, financing statement, pledge, charge, hypothecation or other lien, charge,
easement (other than any easement not materially impairing usefulness),
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such Property
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Administrative Agent's Letter and all other agreements, documents,
instruments and certificates now or hereafter executed and/or delivered pursuant
to or in connection with any of the foregoing, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Loan Party" means the Borrower, any Subsidiary of the Borrower, any
Guarantor or any Person who grants a Lien on any Property to secure the payment
or performance of the Obligations or any portion thereof, and "Loan Parties"
means all of such Persons.
"Loans" means as specified in Section 2.1(a).
"Master Purchase Agreement" means the that certain Master Purchase
Agreement, dated as of May 18, 1999, by and between the Borrower and Nortel
Networks, as amended by that certain Amendment No. 1 to Purchase Agreement dated
as of November 22, 1999, and as the same has been or may be further amended,
supplemented or restated from time to time.
"Material Adverse Effect" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, financial condition, results of operations or
prospects of the Borrower individually or of the Borrower and its
CREDIT AGREEMENT - Page 12
<PAGE>
Subsidiaries taken as a whole, (b) the validity or enforceability of any of the
Loan Documents or the Liens, rights and/or remedies of the Administrative Agent
and/or the Lenders thereunder, (c) the ability of any Loan Party to pay and
perform its indebtedness, liabilities and/or obligations under any of the Loan
Documents, or (d) the value of Collateral available to the Administrative Agent
and the Lenders after giving effect to Liens in favor of other Persons.
"Material Contracts" means, as to any Loan Party, any supply, purchase,
service, employment, tax, indemnity, shareholder or other agreement or contract
for which the aggregate amount or value of services performed or to be performed
for or by, or funds or other Property transferred or to be transferred to or by,
any Loan Party to such agreement or contract, or by which any Loan Party or any
of its Properties is otherwise bound, during any fiscal year of such Loan Party
exceeds $1,000,000 (or the equivalent amount in any currency) and any and all
amendments, modifications, supplements, renewals or restatements thereof.
"Maturity Date" means the earlier to occur of (i) June 30, 2007 or (ii)
the fifth anniversary of the Commitment Termination Date.
"Maximum Rate" means, with respect to any Lender, the maximum non-usurious
interest rate or an amount computed in reference to such rate (as applicable),
if any, that any time or from time to time may be contracted for, taken,
reserved, charged or received with respect to the particular Obligations as to
which such rate is to be determined, payable to such Lender pursuant to this
Agreement or any other Loan Document, under laws applicable to such Lender which
are presently in effect or, to the extent allowed by law, under such applicable
laws which may hereafter be in effect and which allow a higher maximum
non-usurious interest rate than applicable laws now allow. The Maximum Rate
shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate.
"Monthly Date" means the last day of each month of each year, the first of
which shall be February 29, 2000.
"Mortgage" means a mortgage, deed of trust or other appropriate agreement,
document or instrument evidencing or creating a Lien on any fee real Property or
leasehold interest therein (and any related personal Property) as security for
the Obligations or any portion thereof in form and substance satisfactory to the
Administrative Agent executed by any Loan Party in favor of the Administrative
Agent for the benefit of the Administrative Agent and the Lenders, and any and
all amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Mortgaged Properties" means Properties in which a Lien has been granted
or purported to be granted pursuant to a Mortgage.
CREDIT AGREEMENT - Page 13
<PAGE>
"Multiemployer Plan" means a multiemployer plan defined as such in Section
3(37) of ERISA to which contributions have been made by or are required from the
Borrower or any ERISA Affiliate since 1974 and which is covered by Title IV of
ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the gross
amount of cash received by the Borrower or any of its Subsidiaries from such
Asset Disposition, minus (b) the amount, if any, of all taxes paid or payable by
the Borrower or any of its Subsidiaries directly resulting from such Asset
Disposition (including the amount, if any, estimated by the Borrower in good
faith at the time of such Asset Disposition for taxes payable by the Borrower or
any of its Subsidiaries on or measured by net income or gain resulting from such
Asset Disposition), minus (c) the reasonable out-of-pocket costs and expenses
incurred by the Borrower or such Subsidiary in connection with such Asset
Disposition (including reasonable brokerage fees paid to a Person other than an
Affiliate of the Borrower) excluding any fees or expenses paid to an Affiliate
of the Borrower, minus (d) amounts applied to the repayment of Debt (other than
the Obligations) secured by any Permitted Lien (if any) on the Property subject
to the Asset Disposition. "Net Proceeds" with respect to any Asset Disposition
shall also include proceeds (after deducting any amounts specified in clauses
(b), (c) and (d) of the preceding sentence) of insurance with respect to any
actual or constructive loss of Property, an agreed or compromised loss of
Property or the taking of any Property under the power of eminent domain and
condemnation awards and awards in lieu of condemnation for the taking of
Property under the power of eminent domain.
"Network" means the Borrower's integrated communications network for the
provision of high speed data and voice services in the U.S. as described in the
Business Plan.
"Nortel Networks" means Nortel Networks Inc., a Delaware corporation.
"Nortel Networks Equipment" means all hardware, software and equipment
(including fixtures) manufactured, sold or otherwise provided to the Borrower or
any other Loan Party by Nortel Networks and/or Nortel Networks Corporation,
including, without limitation, all equipment sold to the Borrower or a
Subsidiary of the Borrower pursuant to the Master Purchase Agreement and all
Nortel Networks Software.
"Nortel Networks Goods and Services" means sales, installation and
commissioning of Nortel Networks Equipment and related software (including
Nortel Networks Software) and project management, system design and services
performed by personnel of Nortel Networks and/or Nortel Networks Corporation.
"Nortel Networks Software" means any and all software sold or licensed by
Nortel Networks and/or Nortel Networks Corporation to the Borrower or any other
Loan Party, including, without limitation, all source code and object code and
all manuals and other documentation relating thereto and each copy thereof
regardless of the media in which they are stored.
"Notes" means the promissory notes, each in the form of Exhibit B, made by
the Borrower evidencing Loans and any and all amendments, modifications,
supplements, renewals, extensions
CREDIT AGREEMENT - Page 14
<PAGE>
or restatements thereof and all substitutions therefor (including promissory
notes issued by the Borrower pursuant to Section 13.8), and "Notes" means any of
such promissory notes.
"Notice of Borrowing" means as specified in Section 2.9.
"Obligations" means any and all (a) indebtedness, liabilities and
obligations of the Borrower or any other Loan Party to the Administrative Agent
and the Lenders, or any of them, evidenced by and/or arising pursuant to any of
the Loan Documents (including, without limitation, this Agreement and the
Notes), now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, including, without limitation, (i) the obligations of the Borrower
or any other Loan Party to repay the Loans, to pay interest on the Loans
(including, without limitation, interest accruing after any, if any, bankruptcy,
insolvency, reorganization or other similar filing) and to pay all fees,
indemnities, costs and expenses (including attorneys' fees) provided for in the
Loan Documents and (ii) the indebtedness constituting the Loans and such
interest, fees, indemnities, costs and expenses, and (b) indebtedness,
liabilities and obligations of the Borrower or any other Loan Party under any
and all Interest Rate Protection Agreements that it may enter into with any
Lender with the written consent of the Administrative Agent and the Required
Lenders.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the case
of a Multiemployer Plan, at any time since September 2, 1974, by any Borrower or
any ERISA Affiliate for employees of any Borrower or any ERISA Affiliate.
"Permitted Holders" means (a) the Persons identified on Schedule 1.1(a)
hereto who are shareholders of the Borrower as of the Closing Date and (b) any
Affiliate, spouse, parent, sibling, child or grandchild of any of the aforesaid
individuals (in each case, whether such relationship arises from birth or
adoption or through marriage) or any trust established for the benefit of any
such individuals or any spouse, parent, sibling, child or grandchild of any such
individuals (in each case whether such relationship arises from birth or
adoption or through marriage).
"Permitted Liens" mean:
(a) Liens disclosed on Schedule 1.1(b) hereto;
(b) Liens securing the Obligations in favor of the Administrative
Agent (for the benefit of the Administrative Agent and the Lenders)
pursuant to the Loan Documents;
CREDIT AGREEMENT - Page 15
<PAGE>
(c) encumbrances consisting of easements, rights-of-way, zoning
restrictions or other restrictions on the use of real Property or
imperfections to title that do not (individually or in the aggregate)
materially impair the ability of the Borrower or any of its Subsidiaries
to use such Property in its businesses, and none of which is violated in
any material respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments or other governmental charges
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the Property subject to such Liens, and for
which adequate reserves (as determined in accordance with GAAP) have been
established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that are
not yet due and are incurred in the ordinary course of business or which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
Property subject to such Liens, and for which adequate reserves (as
determined in accordance with GAAP) have been established;
(f) Liens resulting from good faith deposits to secure payment of
worker's compensation or other social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, contracts (other than for payment of Debt) or leases, all in the
ordinary course of business;
(g) purchase-money Liens on any Property acquired after the
Closing Date or the assumption after the Closing Date of any Lien on
Property existing at the time of such acquisition (and not created in
contemplation of such acquisition), or a Lien incurred after the Closing
Date in connection with any conditional sale or other title retention
agreement or Capital Lease Obligation; provided that:
(i) any Property subject to any of the foregoing (A) is
acquired by the Borrower or any of its Subsidiaries in the ordinary
course of its respective business and (B) the Lien on such Property
attaches concurrently or within 90 days after the acquisition
thereof;
(ii) the Debt secured by any Lien so created, assumed or
existing shall not exceed the cost or fair market value at the time
of acquisition of the Property covered thereby (inclusive of the
cost of engineering, furnishing and installation services directly
relating to such Property);
(iii) each such Lien shall attach only to the Property so
acquired and the proceeds thereof; and
(iv) the aggregate amount of all Debt secured by all such
Liens, when aggregated with the Debt secured by all purchase-money
Liens at any time
CREDIT AGREEMENT - Page 16
<PAGE>
outstanding (whenever incurred or created) and all Liens in
connection with any conditional sale or other title retention
agreement or Capital Lease Obligation existing as of the Closing
Date or at any other time, shall not exceed $7,500,000 at any time
outstanding in the aggregate;
(h) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full by a bond or (subject to a customary
deductible) by insurance maintained with responsible insurance companies;
(i) leases or subleases granted by the Borrower or any of its
Subsidiaries to any other Person in the ordinary course of business;
(j) Liens in favor of mortgagees of real Property in which the
Borrower or any of its Subsidiaries has a leasehold interest as lessee;
and
(k) Any extension, renewal or replacement of any of the foregoing
Permitted Liens, provided that Liens permitted under this clause (k) shall
not be extended or spread to cover any additional indebtedness or
Property;
provided, however, that (A) none of the Permitted Liens (except those in favor
of the Administrative Agent securing payment of the Obligations) may attach or
relate to the Capital Stock of or any other ownership interest in the Borrower
or any of its Subsidiaries and (B) except for the Liens disclosed on Schedule
1.1(b) which are expressly identified as constituting purchase money Liens, none
of the Permitted Liens referred to in clause (a) preceding may have a priority
equal or prior to the Liens in favor of the Administrative Agent as security for
the Obligations.
"Person" means any individual, corporation, trust, association, company,
partnership, joint venture, limited liability company, joint stock company,
Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of ERISA
established or maintained or contributed to by any Loan Party or any ERISA
Affiliate, including any Pension Plan.
"Principal Office" means the principal office of the Administrative Agent
in Richardson, Texas, presently located at 2221 Lakeside Blvd., Richardson,
Texas 75082.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Code.
"Property" means property and/or assets of all kinds, whether real,
personal or mixed, tangible or intangible (including, without limitation, all
rights relating thereto), whether owned or acquired on or after the Closing
Date.
"Qualified Telecommunications Investments" means investments in, or
acquisitions of, Telecommunications Assets or Telecommunications Businesses by
the Borrower or any of its
CREDIT AGREEMENT - Page 17
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Wholly-Owned Subsidiaries. No investment or acquisition will qualify as a
Qualified Telecommunications Investment unless the Borrower would have been in
compliance with the covenants contained in Article 10 of this Agreement as of
the end of the last two fiscal quarters immediately preceding the date of
consummation of such investment or acquisition, giving pro forma effect to the
EBITDA gains and losses and other financial attributes of the acquired company
(or portion thereof) or associated with the acquired assets, and the projections
for the Borrower, giving effect to the investment or acquisition, would be in
compliance with the covenants contained in Article 10 of this Agreement as of
the end of the next two fiscal quarters.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be March 31, 2000.
"Receivables" means, as at any date of determination thereof, each and
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of the
Borrower or any of its Subsidiaries in respect of services rendered by the
Borrower or any of its Subsidiaries.
"Reference Bank" means Citibank, N.A.
"Register" means as specified in Section 13.8(d).
"Registered Note" means as specified in Section 2.2(b).
"Registered Note Register" means as specified in Section 13.8(h).
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means, with respect to any Lender, any change after
the Closing Date in any U.S. federal or state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives, guidelines or requests applying to a class of
lenders including such Lender of or under any U.S. federal or state or foreign
laws or regulations (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof.
"Release" means, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, discharge, disposal, dispersement, leaching or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of Property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water or
ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not
CREDIT AGREEMENT - Page 18
<PAGE>
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform studies and investigations on the
extent and nature of any actual or suspected contamination, the remedy or
remedies to be used or health effects or risks of such contamination, or (d)
perform post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA other than any such event for which the 30-day notice requirement has been
waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders holding at
least two-thirds (in Dollar amount) of the sum of (a) the aggregate outstanding
principal amount of the Loans, plus (b) the aggregate amount of the outstanding
Commitments.
"Required Payment" means as specified in Section 3.4.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for any
Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate or
the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to any Loan Party, the chief executive
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution, payment
(whether for damages or otherwise) or penalty (whether in cash, Property or
obligations), direct or indirect, on account of, with respect to or in
connection with (or the setting apart of money for a sinking or other analogous
fund for) any shares of any class of Capital Stock of the Borrower or any of its
Subsidiaries now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
Capital Stock of the Borrower or any of its Subsidiaries now or hereafter
outstanding; (c) any payment or prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, purchase, retirement or
defeasance of, or payment with respect to, any subordinated debt (including,
without limitation, Subordinated Debt); (d) any loan, advance or payment to any
officer, director or shareholder of the Borrower or any of its Subsidiaries
(other than a shareholder consisting of the Borrower or a Wholly-Owned
Subsidiary of the Borrower), exclusive of reasonable compensation paid to
officers or directors paid in the ordinary course of business and exclusive of
payments made for goods sold or services rendered which comply with Section 9.7;
and
CREDIT AGREEMENT - Page 19
<PAGE>
(e) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Capital
Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding.
"Security Agreements" means security agreements, pledge agreements,
securities pledge agreements and other agreements, documents or instruments
evidencing or creating a Lien as security for the Obligations or any portion
thereof in form and substance satisfactory to the Administrative Agent executed
by any Loan Party, in favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lenders, and any such agreement, document or
instrument subsequently executed in accordance or connection with this Agreement
or any other Loan Document, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Security Documents" means the Security Agreements and the Mortgages, as
they may be amended, modified, supplemented, renewed, extended or restated from
time to time, and any and all other agreements, deeds of trust, mortgages,
chattel mortgages, security agreements, pledges, guaranties, assignments of
proceeds, assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and/or delivered by any Person in
connection with or as security or assurance for the payment or performance of
the Obligations or any part thereof.
"Senior Debt" means, as to any Person and its Consolidated Subsidiaries
and as of any date of determination, the remainder of (a) Total Debt minus (b)
the aggregate principal amount of Subordinated Debt then outstanding.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock,
par value $0.01 per share, of the Company.
"Series A Preferred Stock Agreements" means the Series A Preferred Stock
Designation, the Series A Securities Purchase Agreement, the Series A Warrants
and the Series A Registration Rights Agreement.
"Series A Preferred Stock Designation" means the Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock of
Log On America, Inc. dated as of February 23, 2000, executed by the Borrower and
filed with the Secretary of State of Delaware.
"Series A Registration Rights Agreement" means the Registration Rights
Agreement dated as of February 23, 2000, among the Borrower, HFTP Investment
L.L.C., Marshall Capital Management, Inc., Fisher Capital Ltd. and Wingate
Capital Ltd.
"Series A Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of February 23, 2000, among the Borrower, HFTP Investment
L.L.C., Marshall Capital Management, Inc., Fisher Capital Ltd. and Wingate
Capital Ltd.
CREDIT AGREEMENT - Page 20
<PAGE>
"Series A Warrants" means the warrants to acquire common stock of the
Borrower issued and to be issued in connection with the Series A Securities
Purchase Agreement.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's Property would constitute unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and the
prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Subordinated Debt" means Debt of the Borrower which meets all of the
following requirements: (a) such Debt is wholly unsecured; (b) such Debt is
contractually subordinated, as to payment, to payment of the Loans and other
Obligations on terms, and pursuant to agreements in form and substance,
satisfactory to the Administrative Agent and the Required Lenders; and (c) such
Debt is evidenced and governed by agreements, documents and instruments in form
and substance, and containing payment, subordination and other terms and
provisions, which have been wholly approved by the Agent and the Required
Lenders in writing prior to the incurrence of such Debt, which approval shall
not be unreasonably withheld.
"Subordinated Debt Documents" means any and all agreements, documents and
instruments now or hereafter evidencing or governing any Subordinated Debt.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors (or Persons performing similar functions) of
such corporation or entity (irrespective of whether or not at the time, in the
case of a corporation, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries or by such Person and one or more of
its Subsidiaries.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and Properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
CREDIT AGREEMENT - Page 21
<PAGE>
"Telecommunications Business" means the business of a competitive local
exchange carrier, an internet service provider or a manufacturer of customer
premise equipment contemplated to be used in the performance of the Business
Plan, in each case relating to (a) transmitting, or providing services relating
to the transmission of, voice, data or video through owned or leased
transmission facilities, (b) constructing, creating, developing or marketing
communications related network equipment, software and other devices for use in
such a business, or performing, creating, developing or marketing services
related thereto, or (c) evaluating, participating or pursuing any other activity
or opportunity that is primarily related such a business and referred to in
clause (a) or (b) preceding.
"Total Capitalization" means, as to any Person and its Consolidated
Subsidiaries and as of any date of determination, the sum of (a) Total Debt of
such Persons as of such date plus (b) the remainder of (i) Contributed Capital
of such Persons as of such date minus (ii) the aggregate principal amount of
Subordinated Debt of such Persons outstanding as of such date, determined on a
consolidated basis in accordance with GAAP.
"Total Debt" means, as to any Person and its Consolidated Subsidiaries and
as of any date of determination, the aggregate principal amount of all Debt of
such Persons outstanding, determined on a consolidated basis in accordance with
GAAP.
"Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of New
York and/or any other jurisdiction, the laws of which may be applicable to or in
connection with the creation, perfection or priority of any Lien on any Property
created pursuant to any Security Document.
"U.S." means the United States of America.
"U.S. Person" means a citizen or resident of the U.S., a corporation,
partnership, limited liability company or other entity created or organized in
or under any laws of the U.S. or any estate or trust that is subject to U.S.
Federal income taxation regardless of the source of its income.
"U.S. Taxes" means any present or future tax, assessment or other charge
or levy imposed by or on behalf of the U.S. or any taxing authority thereof.
"Vendor" means Nortel Networks in its capacity as vendor under the Master
Purchase Agreement.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors, managers or general
partners (or persons performing similar functions) of such Person, whether at
all times or only for so long as no senior class of securities has such voting
power by reason of any contingency.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
of such Person all of whose outstanding Capital Stock (other than directors'
qualifying shares, if any) shall at the time be owned by such Person and/or one
or more of its Wholly-Owned Subsidiaries.
CREDIT AGREEMENT - Page 22
<PAGE>
"Year 2000 Compliant" means that (a) the services, products or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (b) neither the performance nor the functionality nor the
business' provision of the services, products and other item(s) at issue will be
affected by any dates/times prior to, on, after or spanning January 1, 2000. The
design of the services, products and other item(s) at issue to ensure compliance
with the "year 2000" representations and warranties and covenants contained in
this Agreement includes proper date/time data century recognition and
recognition of 1999 and 2000, calculations that accommodate single century and
multi-century formulae and date/time values before, on, after and spanning
January 1, 2000, and date/time data interface values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that (i)
no value for current date/time will cause any error, interruption or decreased
performance in or for such services, products and other item(s), (ii) all
manipulations of date and time related data (including calculating, comparing,
sequencing processing and outputting) will produce correct results for all valid
dates and times when used independently or in combination with other services,
products and/or items, (iii) date/time elements in interfaces and data storage
will specify the century to eliminate date ambiguity without human intervention,
including leap year calculations, (iv) where any date/time element is
represented without a century, the correct century will be unambiguous for all
manipulations involving that element, (v) authorization codes, passwords and
zaps (purge functions) will function normally and in the same manner during,
prior to, on and after January 1, 2000, including the manner in which they
function with respect to expiration dates and CPU serial numbers, and (vi) the
business' supply of the services, products and other item(s) will not be
interrupted, delayed, decreased or otherwise affected by the advent of the year
2000.
Section 1.2 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 13.11. The term "pro rata" as it relates to the
application of payments to the Loans means pro rata based upon the relative
outstanding principal amounts of such Loans. Unless otherwise specified, all
Article and Section references pertain to this Agreement. Terms used herein that
are defined in the UCC, unless otherwise defined herein, shall have the meanings
specified in the UCC. All references in this Agreement to any agreement shall be
deemed to mean and refer to such agreement as it may be amended, modified or
supplemented from time to time if (but only if) such amendment, modification or
supplement has been approved by the Administrative Agent and the requisite
Lenders, is expressly referred to in such reference or is otherwise expressly
permitted by the terms of this Agreement.
CREDIT AGREEMENT - Page 23
<PAGE>
Section 1.3 Accounting Terms and Determinations.
(a) Except as may be expressly provided herein to the contrary, (i) all
accounting terms (whether or not specifically defined herein) shall be construed
in accordance with GAAP (subject to year end adjustments, if applicable)
consistent with such accounting principles applied in the preparation of the
audited financial statements referred to in Section 7.2(a), (ii) all financial
information delivered to the Administrative Agent pursuant to Section 8.1 shall
be prepared in accordance with GAAP (subject to year end adjustments, if
applicable) applied on a basis consistent with such accounting principles
applied in the preparation of the audited financial statements of the applicable
Person referred to in Section 7.2 or in accordance with Section 8.7, and (iii)
with respect to accounting terms or financial information defined or described
in reference to a Person and its Consolidated Subsidiaries, all such terms and
information shall be construed as applying to such Person and its Consolidated
Subsidiaries on a consolidated basis in accordance with GAAP.
(b) The Borrower shall deliver to the Administrative Agent and the
Lenders, at the same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail, of any
material variation between the application of GAAP employed in the preparation
of the next preceding annual or quarterly financial statements prepared in
accordance with Section 1.3(a) preceding as to which no objection has been made
by the Administrative Agent and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance with
the covenants set forth in this Agreement, the Borrower will not change the last
day of its fiscal year from December 31 or the last days of the first three
fiscal quarters of the Borrower in each of its fiscal years from March 31, June
30 and September 30, respectively.
(d) Unless otherwise expressly provided herein to the contrary, all
references herein to the Closing Date and the Initial Funding Date shall be
deemed to mean and refer to the Closing Date and the Initial Funding Date,
respectively, after giving effect to all transactions which occur on or before
such date.
Section 1.4 Financial Covenants and Reporting. All financial statements
and reports required to be delivered pursuant to this Agreement and the other
Loan Documents, and all financial covenants (if any) contained in this
Agreement, shall be prepared or determined (as applicable) in accordance with
GAAP (except as may be expressly provided to the contrary herein) and, if and to
the extent that such statements, reports or covenants are to be prepared or
determined on a consolidated basis, shall be prepared or determined on a
consolidated basis for the Borrower and its Consolidated Subsidiaries except as
may be expressly provided to the contrary herein.
CREDIT AGREEMENT - Page 24
<PAGE>
ARTICLE 2
Loans
-----
Section 2.1 Commitments.
(a) Loans. Subject to the terms and conditions of this Agreement
(including, without limitation, Section 2.13(a)), each Lender severally agrees
to make one or more loans to the Borrower from time to time from and including
the Closing Date to but excluding the Commitment Termination Date up to but not
exceeding the amount (if any) of such Lender's Commitment as then in effect
(such loans referred to in this Section 2.1(a) now or hereafter made by the
Lenders to the Borrower, including, without limitation, such loans which remain
outstanding after the Commitment Termination Date, are hereinafter collectively
called the "Loans"). The Borrower may not reborrow the Loans which have been
repaid.
(b) Continuation and Conversion of Loans. Subject to the terms and
conditions of this Agreement, the Borrower may borrow the Loans as Base Rate
Loans or Eurodollar Loans and, until the Maturity Date, the Borrower may
Continue Eurodollar Loans or Convert Loans of one Type into Loans of the other
Type.
(c) Lending Offices. Loans of each Type made by each Lender shall be made
and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
Section 2.2 Notes.
(a) Notes. The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit B dated the
Closing Date (or such appropriate later date if such Lender is a party to an
Assignment and Acceptance), payable to the order of such Lender in a principal
amount equal to the sum of (i) the aggregate principal amount of the Loans of
such Lender plus (ii) the aggregate principal amount of the unfunded Commitment
of such Lender as originally in effect and otherwise duly completed. Each Lender
is hereby authorized by the Borrower to endorse on the schedule (or a
continuation thereof) attached to the Note of such Lender, to the extent
applicable, the date, amount and Type of and the Interest Period for each
applicable Loan made by such Lender to the Borrower and the amount of each
payment or prepayment of principal of such Loan received by such Lender,
provided that any failure by such Lender to make any such endorsement shall not
affect the obligations of the Borrower under any such Note or this Agreement in
respect of any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and that could
become completely exempt from withholding of U.S. Taxes in respect of payment of
any Obligations due to such Lender hereunder relating to any of its Loans if
such Loans were in registered form for U.S. Federal income tax purposes may
request the Borrower (through the Administrative Agent), and the Borrower agrees
thereupon, to exchange such Lender's Note evidencing its Loans for a promissory
note registered as provided in Section 13.8(h) hereof (a "Registered Note").
Registered Notes may not be exchanged for Notes that are not in registered form.
CREDIT AGREEMENT - Page 25
<PAGE>
Section 2.3 Repayment of Loans. The Borrower shall pay to the
Administrative Agent for the account of each Lender the principal amount of the
Loans outstanding as of the Commitment Termination Date (and the principal
amount of such Loans outstanding as of such date shall be due and payable) in
quarterly installments, commencing on the Amortization Commencement Date and *
continuing on each Quarterly Date thereafter, each of which installments shall
be in an amount equal to percent ( %) of the aggregate principal amount
of the Loans outstanding as of the Commitment Termination Date. In addition, the
Borrower shall pay to the Administrative Agent for the account of each Lender
all outstanding principal of the Loans (and all outstanding principal of the
Loans shall be due and payable in full) on the Maturity Date.
Section 2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Administrative Agent for
the account of each Lender interest on the unpaid principal amount of each Loan
made by such Lender (or deemed made by such Lender with respect to a Loan
assigned to such Lender after the making of such Loan) to the Borrower for the
period commencing on the date of such Loan to, but excluding, the date such Loan
shall be paid in full, at the following rates per annum:
(i) during the periods such Loan is a Base Rate Loan, the lesser of
(A) the Base Rate plus the Applicable Margin or (B) the Maximum Rate; and
(ii) during the periods such Loan is a Eurodollar Loan, the lesser
of (A) the Adjusted Eurodollar Rate plus the Applicable Margin or (B) the
Maximum Rate.
(b) Payment Dates. Accrued interest on the Loans shall be due and payable
as follows:
(i) in the case of Base Rate Loans, on each Monthly Date;
(ii) in the case of each Eurodollar Loan, on the last day of the
Interest Period with respect thereto and, in the case of an Interest
Period greater than three months, at three-month intervals after the first
day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or optional)
of any Loan or the Conversion of any Loan to a Loan of the other Type (but
only on the principal amount so paid, prepaid or Converted); and
(iv) with respect to all Loans, on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the Borrower shall
pay to the Administrative Agent for the account of each Lender interest at the
applicable Default Rate (i) at all times during which any Default has occurred
and is continuing, on any principal of any Loan outstanding, and (ii) to the
fullest extent permitted by law, any other amount payable by the Borrower under
this Agreement or any other Loan Document to or for the account of such Lender
which is not paid in full when due (whether at stated maturity, by acceleration
or otherwise) for the period from and including the due date thereof to but
excluding the date the same is paid in full.
CREDIT AGREEMENT - Page 26
* Confidential Treatment Request
<PAGE>
Interest accrued and payable at the Default Rate shall be payable from time to
time on demand by the Administrative Agent.
Section 2.5 Borrowing Procedure.
(a) Standard Procedure. The Borrower shall give the Administrative Agent
notice of each borrowing hereunder in accordance with Section 2.9. Not later
than 12:00 p.m. (New York, New York time) on the date specified for each
borrowing hereunder, each Lender will make available the amount of the Loan to
be made by it on such date to the Administrative Agent, at the Principal Office,
in immediately available funds, for the account of the Borrower. The amount of
each borrowing hereunder so received by the Administrative Agent shall, subject
to the terms and conditions of this Agreement, be made available, for and on
behalf of the Borrower, in immediately available funds by no later than 12:00
p.m. (New York, New York time); provided, however, that the Administrative Agent
may, in its discretion, cause such amount to be made available directly to or
for the benefit of the Person who is to receive the proceeds of such Loan in
accordance with Section 2.10 (e.g., the Vendor if and to the extent that
proceeds of such borrowing are used to pay for Nortel Networks Goods and
Services). Notwithstanding anything to the contrary contained in this Agreement,
if and to the extent that Nortel Networks is a Lender under this Agreement, the
Borrower further hereby irrevocably agrees that each Loan to be advanced by
Nortel Networks to the Borrower in accordance with this Agreement (and only in
accordance with this Agreement and after the Administrative Agent's receipt of a
Notice of Borrowing executed by the Borrower) may (in the discretion of Nortel
Networks and if and to the extent that the proceeds of such Loan are to be paid
to Nortel Networks) be effectively disbursed on the date set forth in the Notice
of Borrowing for such disbursement to the Borrower by virtue of a credit in the
amount of such Loan given to the Borrower under the Master Purchase Agreement.
(b) Automatic Advancement of Loans. Notwithstanding anything to the
contrary contained in this Agreement, the Administrative Agent shall, at the
request of Nortel Networks, cause Loans to be advanced by the Lenders for and on
behalf of the Borrower whether or not (i) any Notice of Borrowing is given in
accordance with Section 2.9, (ii) any of the conditions precedent set forth in
Article 6 hereof are satisfied, (iii) any Default exists, or (iv) any other fact
or circumstance exists; provided, however, no Loans shall be advanced pursuant
to this Section 2.5(b) unless (A) Nortel Networks shall have given five Business
Day's prior written notice to the Administrative Agent and the Borrower of
Nortel Networks' desire to cause the Lenders to make such Loans, (B) Nortel
Networks is the sole Lender hereunder, and (C) all proceeds of such Loans are
used to pay the purchase price (or portion thereof) set forth in any undisputed
invoices for Nortel Networks Goods and Services which remain unpaid as of their
due date specified in any such invoices by the Vendor therefor and/or to pay
accrued late charges relating to such purchase price in accordance with the
Master Purchase Agreement. All Loans advanced pursuant to this Section 2.5(b)
shall be initially advanced as Eurodollar Loans with a one month Interest Period
or, if the maximum number of Interest Periods for Eurodollar Loans is already
then in effect, as Base Rate Loans (but after such advancement, may be Converted
or Continued in accordance with this Agreement).
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans.
Subject to Section 2.8, the Borrower shall have the right from time to time to
prepay the Loans in whole or in
CREDIT AGREEMENT - Page 27
<PAGE>
part, to Convert all or part of a Loan of one Type into a Loan of another Type
or to Continue Eurodollar Loans; provided, however, that (a) the Borrower shall
give the Administrative Agent notice of each such prepayment, Conversion or
Continuation as provided in Section 2.9, (b) Eurodollar Loans may only be
Converted on the last day of the Interest Period and any prepayment of
Eurodollar Loans on any day other than the last day of the Interest Period shall
be subject to payment of the additional compensation specified in Section 4.5,
(c) except for Conversions of Eurodollar Loans into Base Rate Loans, no
Conversions or Continuations shall be made while a Default has occurred and is
continuing, and (d) optional prepayments of the Loans shall be applied to the
principal of the Loans prepaid in the inverse order of the maturities of the
then remaining installments of such Loans. No amounts prepaid pursuant to this
Section 2.6 may be reborrowed.
Section 2.7 Mandatory Prepayments.
(a) Asset Dispositions, etc. The Borrower shall, within two Business Days
after it receives any Net Proceeds of any Asset Disposition, proceeds of any
Insurance Recovery or proceeds of condemnation awards aggregating in excess of *
$ during any period of 12 consecutive months or less (the aggregate
amount of all such Net Proceeds or proceeds exceeding $ received during
any such period are herein called the "Excess Proceeds Amount"), pay to the
Administrative Agent, as a prepayment of the Loans, an aggregate amount equal to
the Excess Proceeds Amount; provided, however, that no such prepayment will be
required if and to the extent that the Excess Proceeds Amount is fully
re-invested in productive assets (or used to purchase a majority controlling
interest in a Person owning such assets or to increase such control already
maintained by such Person) used in the ordinary course of the Borrower's or its
Subsidiary's (as applicable) business within 120 days of the receipt of such
Excess Proceeds Amount; provided, further, however, that the Excess Proceeds
Amount shall be deposited into a cash collateral account held by the
Administrative Agent pursuant to an agreement in form and substance satisfactory
to the Administrative Agent until such time as such amount (exclusive of any
interest accrued thereon) is either re-invested within such 120 days period or
applied to the Loans or other Obligations as provided in this Section 2.7.
(b) Excess Cash Flow. The Borrower shall, commencing on the second
Quarterly Date immediately succeeding the Commitment Termination Date (e.g.,
commencing on December 31, 2002 assuming the Commitment Termination Date is June
30, 2002) and continuing on each Quarterly Date thereafter, pay (or cause to be
paid) to the Administrative Agent, as a prepayment of the Loans and other
Obligations then outstanding, an aggregate amount equal to fifty percent
(50.00%) of the Excess Cash Flow of Borrower and its Subsidiaries for the fiscal
quarter then most recently ended.
(c) Application of Mandatory Prepayments. All prepayments pursuant to this
Section 2.7 shall be applied pro rata to the principal of the Loans in the
inverse order of the maturities of the then remaining installments of such Loans
and then to the remaining outstanding Obligations in such order as the
Administrative Agent may determine.
CREDIT AGREEMENT - Page 28
* Confidential Treatment Request
<PAGE>
(d) No Reborrowing. No amounts prepaid pursuant to this Section 2.7 may be
reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.7 and Article 4, each borrowing, each Conversion and each
optional prepayment of principal of the Loans shall be in an amount at least
equal to $500,000 or an integral multiple of $100,000 in excess thereof
(borrowings, prepayments or Conversions of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder shall be deemed separate borrowings, prepayments and Conversions
for purposes of the foregoing, one for each Type or Interest Period).
Section 2.9 Certain Notices. Notices by the Borrower to the Administrative
Agent of terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the
Administrative Agent not later than 11:00 a.m. (New York, New York, time) on the
applicable Business Day prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or prepayment or the first day of
such Interest Period specified below:
Number of
Notice Business Days Prior
------ -------------------
Terminations or Reductions of Commitments 1
Borrowings of Loans which are Base Rate Loans 2
Borrowings of Loans which are Eurodollar Loans 3
Prepayments of Loans 3
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of termination, reduction, borrowing,
Conversion, Continuation or prepayment shall be in the form of Exhibit C hereto,
appropriately completed as applicable. Each notice of borrowing (a "Notice of
Borrowing") (a) shall certify that all proceeds of the requested Loans are,
concurrently with the making of such Loans, being used by the Borrower for the
purpose specified in Section 2.10 and (b) shall be accompanied by such other
evidence as to use of the proceeds of such borrowing, as the Administrative
Agent may reasonably request from time to time. Each notice which includes
reference to the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Administrative Agent shall promptly
notify the Lenders of the contents of each such notice. In the event the
Borrower fails to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and otherwise as provided
in this Section 2.9,
CREDIT AGREEMENT - Page 29
<PAGE>
such Loan (if outstanding as Eurodollar Loan) will be automatically Converted
into a Base Rate Loan on the last day of preceding Interest Period for such Loan
or (if outstanding as a Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan. The Borrower may not borrow any
Eurodollar Loans, Convert any Loans into Eurodollar Loans or Continue any Loans
as Eurodollar Loans if the interest rate for such Eurodollar Loans would exceed
the Maximum Rate.
Section 2.10 Use of Proceeds.
(a) Loans. The Borrower agrees that all proceeds of the Loans shall be
used to finance the purchase price for Nortel Networks Goods and Services
provided by the Vendor under the Master Purchase Agreement, excluding sales and
use taxes and freight charges, which Nortel Networks Goods and Services shall be
used in the construction and operation of the Network.
(b) Margin Stock. None of the proceeds of any Loan may be used to acquire
any security in any transaction that is subject to Section 13 or 14 of the
Exchange Act or to purchase or carry any margin stock (within the meaning of
Regulations T, U or X of the Board of Governors of the Federal Reserve System).
Section 2.11 Fees.
(a) Subject to Section 13.12, the Borrower shall, commencing on the
Initial Funding Date and for all periods thereafter, pay to the Administrative
Agent for the account of each applicable Lender a commitment fee on the daily
average unused or unfunded amount of each such Lender's Commitments (as the same
may be terminated or reduced pursuant to Section 2.13), for the period from and
including the date on which such Lender (or its predecessor in interest with
respect to a Commitment assigned to such Lender as to which a commitment fee has
not previously been paid during the applicable period) initially became a Lender
to but excluding the Commitment Termination Date, at the rate per annum of *
( %) based on a 360 day year and the actual
number of days elapsed, which accrued commitment fees shall be payable in
arrears on each Quarterly Date and on the Commitment Termination Date.
(b) Subject to Section 13.12, the Borrower agrees to pay to the
Administrative Agent and Nortel Networks such additional fees as are specified
in the Administrative Agent's Letter, which fees shall be payable in such
amounts and on such dates as are specified therein.
Section 2.12 Computations. Interest and fees payable by the Borrower
hereunder and under the other Loan Documents on all Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable unless, in the case of interest or fees which constitute interest (if
applicable), such calculation would result in a usurious rate, in which case
interest or fees which constitute interest (if applicable) shall be calculated
on the basis of a year of 365 or 366 days, as the case may be.
CREDIT AGREEMENT - Page 30
* Confidential Treatment Request
<PAGE>
Section 2.13 Termination or Reduction of Commitments.
(a) Notwithstanding anything to the contrary contained in this Agreement,
each of the Commitments shall automatically terminate upon the earlier to occur
of (i) the occurrence of any Change in Control, or (ii) any sale, transfer or
other disposition of the Network or any material portion thereof.
(b) The Borrower shall have the right to terminate or reduce in part the
unused portion of the Commitments at any time and from time to time prior to the
Commitment Termination Date; provided, however, that (i) no such termination or
reduction shall be effective unless the Borrower shall have given notice of each
such termination or reduction as provided in Section 2.9 and (ii) each partial
reduction of any such Commitment shall be in an aggregate amount at least equal
to $1,000,000 or an integral multiple of $100,000 in excess thereof.
(c) The Commitments may not be reinstated after they have been terminated
or increased after they have been reduced.
ARTICLE 3
Payments
--------
Section 3.1 Method of Payment and Application of Payments. All payments of
principal, interest, fees and other amounts to be made by the Borrower under
this Agreement and the other Loan Documents shall be made to the Administrative
Agent at the Principal Office for the account of each Lender's Applicable
Lending Office in Dollars and in immediately available funds, without setoff,
deduction or counterclaim, not later than 1:00 p.m. (New York, New York time) on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day). The Borrower shall, at the time of making each such payment,
specify to the Administrative Agent the sums payable by the Borrower under this
Agreement and the other Loan Documents to which such payment is to be applied
(and in the event that the Borrower fails to so specify, or if an Event of
Default has occurred and is continuing, the Administrative Agent may apply such
payment to the Obligations in such order and manner as the Administrative Agent
may elect, subject to this Section 3.1 and Section 3.2). Upon the occurrence and
during the continuation of an Event of Default, all proceeds of any Collateral
and all other funds of the Borrower in the possession of the Administrative
Agent or any Lender may be applied by the Administrative Agent to the
Obligations in such order and manner as the Administrative Agent may elect,
subject to Section 3.2; provided, however, that, in the event of any sale,
disposition or liquidation of the Collateral or any portion thereof as a result
of or in connection with the occurrence of an Event of Default and receipt by
the Administrative Agent of any proceeds thereof, or in the event of any
bankruptcy or similar proceedings involving the Borrower or any of its
Subsidiaries and receipt by the Administrative Agent of any payments with
respect to the Obligations in connection therewith, all proceeds thereof shall
be applied by the Administrative Agent as follows unless otherwise agreed by the
Administrative Agent and the Required Lenders: (i) first, to reimburse the
Administrative Agent for all fees, costs and expenses relating to such sale,
disposition or liquidation or bankruptcy or similar proceedings, (ii) second,
pro
CREDIT AGREEMENT - Page 31
<PAGE>
rata to the accrued and unpaid interest with respect to the Loans, (iii) third,
pro rata to the principal of the Loans (until such Loans are paid in full), and
(iv) fourth, to the then remaining outstanding Obligations in such order as the
Administrative Agent may determine. Each payment received by the Administrative
Agent under this Agreement or any other Loan Document for the account of a
Lender shall be paid promptly to such Lender, in immediately available funds,
for the account of such Lender's Applicable Lending Office. Whenever any payment
under this Agreement or any other Loan Document shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest and commitment fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided in
this Agreement: (a) each Loan shall be made by the Lenders under Section 2.1,
each payment of commitment fees under Section 2.11(a) shall be made for the
account of the Lenders and each termination or reduction of the Commitments
under Section 2.13 shall be applied to the Commitments of the Lenders, pro rata
according to the respective unused Commitments; (b) the making, Conversion and
Continuation of Loans of a particular Type (other than Conversions provided for
by Section 4.4) shall be made pro rata among the Lenders holding Loans of such
Type according to the amounts of their respective Commitments; (c) each payment
and prepayment by the Borrower of principal of or interest on Loans of a
particular Type shall be made to the Administrative Agent for the account of the
Lenders holding Loans of such Type pro rata in accordance with the respective
unpaid principal amounts of such Loans held by such Lenders; and (d) Interest
Periods for Loans of a particular Type shall be allocated among the Lenders
holding Loans of such Type pro rata according to the respective principal
amounts held by such Lenders.
Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain payment of
any principal of or interest on any of the Obligations due to such Lender
hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from the
other Lenders participations in the Obligations held by the other Lenders in
such amounts, and make such adjustments from time to time, as shall be equitable
to the end that all the Lenders shall share pro rata in accordance with the
unpaid principal and interest on the Obligations then due to each of them. To
such end, all of the Lenders shall make appropriate adjustments among themselves
(by the resale of participations sold or otherwise) if all or any portion of
such excess payment is thereafter rescinded or must otherwise be restored. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any Lender so purchasing a participation in the Obligations by the
other Lenders may exercise all rights of setoff, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Obligations in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or shall
affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness, liability or
obligation of the Borrower.
Section 3.4 Non-Receipt of Funds by the Administrative Agent. Unless the
Administrative Agent shall have been notified by a Lender or the Borrower (the
"Payor") prior to the date on which such Lender is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent
CREDIT AGREEMENT - Page 32
<PAGE>
for the account of one or more of the Lenders, as the case may be (such payment
being herein called the "Required Payment"), which notice shall be effective
upon receipt, that the Payor does not intend to make the Required Payment to the
Administrative Agent, the Administrative Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Administrative Agent, the recipient of such payment shall, on demand, pay to the
Administrative Agent the amount made available to it together with interest
thereon in respect of the period commencing on the date such amount was so made
available by the Administrative Agent until the date the Administrative Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
such period.
Section 3.5 Taxes.
(a) All payments by the Borrower of principal of and interest on the Loans
and of all fees and other amounts payable under the Loan Documents shall be made
free and clear of, and without withholding or deduction by reason of, any
present or future taxes, levies, duties, imposts, assessments or other charges
levied or imposed by any Governmental Authority (other than franchise taxes and
taxes on the overall net income of any Lender). If any such taxes, levies,
duties, imposts, assessments or other charges are so levied or imposed, the
Borrower will (i) make additional payments in such amounts so that every net
payment of principal of and interest on the Loans and of all other amounts
payable by it under the Loan Documents, after withholding or deduction for or on
account of any such present or future taxes, levies, duties, imposts,
assessments or other charges (including any tax imposed on or measured by net
income of a Lender attributable to payments made to or on behalf of a Lender
pursuant to this Section 3.5 and any penalties or interest attributable to such
payments), will not be less than the amount provided for herein or therein
absent such withholding or deduction (provided that the Borrower shall not have
any obligation to pay such additional amounts to any Lender to the extent that
such taxes, levies, duties, imposts, assessments or other charges are levied or
imposed by reason of the failure of such Lender to comply with the provisions of
Section 3.6), (ii) make such withholding or deduction and (iii) remit the full
amount deducted or withheld to the relevant Governmental Authority in accordance
with applicable law. Without limiting the generality of the foregoing, the
Borrower will, upon written request of any Lender, reimburse each such Lender
for the amount of (A) such taxes, levies, duties, imports, assessments or other
charges so levied or imposed by any Governmental Authority and paid by such
Lender as a result of payments made by the Borrower under or with respect to the
Loans other than such taxes, levies, duties, imports, assessments and other
charges previously withheld or deducted by the Borrower which have previously
resulted in the payment of the required additional amount to such Lender, and
(B) such taxes, levies, duties, assessments and other charges so levied or
imposed with respect to any Lender reimbursement under the foregoing clause (A),
so that the net amount received by such Lender (net of payments made under or
with respect to the Loans) after such reimbursement will not be less than the
net amount such Lender would have received if such taxes, levies, duties,
assessments and other charges on such reimbursement had not been levied or
imposed. The Borrower shall furnish promptly to the Administrative Agent for
distribution to each affected Lender, as the case may be, upon request of such
Lender, official receipts evidencing any such payment, withholding or reduction.
CREDIT AGREEMENT - Page 33
<PAGE>
(b) The Borrower will indemnify the Administrative Agent and each Lender
(without duplication) against, and reimburse the Administrative Agent and each
Lender for, all present and future taxes, levies, duties, imposts, assessments
or other charges (including interest and penalties) levied or collected (whether
or not legally or correctly imposed, assessed, levied or collected), excluding,
however, any taxes imposed on the overall net income of the Administrative Agent
or such Lender or any lending office of the Administrative Agent or such Lender
by any jurisdiction in which the Administrative Agent or such Lender or any such
lending office is located, on or in respect of this Agreement, any of the Loan
Documents or the Obligations or any portion thereof (the "reimbursable taxes").
Any such indemnification shall be on an after-tax basis, taking into account any
such reimbursable taxes imposed on the amounts paid as indemnity.
(c) Without prejudice to the survival of any other term or provision of
this Agreement, the obligations of the Borrower under this Section 3.5 shall
survive the payment of the Loans and the other Obligations and termination of
the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it initially becomes a party to this Agreement and if it is legally able
to do so, deliver to the Borrower and the Administrative Agent, two duly
completed copies of U.S. Internal Revenue Service Form W-8ECI or W-8BEN or other
equivalent successor form, as appropriate, certifying in any case that such
Lender is entitled to receive payments from the Borrower under any Loan Document
without deduction or withholding of any U.S. federal income taxes. Each Lender
which so delivers a Form W-8ECI or W-8BEN or other equivalent successor form, as
appropriate, further undertakes to deliver to the Borrower and the
Administrative Agent, two additional copies of such form (or a successor form)
on or before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Administrative Agent, in each case
certifying that such Lender is entitled to receive payments from the Borrower
under any Loan Document without deduction or withholding of any U.S. federal
income taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the
Administrative Agent that it is not capable of receiving such payments without
any deduction or withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding anything to the
contrary contained in this Agreement or any other Loan Document, if the payment
of any amount of principal of or interest with respect to the Loans or any other
amount of the Obligations, or any portion thereof, is rescinded, voided or must
otherwise be refunded by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise for any
reason whatsoever, then each of (a) the Obligations, (b) the Loan Documents
(including, without limitation, this Agreement, the Notes and the Security
Documents), (c) the indebtedness, liabilities and obligations of the Borrower
and any other Loan Parties and (d) all Liens for the benefit of the
Administrative Agent and the Lenders created under or evidenced by the Loan
Documents, will be
CREDIT AGREEMENT - Page 34
<PAGE>
automatically reinstated and become automatically effective and in full force
and effect, all to the extent that and as though such payment so rescinded,
voided or otherwise refunded had never been made.
Section 3.8 No Force Majeure, Disputes. The Borrower's obligation to pay
all amounts due under the Loans and the other Obligations shall not be affected
by (a) any setoff, counterclaim, recoupment, deduction, abatement, suspension,
diminution, reduction, defense or other right which the Borrower may have
against the Vendor for any reason whatsoever arising under or pursuant to the
Master Purchase Agreement or otherwise relating to the purchase of goods or
services from the Vendor, (b) any defect in the condition, design, operation or
fitness for use of, or any damage to or loss or destruction of, any equipment or
material or service provided by the Vendor, (c) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Borrower or affecting
any of its Properties, (d) any action of any Governmental Authority or any
damage to or destruction of or any taking of the Borrower's Property or any part
thereof, (e) any change, waiver, extension, indulgence or failure to perform or
comply with, or other action or omission herein or in the other Loan Documents
(except for express written modifications to this Agreement or other Loan
Documents as and in the manner permitted under this Agreement or the other Loan
Documents), (f) any dissolution of the Borrower or any other Loan Party, (g) any
inability or illegality with respect to the use or ownership of the Borrower's
Property, (h) any failure to obtain, or expiration, suspension or other
termination of, or interruption to, any required licenses, permits, consents,
authorizations, approvals or other legal requirements, (i) the invalidity or
unenforceability of any of the Loan Documents or any other infirmity therein or
any lack of power or authority of the Administrative Agent or any Lender or the
Borrower, or (j) any other event or circumstance whatsoever, whether or not
similar to any of the foregoing and whether or not the Borrower shall have
notice or knowledge of any of the foregoing, it being the intention of the
Administrative Agent and the Lenders and the Borrower that the Obligations of
the Borrower shall be absolute and unconditional and shall be separate and
independent covenants and agreements and shall continue unaffected unless the
requirements to pay or perform the same shall have been terminated pursuant to
an express provision thereof or of any of the other Loan Documents.
ARTICLE 4
Yield Protection and Illegality
-------------------------------
Section 4.1 Additional Costs.
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender, the costs incurred by such Lender
which such Lender determines are attributable to its making or maintaining of
any Eurodollar Loans or its obligation to make any of such Loans, or any
reduction in any amount receivable by such Lender hereunder in respect of any
such Loans or obligations (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such
Lender under this Agreement or its Notes in respect of any of such Loans
(other than taxes imposed on the
CREDIT AGREEMENT - Page 35
<PAGE>
overall net income of such Lender or its Applicable Lending Office for any
of such Loans by the jurisdiction in which such Lender has its principal
office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirement relating to any extensions
of credit or other assets of, or any deposits with or other liabilities or
commitments of, such Lender (including any of such Loans or any deposits
referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof,
but excluding the Reserve Requirement to the extent it is included in the
calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or the
Notes or any extensions of credit or liabilities or commitments
contemplated hereunder or thereunder.
Each Lender will notify the Borrower (with a copy to the Administrative Agent)
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and (if
so requested by the Borrower) will designate a different Applicable Lending
Office for the Eurodollar Loans of such Lender if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Lender, violate any law, rule or regulation or be in any
way disadvantageous to such Lender, provided that such Lender shall have no
obligation to so designate an Applicable Lending Office located in the U.S. Each
Lender will furnish the Borrower with a certificate setting forth the basis and
the amount of each request of such Lender for compensation under this Section
4.1(a). If any Lender requests compensation from the Borrower under this Section
4.1(a), the Borrower may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender to make or Continue
making, or Convert Base Rate Loans into, Eurodollar Loans until the Regulatory
Change giving rise to such request ceases to be in effect (in which case the
provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such Lender to make or Continue making, or Convert Base Rate Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 4.4 hereof shall
be applicable).
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
its obligation to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans and of the additional
CREDIT AGREEMENT - Page 36
<PAGE>
amounts required to compensate such Lender in respect of any Additional Costs,
shall be conclusive in the absence of manifest error, provided that such
determinations and allocations are made on a reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if with respect to any Eurodollar Loans for any Interest Period
therefor:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the relative
maturities for purposes of determining the rate of interest for such Loans as
provided in this Agreement; or
(b) the Required Lenders determine (which determination shall be
conclusive absent manifest error) and notify the Administrative Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which the rate
of interest for such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Lenders of making or maintaining such Loans
for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Lender's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any Lender
to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans is
suspended pursuant to Section 4.1 or Section 4.3 hereof, such Lender's
Eurodollar Loans shall be automatically Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by Section 4.1(b) or Section 4.3 hereof, on
such earlier date as such Lender may specify to the Borrower with a copy to the
Administrative Agent) and, unless and until such Lender gives notice as provided
below that the circumstances specified in Section 4.1 or Section 4.3 hereof
which gave rise to such Conversion no longer exist:
CREDIT AGREEMENT - Page 37
<PAGE>
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such Lender as
Eurodollar Loans shall be made as or Converted into Base Rate Loans and all
Loans of such Lender which would otherwise be Converted into Eurodollar Loans
shall be Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower that the circumstances specified in
Section 4.1 or Section 4.3 hereof which gave rise to the Conversion of such
Lender's Eurodollar Loans pursuant to this Section 4.4 no longer exist (which
such Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall
be automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 4.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Lender, promptly upon the request of such Lender
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant to Section 11.2) on a date other than the last day of an Interest
Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to be
satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for such
borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender shall
have determined that the adoption or implementation of any applicable law, rule
or regulation regarding capital adequacy (including, without limitation, any
law, rule or regulation implementing the Basle Accord), or any change therein,
or any change in the interpretation or administration thereof by any central
bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
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policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, within ten Business Days after demand by
such Lender (with a copy to the Administrative Agent), the Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender (or
its parent) for such reduction. A certificate of such Lender claiming
compensation under this Section 4.6 and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error,
provided that the determination thereof is made on a reasonable basis. In
determining such amount or amounts, such Lender may use any reasonable averaging
and attribution methods.
Section 4.7 Additional Interest on Eurodollar Loans. Without duplication
of Section 2.4 or amounts directly included in the definition of the term
"Adjusted Eurodollar Rate", the Borrower shall pay, directly to each Lender from
time to time, additional interest on the unpaid principal amount of each
Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest rate
per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
payable by the Borrower on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the Borrower
shall not be obligated to make any such payment of additional interest in
accordance with this Section 4.7 until the first Business Day after the date
when the Borrower has been informed (i) that such Lender is subject to a Reserve
Requirement and (ii) of the amount of such Reserve Requirement (after which time
the Borrower shall be obligated to make all such payments of additional
interest, including, without limitation, such payment of additional interest
that otherwise would have been payable by the Borrower on or prior to such time
had the Borrower been earlier informed).
ARTICLE 5
Security
--------
Section 5.1 Collateral. To secure the full and complete payment and
performance of the Obligations, the Borrower will, and will cause each
Subsidiary of the Borrower to, grant to the Administrative Agent for the benefit
of the Administrative Agent and the Lenders a perfected, first priority Lien on
all of the right, title and interest of the Borrower and the Subsidiaries of the
Borrower in and to all of their Properties (as more specifically described in
the Security Documents) whether now owned or hereafter acquired, pursuant to the
Security Documents, including, without limitation, the following:
(a) all Capital Stock of each of the Subsidiaries of the Borrower;
(b) all of the Property (as such Property is more specifically described
in the Security Documents), including tangible and intangible Property and real
and personal Property, of the Borrower and each of the Subsidiaries of the
Borrower, including, without limitation, the following: Investments (including
certificates of deposit); accounts; inventory (including, without limitation,
work in process); equipment; deposit accounts (including cash collateral
accounts); brokerage
CREDIT AGREEMENT - Page 39
<PAGE>
accounts; instruments; contract rights (including, without limitation, all
contracts relating to the construction or operation of the Network, including
rights of way, easements, leases and all related contracts, and all consents and
waivers necessary or appropriate from all parties to such contracts, including,
without limitation, all consents and waivers necessary or appropriate to permit
the collateral assignment of and/or security interest in such contracts);
customer deposits in connection with purchase orders; general intangibles; real
Property and interests therein (if and to the extent required pursuant to
Section 5.4); instruments; chattel paper; Licenses; Intellectual Property; and
intercompany Debt;
(c) all Debt owed by any Subsidiary of the Borrower to the Borrower; and
(d) all cash and non-cash proceeds and products of any of the foregoing.
Section 5.2 Guaranties. The Borrower will cause each of the Subsidiaries
of the Borrower (whether owned as of the Closing Date or thereafter organized or
created) to Guarantee the payment and performance of the Obligations pursuant to
the Guaranties.
Section 5.3 New Subsidiaries; Additional Capital Stock. Contemporaneously
with the creation or acquisition of any Subsidiary of the Borrower after the
Closing Date, the Borrower will:
(a) grant or cause to be granted to the Administrative Agent, for the
benefit of itself and the Lenders, a perfected, first priority security interest
in all Capital Stock of such Subsidiary owned by the Borrower or any Subsidiary
of the Borrower (to the extent such Capital Stock was not previously pledged to
the Administrative Agent);
(b) cause each such Subsidiary to Guarantee the payment and performance of
the Obligations by executing and delivering to the Administrative Agent a
Guaranty or a joinder therein acceptable to the Administrative Agent; and
(c) cause each such Subsidiary to execute and deliver to the
Administrative Agent a Security Agreement and such other Security Documents, in
form and substance acceptable to the Administrative Agent, as the Administrative
Agent may request to grant the Administrative Agent, for the benefit of itself
and the Lenders, a perfected, first priority Lien on all Property of such
Subsidiary.
Contemporaneously with the issuance of any additional Capital Stock of any of
the Subsidiaries of the Borrower after the Closing Date, the Borrower will, and
will cause each of the Subsidiaries of the Borrower to, grant or cause to be
granted to the Administrative Agent, for the benefit of the Administrative Agent
and the Lenders, a perfected, first priority security interest in all Capital
Stock or other ownership interests in such Subsidiary of the Borrower owned by
the Borrower or any Subsidiary of the Borrower (to the extent such Capital Stock
or other ownership interests are already not so pledged to the Administrative
Agent). The Borrower covenants that none of the Capital Stock to be pledged in
accordance with this Section 5.3 will be subject to any transfer restriction,
shareholders' agreement or other restriction except for such restrictions under
applicable securities laws, such restrictions existing as of the Closing Date
which have been disclosed to the
CREDIT AGREEMENT - Page 40
<PAGE>
Administrative Agent in the Security Documents and such restrictions, if any, as
may be reasonably acceptable to the Administrative Agent. In connection with and
in addition to the foregoing, the Borrower will, and will cause each of the
Subsidiaries of the Borrower and other appropriate Persons (as applicable) to,
execute and/or deliver such further agreements, documents and instruments
(including, without limitation, stock certificates, stock powers and financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain and maintain the perfected, first priority Liens to be granted in
accordance with this Section 5.3.
Section 5.4 Mortgaged Properties; Landlord Waivers. Without limiting the
generality of the other terms and provisions of this Article 5, the Borrower
will, and will cause each of the Subsidiaries of the Borrower to, on the Closing
Date (with respect to any fee real Property or leasehold interest therein owned
as of the Closing Date) or contemporaneously with the acquisition of any fee
real Property or leasehold interest therein (with respect to any fee real
Property or leasehold interest therein acquired after the Closing Date),
execute, acknowledge and deliver to the Administrative Agent a Mortgage or an
amendment or modification to an existing Mortgage covering all fee real Property
and all leasehold interests therein owned by any such Loan Party, together with
evidence in form and substance reasonably satisfactory to the Administrative
Agent and its counsel that the Mortgage creates a valid, first priority Lien on
the fee estate or leasehold estate (as applicable), in favor of the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
securing the payment and performance of the Obligations (including, without
limitation and if requested by the Administrative Agent, a commitment for a
mortgagee policy of title insurance insuring the Administrative Agent's first
priority Lien status created by such Mortgage or a title opinion in favor of the
Administrative Agent), and together with current appraisals complying with all
applicable regulatory requirements and surveys certified to the Administrative
Agent and the Lenders if requested by the Administrative Agent, all of which
shall be in form and substance reasonably satisfactory to the Administrative
Agent; provided, however, that, with respect to any particular parcel of fee
real Property, the Borrower and its Subsidiaries shall not be required to
execute a Mortgage or Mortgages in favor of the Administrative Agent unless and
until the Borrower and/or its Subsidiaries own fee real Properties having an
aggregate fair market value (inclusive of fixtures) of $250,000 or more (at
which time all fee real Property owned by the Borrower and/or its Subsidiaries
shall be mortgaged in favor of the Administrative Agent); provided, further,
however, that, with respect to any particular leasehold interest in real
Property, the Borrower and its Subsidiaries shall not be required to execute a
Mortgage or Mortgages in favor of the Administrative Agent unless and until the
Borrower and/or its Subsidiaries own leasehold interests having an aggregate
fair market value of $250,000 or more (based upon the intrinsic value of such
leasehold interests in excess of the rental payable thereunder). In addition, if
requested by the Administrative Agent, the Borrower shall, and shall cause each
of the Subsidiaries of the Borrower with an interest in such Property to,
provide the Administrative Agent with a current environmental assessment of such
Property in form and substance reasonably satisfactory to the Administrative
Agent. In addition, with respect to each lease of real Property executed by the
Borrower or any of its Subsidiaries, the Borrower will, and will cause each of
the Subsidiaries of the Borrower to, obtain waivers or subordinations of
landlord's Liens from each lessor and other agreements from such lessor and its
lenders necessary or appropriate to ensure the Administrative Agent's perfected,
first priority Lien on the Collateral or Property affected thereby, the
Administrative Agent's access to such Collateral or Property and the right of
the Administrative Agent, the Lenders or their designee to
CREDIT AGREEMENT - Page 41
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succeed to the rights of such Loan Party that is the lessee under the lease, in
each case in form and substance reasonably satisfactory to the Administrative
Agent; provided, however, that such waivers or subordinations need not be
obtained (i) for any lease of a colocation sight or (ii) for any other
individual lease where inventory or equipment of a Loan Party having an
aggregate fair market value of less than $50,000 is located; provided, further,
however, that not more than $250,000 of inventory or equipment in the aggregate
shall be located on leaseholds referred to in the foregoing clause (ii) for
which waivers or subordinations have not been obtained.
Section 5.5 Further Assurances. In addition to the foregoing, the Borrower
will, and will cause each of the other Loan Parties and other appropriate
Persons (as applicable) to, execute and/or deliver such further agreements,
documents and instruments (including, without limitation, Security Documents and
financing statements) as the Administrative Agent may reasonably request from
time to time in order for the Administrative Agent to obtain and maintain valid,
perfected, first priority Liens to be granted in accordance with this Article 5.
Section 5.6 Setoff. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to the Borrower or any other Loan Party (any such notice being
hereby expressly waived by the Borrower and the other Loan Parties), to set off
and apply any and all deposits (general or special, time or demand, provisional
or final excluding any trust accounts) at any time held and other indebtedness
at any time owing by such Lender to or for the credit or the account of the
Borrower or any other Loan Party against any and all of the Obligations now or
hereafter existing under this Agreement, such Lender's Note or any other Loan
Document, irrespective of whether or not the Administrative Agent or such Lender
shall have made any demand under this Agreement, such Lender's Note or any such
other Loan Document and although such Obligations may be unmatured. Each Lender
agrees promptly to notify the Borrower (with a copy to the Administrative Agent)
after any such setoff and application, provided that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
and remedies of each Lender hereunder are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which such
Lender may have.
ARTICLE 6
Conditions Precedent
--------------------
Section 6.1 Initial Extension of Credit. The obligation of each Lender to
make its initial Loan under this Agreement is subject to the completion of the
Lenders' due diligence review of the Loan Parties and the receipt by the
Administrative Agent, on or before the Initial Funding Date, of all of the
following in form and substance satisfactory to the Administrative Agent and the
Lenders and, in the case of actions to be taken, the taking of the following
required actions and evidence that such actions have been taken to the
satisfaction of the Administrative Agent:
(a) Resolutions. Resolutions of the Board of Directors or equivalent
governing body (as applicable) certified by the Secretary or an Assistant
Secretary or equivalent officer or representative of each Loan Party which
authorize the execution, delivery and performance by such Loan Party of the Loan
Documents to which it is or is to be a party;
CREDIT AGREEMENT - Page 42
<PAGE>
(b) Incumbency Certificate. A certificate of incumbency certified by the
Secretary or an Assistant Secretary (or other analogous officer) of each Loan
Party certifying as to the name of each officer or other representative of such
Loan Party (i) who is authorized to sign the Loan Documents to which it is or is
to be a party (including any certificates contemplated therein), together with
specimen signatures of each such officer or other representative, and (ii) who
will, until replaced by other officers or representatives duly authorized for
that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby;
(c) Certificates or Articles of Incorporation, etc. The certificate or
articles of incorporation or other analogous constitutional documents of each
Loan Party certified by the Secretary of State or other applicable Governmental
Authority of the state of incorporation or organization of such entity and dated
as of a Current Date;
(d) Bylaws, etc. The bylaws or other analogous constitutional documents of
each Loan Party certified by its Secretary or an Assistant Secretary (or other
analogous officer or representative);
(e) Governmental Certificates. Certificates of appropriate officials as to
the existence and good standing of each of the Loan Parties in its jurisdiction
of incorporation or organization and in all jurisdictions in which such Loan
Party is qualified or is required to qualify to do business as a foreign entity,
each such certificate to be dated as of a Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
payable to the order of each Lender with respect to its Commitment);
(g) Security Agreements and Other Security Documents. Security Agreements
and other Security Documents executed by each of the Loan Parties pertaining to
the Collateral owned by such Loan Party or in which such Loan Party has rights
sufficient to create a Lien (one such Security Agreement executed by each such
Loan Party) together with all related financing statements and other filings,
consents to collateral assignments from all parties to all Material Contracts
included as part of the Collateral in form and substance acceptable to the
Administrative Agent, delivery of all pledged Capital Stock and instruments
constituting Collateral, together with appropriate stock powers and endorsements
thereto and, with respect to each existing lease of real Property where
Collateral is located and if and to the extent required by Section 5.4, waivers
or subordinations of landlord's Liens from each lessor and other agreements from
such lessor and its lenders necessary or appropriate to ensure the
Administrative Agent's perfected, first priority Lien on the Collateral or
Property affected thereby, the Administrative Agent's access to such Collateral
or Property and the right of the Administrative Agent, the Lenders or their
designee to succeed to the rights of the Loan Party that is the lessee under the
lease, in each case in form and substance satisfactory to the Administrative
Agent;
(h) Mortgages, etc. If and to the extent required by Section 5.4,
Mortgages executed by the Borrower and/or its Subsidiaries (as applicable)
pertaining to each parcel of the real Property Collateral owned or leased by
such Loan Party (one Mortgage executed by each such Loan Party with
CREDIT AGREEMENT - Page 43
<PAGE>
respect to each such parcel) and, with respect to each tract of such real
Property, a mortgagee policy of title insurance insuring the Administrative
Agent's first priority Lien status of each such Mortgage, a current survey
certified to the Administrative Agent and the Lenders, an appraisal complying
with all applicable regulatory requirements and an environmental survey
acceptable to the Administrative Agent;
(i) Insurance Certificates and Policies. Certificates evidencing all
insurance policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance policies;
(j) Lien Searches. Lien searches in the name of each of the Loan Parties
(and in all names under which any of them has done business within the last five
years) in each jurisdiction where such Loan Party maintains an office or has
Property, showing no financing statements or other Lien instruments of record
affecting the Collateral except for Permitted Liens and Liens being released
prior to or concurrently with the making of the initial Loan;
(k) Master Purchase Agreement. The Master Purchase Agreement shall have
been executed and delivered by all parties thereto, and the Administrative Agent
shall have received a photocopy of the Master Purchase Agreement as so executed
and delivered, certified by a Responsible Officer of the Borrower as being a
true and correct copy of such document;
(l) Payment of Fees and Expenses. The Borrower shall have paid all fees
due on or before the Initial Funding Date as specified in this Agreement or in
the Administrative Agent's Letter and all fees, costs and expenses of or
incurred by the Administrative Agent and its counsel to the extent billed on or
before the Initial Funding Date and payable pursuant to this Agreement;
(m) Compliance with Laws. The Borrower and the other Loan Parties shall
have complied in all material respects with all Governmental Requirements
necessary to execute and deliver this Agreement and the other Loan Documents and
to perform and consummate the transactions contemplated by this Agreement and
the other Loan Documents;
(n) No Prohibitions. No Governmental Requirement shall prohibit the
execution or delivery of this Agreement or any other Loan Document or the
performance or consummation of the transactions contemplated by this Agreement
or any other Loan Document, and no order, judgment or decree of any Governmental
Authority or arbitrator shall, and no litigation or other proceeding shall be
pending or to the Borrower's knowledge, threatened which would enjoin, prohibit,
restrain or otherwise adversely affect in any material manner the execution or
delivery of this Agreement or any other Loan Document or the performance or
consummation of the transactions contemplated by this Agreement or any other
Loan Document or otherwise have a Material Adverse Effect;
(o) Financial Statements. Copies of each of the financial statements
referred to in Section 7.2, in each case as certified by a Responsible Officer
of the applicable Loan Party as having been prepared in accordance with GAAP and
as fairly presenting the financial condition of the applicable Loan Party as of
the respective dates indicated therein and results of operations for the
respective periods indicated therein;
CREDIT AGREEMENT - Page 44
<PAGE>
(p) Opinions of Counsel. Favorable legal opinions of counsel for the Loan
Parties, in form and substance and issued by law firms satisfactory to the
Administrative Agent, with respect to the Loan Parties and with respect to the
Loan Documents and a favorable legal opinion of regulatory counsel to the
Borrower and its Subsidiaries in form and substance satisfactory to the
Administrative Agent;
(q) Legal Matters and Loan Documents. All matters of a legal nature
relating to the Borrower and the other Loan Parties and this Agreement and the
other Loan Documents shall be reasonably satisfactory to the Administrative
Agent and its counsel, and the Administrative Agent shall have received all such
other agreements, documents and instruments, each in form and substance and
executed and delivered by all parties, as the Administrative Agent may have
reasonably requested to receive;
(r) Business Plan. A copy of the Business Plan in form and substance
satisfactory to the Administrative Agent;
(s) Material Contracts. A true and correct and fully executed copy of each
of the Material Contracts in existence as of the Initial Funding Date, in form
and substance satisfactory to the Administrative Agent;
(t) Licenses. Copies of all Licenses affecting any Loan Party in
connection with its businesses or any of the Properties owned or leased by it
and in connection with its businesses to be conducted and Properties to be owned
or leased as contemplated by the Business Plan, and evidence satisfactory to the
Administrative Agent that the Borrower and each other Loan Party is able to
conduct its businesses as currently conducted and as to be conducted as
contemplated by the Business Plan with the use of such Licenses in full force
and effect; and the Administrative Agent shall be satisfied that (i) the
Borrower and each other Loan Party has the exclusive, unrestricted right to use
each of such Licenses pursuant to license agreements or other agreements,
documents or instruments in form and substance reasonably satisfactory to the
Administrative Agent, which rights shall be assignable to the Administrative
Agent and by the Administrative Agent to its transferees upon the occurrence of
an Event of Default, and (ii) the Borrower and each other Loan Party has
complied with all initial and on-going conditions of the issuance and use of all
such Licenses and all other terms and provisions thereof;
(u) Waivers and Consents. To the extent not referred to in clause (g)
preceding, copies of all material waivers and consents necessary for the
execution, delivery and performance by each of the Loan Parties of the Loan
Documents to which it is a party, including, without limitation, any waivers and
consents in connection with the Master Purchase Agreement as the Administrative
Agent may require and the grant of a security interest in each Material Contract
of each Loan Party, which waivers and consents shall be certified by a
Responsible Officer of the Borrower as true and correct copies of such consents
as of the Initial Funding Date;
(v) Regulatory Approvals. Evidence satisfactory to the Administrative
Agent that all filings, consents or approvals with or of Governmental
Authorities necessary or appropriate to
CREDIT AGREEMENT - Page 45
<PAGE>
execute and deliver this Agreement and the other Loan Documents and to perform
and consummate the transactions contemplated by the Loan Documents have been
made and obtained, as applicable;
(w) No Material Adverse Change. As of the Initial Funding Date, (i) no
material adverse change shall have occurred with respect to the businesses,
assets, financial condition, results of operations, operations, capitalization,
indebtedness, liabilities, obligations, profitability or prospects or Properties
or of the general affairs or management of the Borrower individually or of the
Borrower and its Subsidiaries taken as a whole, in each case since September 30,
1999, (ii) no disruption or adverse change in the capital markets generally or
in the market for loan syndications in particular shall have occurred since
September 30, 1999, which disruption or adverse change is deemed material in the
judgment of the Administrative Agent, and (iii) the Administrative Agent shall
be satisfied that the financial performance of the Borrower and its Subsidiaries
prior to the Initial Funding Date is not materially different from the financial
projections for such Person(s) through the Initial Funding Date that were
previously submitted to the Administrative Agent;
(x) Accountant's Letter. A letter from the Borrower authorizing the
independent public accountants of the Borrower and its Subsidiaries to
communicate with the Administrative Agent and the Lenders and requesting that
such accountants acknowledge reliance by the Administrative Agent and the
Lenders on past, present and future financial statements;
(y) Solvency. A certificate from each of the Loan Parties certifying that
each of the Loan Parties is Solvent; and
(z) Employment Agreements, etc. Each of the Borrower's key employees shall
have entered into an employment agreement with the Borrower providing for an
employment term of not less than two years and appropriate non-competition and
non-disclosure agreements, each of which agreements shall be in form and
substance satisfactory to the Administrative Agent and the Required Lenders.
The Borrower shall deliver, or cause to be delivered, to the Administrative
Agent sufficient counterparts of each agreement, document or instrument to be
received by the Administrative Agent under this Section 6. 1 to permit the
Administrative Agent to distribute a copy of the same to each of the Lenders.
After the request of the Borrower, the Administrative Agent shall inform the
Borrower in writing as to the status of satisfaction of the conditions precedent
set forth in this Section 6.1.
Section 6.2 All Extensions of Credit. The obligation of each Lender to
make any Loan (including the initial Loan) under this Agreement is subject to
the continued satisfaction of each of the conditions precedent set forth in
Section 6.1 and each of the following additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default or Material Adverse
Effect shall have occurred and be continuing, or would result from such Loan;
CREDIT AGREEMENT - Page 46
<PAGE>
(b) Representations and Warranties. All of the representations and
warranties of the Borrower and the other Loan Parties contained in this
Agreement and in the other Loan Documents shall be true and correct on and as of
the date of such Loan with the same force and effect as if such representations
and warranties had been made on and as of such date unless they relate solely to
an earlier date;
(c) Equity Capital. (i) In the event that, after giving effect to the
requested Loans, the sum of the aggregate principal amount of all Loans
requested to be advanced plus the aggregate principal amount of all Loans
previously advanced is equal to or less than $30,000,000, there shall have been
contributed to the equity capital of the Borrower, on or after the Closing Date
but including the $5,000,000 of equity capital contributed by Nortel Networks,
additional cash in an aggregate gross amount of at least $20,000,000, (ii) in
the event that, after giving effect to the requested Loans, the sum of the
aggregate principal amount of all Loans requested to be advanced plus the
aggregate principal amount of all Loans previously advanced is greater than
$30,000,000, there shall have been contributed to the equity capital of the
Borrower, on or after the Closing Date but including the $5,000,000 of equity
capital contributed by Nortel Networks, additional cash in an aggregate gross
amount of at least $30,000,000, and (iii) if and to the extent that the equity
capital referred to in clauses (i) and (ii) preceding is of a form other than
common stock issued by the Borrower, such equity capital shall be provided
pursuant to, and governed by, the Series A Preferred Stock Agreements or other
agreements in form and substance satisfactory to the Administrative Agent;
(d) Use of Proceeds. The Borrower shall have certified to the
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower for the purposes specified in Section 2.10, and such further evidence
thereof (if any) as the Administrative Agent may reasonably request;
(e) Master Purchase Agreement. The Master Purchase Agreement shall not
have been terminated by the Borrower or any other Loan Party and shall remain in
full force and effect;
(f) Full Disclosure. Neither the Borrower nor any other Loan Party has
failed to disclose to the Administrative Agent or any Lender any material fact
with respect to the Network or its business or its financial condition
(including any contingent liabilities), or has failed to disclose any
information, the absence of which makes any information previously disclosed to
the Administrative Agent or any Lender materially misleading; and
(g) Additional Documentation. The Administrative Agent shall have received
such additional approvals, agreements, documents and instruments as the
Administrative Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in this Section 6.2 have been satisfied (both as of the date of such
notice and, unless the Borrower otherwise notifies the Administrative Agent
prior to the date of such borrowing, as of the date of such borrowing).
CREDIT AGREEMENT - Page 47
<PAGE>
Section 6.3 Closing Certificates. The Borrower shall, concurrently with
the Initial Funding Date (with respect to the conditions precedent set forth in
Section 6.1) and concurrently with the date of the making of each other Loan if
requested by the Administrative Agent, execute and deliver to the Administrative
Agent a certificate in form and substance satisfactory to the Administrative
Agent certifying as to the satisfaction of each of the conditions precedent set
forth in this Article 6 which are required to be satisfied on or before such
date (without regard to whether such matters are, in fact, satisfactory to the
Administrative Agent to the extent that such satisfaction is required
hereunder).
ARTICLE 7
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Administrative Agent and the
Lenders that the following statements are on the Closing Date, and after giving
effect to the funding of the initial Loans on the Initial Funding Date and
continuing thereafter as long as the Obligations or any part thereof are
outstanding or any Lender has any Commitment hereunder will be, true, correct
and complete:
Section 7.1 Existence. Each of the Loan Parties (a) is a corporation (or
other entity) duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation (or organization), (b) has all
requisite corporate or other entity (as applicable) power and authority to own
its Properties and carry on its business as now conducted, and (c) is qualified
to do business in all jurisdictions in which the nature of its business makes
such qualification necessary and where failure to so qualify would have a
Material Adverse Effect. Each of the Loan Parties has the power and authority
and legal right to execute, deliver and perform its obligations under the Loan
Documents to which it is or may become a party.
Section 7.2 Financial Statements.
(a) The Borrower has delivered to the Administrative Agent and the Lenders
(i) the audited consolidated and consolidating financial statements (including
balance sheet and statements of income or operations, shareholders' equity and
cash flows) of the Borrower and its Consolidated Subsidiaries as of and for the
fiscal year ended December 31, 1998, (ii) the unaudited financial statements
(including balance sheet and statements of income or operations, shareholders'
equity and cash flows) of the Borrower and its Consolidated Subsidiaries as of
and for the fiscal period ended September 30, 1999 (exclusive of year-end
adjustments and footnotes), and (iii) an unaudited pro forma balance sheet of
the Borrower and its Consolidated Subsidiaries dated as of December 31, 1999
(exclusive of year-end adjustments and footnotes) which gives effect to the
initial Loans made on the Closing Date and the other transactions to occur on
such date. All financial statements required to be delivered to the
Administrative Agent in accordance with this Agreement (including, without
limitation, those referred to in the immediately preceding sentence) are or will
be when delivered (as applicable) true and correct, have been or will be (as
applicable) prepared in accordance with GAAP (except to the extent that,
pursuant to this Agreement, year-end adjustments and
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footnotes are not required) and fairly and accurately present or will fairly and
accurately present (as applicable), on a consolidated and consolidating (where
applicable) basis, the financial condition of the Borrower and its Consolidated
Subsidiaries as of such dates and the results of operations for the respective
periods indicated therein. There has not been, as of the Closing Date or the
Initial Funding Date, any material adverse change in the financial condition,
results of operations, businesses, operations, Properties, capitalization,
assets, liabilities or prospects of the Borrower on an individual basis or of
the Borrower and its Subsidiaries taken as a whole, since September 30, 1999.
(b) The Business Plan (including, without limitation, the financial
projections contained therein) represents, as of the Closing Date and the
Initial Funding Date, the good faith estimate of the Borrower and its senior
management concerning the probable financial condition and performance of the
Borrower and its Subsidiaries for the time period covered thereunder based upon
the assumptions believed by such management to be reasonable at the time made.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
performance by each of the Loan Parties of the Loan Documents to which it is or
may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite entity action and do not and
will not (a) violate or conflict with, or result in a breach of, or require any
consent under (i) the certificate or articles of incorporation, articles of
organization, bylaws, regulations or other constitutional documents of such Loan
Party, (ii) any Governmental Requirement (including, without limitation, the
Communications Act, any rule or regulation of the FCC or any rule or regulation
of any federal or state public utility commission or other Governmental
Authority) or any order, writ, injunction or decree of any Governmental
Authority or arbitrator, or (iii) any agreement, document or instrument to which
any Loan Party is a party or by which any Loan Party or any of its Property is
bound or subject, which violation, breach or conflict could reasonably be
expected to have a Material Adverse Effect or (b) constitute a default under any
such agreement, document or instrument, which violation, breach or conflict
could reasonably be expected to have a Material Adverse Effect, or result in the
creation or imposition of any Lien (except a Lien in favor of the Administrative
Agent for and on behalf of the Lenders under the Security Documents as provided
in Article 5) upon any of the revenues or Property of any Loan Party.
Section 7.4 Operation of Business; Licenses. Each of the Loan Parties (a)
possesses all material Licenses necessary or appropriate to conduct its
businesses substantially as now conducted and as to be conducted as contemplated
by the Business Plan, and (b) has complied with all initial and on-going
conditions to the issuance and use of all such Licenses except where failure to
comply could not reasonably be expected to have a Material Adverse Effect. None
of such Persons is in violation of any such material Licenses which could be
expected to result in any termination or cessation thereof. All of such material
Licenses required by any Governmental Requirement (including, without
limitation, the Communications Act, any rule or regulation of the FCC or any
state public utility commission) or issued by any Governmental Authority as of
the Closing Date and the Initial Funding Date are summarized by category or
type, as relevant to the operation of each Loan Party, on Schedule 7.4. Such
Licenses set forth on Schedule 7.4 have been duly issued by the appropriate
Governmental Authority (as applicable) and are in full force and effect, and all
provisions of such Licenses have been complied with in all material respects. As
of the Closing Date
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and the Initial Funding Date, no such License set forth on Schedule 7.4 is
subject to any pending or, to the knowledge of the Borrower, threatened
revocation or termination proceeding or action.
Section 7.5 Intellectual Property. All Intellectual Property owned or used
by each of the Loan Parties in the operation of its business is set forth on
Schedule 7.5. Each of the Loan Parties owns or possesses (or will be licensed or
have the full right to use) all Intellectual Property which is necessary or
appropriate for the operation of its businesses as presently conducted and as
proposed to be conducted, without any known conflict with the rights of others.
The consummation of the transactions contemplated by this Agreement and the
other Loan Documents will not materially alter or impair, individually or in the
aggregate, any of such rights of any of the Loan Parties. To the Borrower's
knowledge, no product or service of any of the Loan Parties infringes upon any
Intellectual Property of any other Person, and no claim or litigation is pending
or, to the knowledge of the Borrower, threatened against any Loan Party
contesting its right to sell or otherwise use any product or material or service
which could reasonably be expected to have a Material Adverse Effect. There is
no violation by any Loan Party of any right of such Loan Party with respect to
any material Intellectual Property owned or used by such Loan Party.
Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding in any court or before any arbitrator or mediator or
before or by any Governmental Authority (whether or not any Governmental
Authority is a party thereto) or arbitrator pending or, to the knowledge of the
Borrower, threatened against or affecting any Loan Party, or that relates to any
of the Loan Documents as of the Closing Date and the Initial Funding Date, is
disclosed on Schedule 7.6. None of such actions, suits, investigations or
proceedings could, if adversely determined, reasonably be expected to have a
Material Adverse Effect. Except as may be disclosed on Schedule 7.6, as of the
Closing Date and the Initial Funding Date, there are no outstanding judgments
against any Loan Party. No Loan Party has received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed to any
liability or disadvantage that could reasonably be expected to have a Material
Adverse Effect.
Section 7.7 Rights in Properties; Liens. Except as disclosed on Schedule
7.7, none of the Loan Parties owns any right, title or interest in any real
Property. Each Loan Party has good and marketable title to or, with respect to
leasehold interests, valid leasehold interests in all of its material Properties
and assets, real and personal, including the material Properties, assets and
leasehold interests reflected in the financial statements described in Section
7.2(a), except where failure to have good and marketable title or valid
leasehold interests could not reasonably be expected to have a Material Adverse
Effect, and none of the Properties or leasehold interests of any Loan Party is
subject to any Lien, except Permitted Liens (provided, however, that, as of the
Closing Date, two financing statements naming Pioneer Standard Electronics as
secured party are on file with the Secretary of State of Rhode Island, which
financing statements do not evidence Permitted Liens and are required to be
fully released on or before the Initial Funding Date). Except as disclosed on
Schedule 7.7, none of the Loan Parties has granted or voluntarily allowed or
permitted to exist any Lien to or in favor of any Person (other than the
Administrative Agent for and on behalf of the Lenders as security for the
Obligations) which attaches or relates to any of the Collateral and the Liens on
the Collateral in favor of the Administrative Agent are perfected, first
priority Liens.
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Section 7.8 Enforceability. The Loan Documents have been duly and validly
executed and delivered by each of the Loan Parties that is a party thereto, and
such Loan Documents constitute the legal, valid and binding obligations of each
such Loan Party, enforceable against each such Loan Party in accordance with
their respective terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to the enforcement of creditors' rights and
general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and no
filing or registration with or notice to, any Governmental Authority (including
the FCC) or third party is or will be necessary for the execution, delivery or
performance by any Loan Party of any of the Loan Documents or any of the
Material Contracts to which it is or will be a party or for the validity or
enforceability thereof, except for such consents, approvals and filings as have
been validly obtained or made and are in full force and effect. The consummation
of the transactions contemplated by the Loan Documents and the Material
Contracts does not require the consent or approval of any other Person, except
such consents and approvals (a) as have been validly obtained and are in full
force and effect or (b) as to which the failure to obtain is not, individually
or in the aggregate, material. None of the Loan Parties has failed to obtain any
material License (including, without limitation, any FCC License) necessary or
appropriate for the ownership or use of any of its Properties, conduct of its
business and performance of the Business Plan.
Section 7.10 Debt. As of the Closing Date, neither the Borrower nor any of
its Subsidiaries has any Debt other than (a) the Obligations, and (b) the Debt
disclosed on Schedule 7.10 hereto.
Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax returns
(federal, state and local) and reports required to be filed, including, without
limitation, all income, franchise, employment, Property and sales tax returns,
and (b) all other material tax returns and reports required to be filed except
where failure to file any such return or report could not reasonably be expected
to have a Material Adverse Effect, and has paid all federal and other material
taxes (shown on such returns or reports to be due and payable), assessments,
fees and other governmental charges levied or imposed upon it or its Properties,
income or assets otherwise due and payable before they become delinquent, except
those which are being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided in accordance with GAAP and no notice
of Lien has been filed or recorded. There is no proposed tax assessment against
any Loan Party which could, if the assessment were made, reasonably be expected
to have a Material Adverse Effect.
Section 7.12 Margin Securities. None of the Loan Parties is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 7.13 ERISA. None of the Loan Parties or any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan other
than the Pension Plans identified on Schedule 7.13. Each Plan of any Loan Party
is in compliance in all material respects with all
CREDIT AGREEMENT - Page 51
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applicable provisions of ERISA and the Code. Neither a Reportable Event nor a
Prohibited Transaction has occurred within the last 60 months with respect to
any Plan that could reasonably be expected have a Material Adverse Effect. No
notice of intent to terminate a Pension Plan has been filed, nor has any Pension
Plan been terminated. No circumstances exist which constitute grounds entitling
the PBGC to institute proceedings to terminate, or appoint a trustee to
administer, a Pension Plan, nor has the PBGC instituted any such proceedings.
None of the Loan Parties or any ERISA Affiliate has completely or partially
withdrawn from a Multiemployer Plan. Each Loan Party and each ERISA Affiliate
have met their minimum funding requirements under ERISA and the Code or with
respect to all of their Pension Plans subject to such requirements, and, as of
the Closing Date except as specified on Schedule 7.13, the present value of all
vested benefits under each funded Plan (exclusive of any Multiemployer Plan)
does not and will not exceed the fair market value of all such Plan assets
allocable to such benefits, as determined on the most recent valuation date of
such Plan and in accordance with ERISA. None of the Loan Parties or any ERISA
Affiliate has incurred any liability to the PBGC under ERISA. No litigation is
pending or, to the Borrower's knowledge, threatened concerning or involving any
Plan that could reasonably be expected to have a Material Adverse Effect. There
are no unfunded or unreserved liabilities (on either a going-concern basis or a
wind-up basis) relating to any Plan that could, individually or in the
aggregate, have a Material Adverse Effect if the Borrower were required to fund
or reserve such liability in full. As of the Closing Date, no funding waivers
have been or will have been requested or granted under Section 412 of the Code
with respect to any Plan. No unfunded or unreserved liability for benefits under
any Plan or Plans (exclusive of any Multiemployer Plans) exceeds $100,000, with
respect to any such Plan, or $200,000 with respect to all such Plans, in the
aggregate as of the Closing Date, on either a going-concern basis or a wind-up
basis.
Section 7.14 Disclosure. No written statement, information, report,
representation or warranty made by any Loan Party in any Loan Document or
furnished to the Administrative Agent or any Lender by or on behalf of any Loan
Party in connection with the Loan Documents or any transaction contemplated
hereby or thereby contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances in which made, not misleading. There is no fact known
to the Borrower which has had a Material Adverse Effect, and there is no fact
known to the Borrower which might in the future have a Material Adverse Effect
except as may have been disclosed in writing to the Administrative Agent.
Section 7.15 Loan Parties; Capitalization. Schedule 7.15 attached hereto
contains, as of the Closing Date and the Initial Funding Date, complete and
accurate information regarding (a) the identities of each of the Subsidiaries of
the Borrower, (b) the number of issued and outstanding shares of each class of
Capital Stock issued by each of such Subsidiaries and the identities of, and
number and percentage of each of such shares held by, the owner(s) (both of
record and beneficially) of such Capital Stock and (c) the jurisdiction of
incorporation or other organization of each Loan Party.
Section 7.16 Compliance with Laws. None of the Loan Parties is in
violation of any Governmental Requirement (including, without limitation, the
Communications Act, any rule or regulation of the FCC or any rule or regulation
of any federal or state public utility commission or
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other Governmental Authority), except for instances of non-compliance that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 7.17 Investment Company Act. None of the Loan Parties is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.18 Public Utility Holding Company Act. None of the Loan Parties
is a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions to any of the
following representations and warranties that could not have, individually or in
the aggregate, a Material Adverse Effect:
(i) Each of the Loan Parties and all of its respective Properties
and operations are in full compliance with all Environmental Laws. The
Borrower is not aware of, and no Loan Party has received written notice
of, any past, present or future conditions, events, activities, practices
or incidents which may interfere with or prevent the compliance or
continued compliance by such Loan Party with all Environmental Laws;
(ii) Each of the Loan Parties has obtained all Licenses that are
required under applicable Environmental Laws, and all such Licenses are in
good standing and all such Persons are in compliance with all of the terms
and conditions thereof;
(iii) No Hazardous Materials exist on, about or within or have been
(to the knowledge of the Borrower) or are being used, generated, stored,
transported, disposed of on or Released from any of the Properties of any
Loan Party except in compliance with applicable Environmental Laws. The
use which each of the Loan Parties makes and intends to make of its
respective Properties will not result in the use, generation, storage,
transportation, accumulation, disposal or Release of any Hazardous
Material on, in or from any of their currently owned Properties except in
compliance with applicable Environmental Laws;
(iv) There are no conditions or circumstances associated with the
currently owned or leased Properties or operations of any Loan Party that
could reasonably be expected to give rise to any Environmental Liabilities
or claims resulting in any Environmental Liabilities;
(v) None of the Loan Parties and none of their respective currently
or previously owned or leased Properties or operations are subject to any
outstanding or, to the knowledge of the Borrower, threatened order from or
agreement with any Governmental Authority or other Person or subject to
any judicial or administrative proceeding with respect to (A) any
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failure to comply with Environmental Laws, (B) any Remedial Action, or (C)
any Environmental Liabilities;
(vi) None of the Loan Parties is subject to, or has received written
notice of any claim from any Person alleging that it is or will be subject
to, any Environmental Liabilities;
(vii) None of the Properties of any of the Loan Parties is a
treatment facility (except for the recycling of Hazardous Materials
generated on-site and the treatment of liquid wastes subject to the Clean
Water Act or other applicable Environmental Law for temporary storage of
Hazardous Materials generated on-site prior to their disposal off-site) or
disposal facility requiring a permit under the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et seq., regulations thereunder or any
comparable provision of state law. The Loan Parties are in compliance with
all applicable financial responsibility requirements of all Environmental
Laws; and
(viii) None of the Loan Parties has failed to file any notice
required under applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
Property or revenues of any of the Loan Parties.
Section 7.20 Year 2000 Compliance. Each of the Loan Parties has (a)
initiated a review and assessment of all areas within its business and
operations (including those affected by suppliers and vendors) that could
reasonably be expected to be relevant to whether such Loan Party is Year 2000
Compliant, (b) developed a plan and timeline for ensuring that it is materially
Year 2000 Compliant on a timely basis, and (c) to date, implemented that plan in
accordance with that timetable. Based upon the foregoing, each of the Loan
Parties believes that it is materially Year 2000 Compliant as of the Closing
Date except to the extent described in Schedule 8.13.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor the
Properties of any of the Loan Parties are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could reasonably be
expected to have a Material Adverse Effect.
Section 7.22 Material Contracts. Attached hereto as Schedule 7.22 is a
complete list, as of the Closing Date, of all Material Contracts of each of the
Loan Parties, other than the Loan Documents. All of the Material Contracts are
in full force and effect and none of the Loan Parties is in default under any
Material Contract and, to the knowledge of the Borrower after due inquiry, no
other Person that is a party thereto is in default under any of the Material
Contracts. None of the Material Contracts prohibits the transactions
contemplated under the Loan Documents. Except as may be provided on Schedule
7.22, (a) each of the Material Contracts is currently in the name of a Loan
Party and (b) each of the Material Contracts (other than agreements relating to
other Debt of the Loan Parties) is assignable to the Administrative Agent as
collateral and is assignable by the
CREDIT AGREEMENT - Page 54
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Administrative Agent to a transferee if an Event of Default were to occur. The
Borrower has delivered to the Administrative Agent a complete and current copy
of each Material Contract of the Borrower and/or any of its Subsidiaries (other
than purchase orders entered into in the ordinary course of business) existing
on the Closing Date.
Section 7.23 Bank Accounts. As of the Closing Date, Schedule 7.23 sets
forth the account numbers and location of all bank accounts (including lock box
and special deposit accounts) of the Borrower and/or any of its Subsidiaries.
Section 7.24 Outstanding Securities. All outstanding securities (as
defined in the Securities Act of 1933, as amended, or any successor thereto, and
the rules and regulations of the Securities and Exchange Commission thereunder)
of each of the Loan Parties have been offered, issued, sold and delivered in
compliance with all applicable Governmental Requirements.
Section 7.25 Solvency. Each of the Loan Parties, as a separate entity, is
Solvent, both before and after giving effect to the Loans.
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26, as of
the Closing Date (a) neither any Loan Party nor any of its employees is subject
to any collective bargaining agreement, and (b) no petition for certification or
union election is pending with respect to the employees of any Loan Party, and
no union or collective bargaining unit has sought such certification or
recognition with respect to the employees of any such Person. There are no
strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of the Borrower after due inquiry, threatened against, any Loan Party
or its respective employees which could have, either individually or in the
aggregate, a Material Adverse Effect. Except as set forth on Schedule 7.26, as
of the Closing Date, none of the Loan Parties is subject to an employment
contract.
Section 7.27 Insurance. Schedule 7.27 sets forth a complete and accurate
description of all policies of insurance that are in effect as of the Closing
Date for the Loan Parties and their Properties. No notice of cancellation has
been received for any of such policies and each of the Loan Parties and the
owner and holder of each such policy are in compliance with all of the terms and
conditions of such policies.
Section 7.28 Common Enterprise. The Borrower and each Loan Party are
members of an affiliated group with each other such Person and are collectively
engaged in a common enterprise with one another. Each of the Loan Parties
expects to derive substantial benefit (and may reasonably be expected to derive
substantial benefit), directly and indirectly, from the Loans contemplated by
this Agreement, both in its separate capacity and as a member of an affiliated
and integrated group.
Section 7.29 Burdensome Agreements. None of the Loan Parties is a party to
any indenture, loan agreement, credit agreement, stock purchase agreement or any
lease or other agreement, document or instrument, or subject to any charter or
corporate restriction, that is unduly and materially burdensome or that could
reasonably be expected to have a Material Adverse Effect, provided, however,
that the representation and warranty contained in this sentence shall not be
applicable to the Series A Preferred Stock Agreements. None of the Loan Parties
is in default in any
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respect in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement, document or instrument
binding on it or its Properties, except for instances of noncompliance that,
individually or in the aggregate, could not have a Material Adverse Effect.
Section 7.30 Fees, Costs and Expenses relating to the Series A Preferred
Stock. As of the Initial Funding Date, the aggregate amount of fees, costs
and/or expenses paid or payable by the Borrower relating to the Series A
Preferred Stock do not exceed $250,000.
ARTICLE 8
Affirmative Covenants
---------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The Borrower will furnish (or will
cause to be furnished) to the Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available, and in any event
within 95 days after the end of each fiscal year of the Borrower, beginning with
the fiscal year ending December 31, 1999, either (i) a copy of the Form 10-K
(including all financial statements contained therein) filed by the Borrower as
of the end of and for such fiscal year then ended, together with audited
consolidating schedules for each of the Borrower and its Subsidiaries with
respect to the financial statements contained therein, or (ii) a copy of the
annual audit report (including the consolidated balance sheet) of the Borrower
and its Subsidiaries as of the end of such year and the related consolidated
statements of income or operations, shareholders' equity and cash flows for such
fiscal year, together with audited consolidating schedules for the Borrower and
its Subsidiaries with respect to each of such financial statements, in each case
setting forth in comparative form the figures for the previous fiscal year, and
accompanied by the opinion of independent certified public accountants of
recognized standing reasonably acceptable to the Administrative Agent, which
opinion shall state that such consolidated financial statements present fairly
the financial position and results of operations for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years and which
opinion shall not be qualified or limited because of a restricted or limited
examination by such accountant of any material portion of such Person's records;
(b) Quarterly Financial Statements. As soon as available, and in any event
within 50 days after the end of each of the first three fiscal quarters of each
fiscal year of the Borrower, beginning with the fiscal quarter ending March 31,
2000, either (i) a copy of the Form 10-Q (including all financial statements
contained therein) filed by the Borrower as of the end of and for such fiscal
quarter then ended, together with consolidating schedules for each of the
Borrower and its Subsidiaries with respect to each of the financial statements
contained therein, or (ii) a copy of the unaudited consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of such quarter and the related
consolidated statements of income or operations, shareholders' equity and
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cash flows and quarterly operating budgets for the period commencing on the
first day and ending on the last day of such quarter, together with unaudited
consolidating schedules for the Borrower and its Subsidiaries with respect to
each of such financial statements and quarterly operating budgets, in each case
setting forth in comparative form the information or figures and quarterly
operating budget figures, respectively, for the corresponding period of the
preceding fiscal year, and certified by an appropriate Responsible Officer of
the Borrower as fairly presenting, in accordance with GAAP, the financial
position and the results of operations of the Borrower and its Subsidiaries,
except for year-end adjustments and financial statement footnotes required by
GAAP;
(c) Compliance Certificate. Concurrently with the delivery of each of the
financial statements referred to in Sections 8.1(a) and 8.1(b), a Compliance
Certificate of a Responsible Officer of the Borrower substantially in the form
of Exhibit D hereto, appropriately completed, stating that, to the best of such
officer's knowledge, no Default has occurred and is continuing or, if a Default
has occurred and is continuing, stating the nature thereof and the action that
has been taken and is proposed to be taken with respect thereto;
(d) Notice of Actions, Suits, Investigations or Proceedings. Promptly
after the commencement thereof, notice of all actions, suits, investigations and
proceedings in any court or before any arbitrator or mediator or before or by
any Governmental Authority (including the FCC) (whether or not any Governmental
Authority is a party thereto) or arbitrator affecting any Loan Party or any
License, which, if determined adversely to any Loan Party, could reasonably be
expected to have a Material Adverse Effect;
(e) Notice of Default, etc.. As soon as possible and in any event
immediately upon the Borrower's knowledge of the occurrence of any Default, a
written notice setting forth the details of such Default and the action that the
Borrower and/or any of its Subsidiaries has taken and, if and to the extent
known, proposes to take with respect thereto;
(f) ERISA Plan Reports. Promptly after the filing or receipt thereof,
copies of all reports, including annual reports, and notices which the Borrower
or any of its ERISA Affiliates files with or receives from the PBGC or the U.S.
Department of Labor under ERISA with respect to a Pension Plan or for which the
Borrower has any potential liability; and as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any Pension
Plan is insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the PBGC, the
Borrower or any ERISA Affiliate has instituted or will institute proceedings
under ERISA to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of the Borrower setting forth the details
as to such insolvency, withdrawal, Reportable Event, Prohibited Transaction or
termination and the action that the Borrower and/or any of its Subsidiaries has
taken and proposes to take with respect thereto;
(g) Proxy Statements, Etc. As soon as available, one copy of each (if any)
financial statement, report, notice or proxy statement sent by the Borrower to
its stockholders or other security holders generally and one copy of each (if
any) regular, periodic or special report (including, without limitation, reports
on forms 10-K, 10-Q and 8-K), registration statement or prospectus filed by the
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Borrower with any securities exchange or the Securities and Exchange Commission
or any successor agency;
(h) Insurance. Within 60 days prior to the end of each fiscal year of the
Borrower, a report in form and substance reasonably satisfactory to the
Administrative Agent summarizing all material insurance coverage maintained by
the Borrower and its Subsidiaries as of the date of such report and all material
insurance coverage planned to be maintained by such Persons in the subsequent
fiscal year;
(i) Plan Information. From time to time, as reasonably requested by the
Administrative Agent or any Lender, such books, records and other documents
relating to any Pension Plan as the Administrative Agent or any Lender shall
specify; prior to any termination, partial termination or merger of a Pension
Plan covering employees of the Borrower or any ERISA Affiliate, or a transfer of
assets of a Pension Plan covering employees of the Borrower or any ERISA
Affiliate, written notification thereof; promptly upon the Borrower's receipt
thereof, a copy of any determination letter or advisory opinion regarding any
Pension Plan received from any Governmental Authority and any amendment or
modification thereto as may be necessary as a condition to obtaining a favorable
determination letter or advisory opinion; and promptly upon the occurrence
thereof, written notification of any action requested by any Governmental
Authority to be taken as a condition to any such determination letter or
advisory opinion;
(j) Business Plan, etc. Not later than 15 days prior to the end of each
fiscal year, an update of the Business Plan for the immediately succeeding
fiscal year in reasonable detail generally consistent with the form and
substance of the Business Plan provided to the Administrative Agent on or before
the Closing Date, which update shall reflect the corresponding information for
the prior year; and, promptly upon any preparation thereof, any proposed
amendment, modification or supplement to the Business Plan;
(k) Management Letters. Promptly upon each receipt thereof by any Loan
Party, a copy of any management letter or other written report submitted to such
Loan Party by independent certified public accountants with respect to the
business, condition (financial or otherwise), operations, prospects or
Properties of any Loan Party;
(l) Reports to Other Creditors. Promptly after the furnishing thereof, a
copy of any financial or other material statement or report furnished by any
Loan Party to any other party pursuant to the terms of any indenture, loan,
stock purchase or credit or similar agreement and not otherwise required to be
furnished to the Administrative Agent and the Lenders pursuant to any other
clause of this Section 8.1;
(m) Notice of Material Adverse Effect. Within three Business Days after
any Loan Party becomes aware thereof, written notice of any matter that could
reasonably be expected to have a Material Adverse Effect;
(n) Environmental Assessments and Notices. Promptly after the receipt
thereof, a copy of each material environmental assessment (including any
analysis relating thereto) prepared with
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respect to any Property of any Loan Party and each notice sent by any
Governmental Authority to any Loan Party relating to any material failure or
alleged failure to comply with any material Environmental Law or any liability
with respect thereto;
(o) Notices Under Material Contracts. Promptly after the receipt thereof
by any Loan Party and promptly after the delivery thereof by any Loan Party, a
copy of each written notice delivered under any Material Contract or real
Property lease as to which the Borrower is obligated to cause a landlord's
waiver or subordination to be provided in accordance with Section 5.4, which
notice (i) relates to any alleged default under or noncompliance with or
proposed termination of such Material Contract or real Property lease or (ii)
otherwise relates to any matter under any Material Contract or real Property
lease which could reasonably be expected to have a Material Adverse Effect;
(p) Accounts Receivable and Payable. As soon as available and in any event
within 45 days after the end of each fiscal quarter, an aged trial balance of
all then-existing Receivables and all then existing accounts payable of the
Borrower and its Subsidiaries;
(q) Material Contracts and Leases. In a reasonably prompt fashion after
the creation thereof, a true and correct copy of each Material Contract to which
the Borrower or any of its Subsidiaries is a party or (directly or indirectly)
subject and of each lease of real Property to which the Borrower or any of its
Subsidiaries is a party or (directly or indirectly) subject and as to which a
waiver or subordination of landlord's Lien is required to be provided in
accordance with Section 5.4;
(r) Quarterly Report as to Key Business Statistics. As soon as available
and in any event within 50 days after the end of each fiscal quarter, reports as
to key business and operational statistics of the Borrower and its Subsidiaries,
including, without limitation, the number of residential and commercial
high-speed access lines in service, the number of subscriber additions in the
previous period, and a report of costs and revenues incurred for the previous
period, and such related information as the Administrative Agent may reasonably
request from time to time;
(s) Notices relating to Capital Stock. Promptly upon the Borrower's
receipt of any such notice or its giving of any such notice, a true and correct
copy of each notice received by the Borrower or given by the Borrower relating
to or in connection with any Capital Stock of the Borrower, including, without
limitation, each "Notice of Triggering Event", "Notice of Redemption at Option
of Buyer", "Notice of Redemption Upon Change of Control", "Notice of Redemption
at Company's Election" and "Notice of Company's Offering Redemption" as such
terms are defined in the Series A Preferred Stock Designation, provided,
however, that the Borrower shall not be required to deliver to the
Administrative Agent or any Lender any "Conversion Notice" (as such term is
defined in the Series A Preferred Stock Designation) or any "Exercise Notice"
(as such term is defined in the Series A Warrants); and
(t) General Information. Promptly, such other business, financial,
corporate affairs and other similar information concerning the Loan Parties
and/or the Collateral as the Administrative Agent or any Lender may from time to
time reasonably request.
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Section 8.2 Maintenance of Existence; Conduct of Business. The Borrower
will, and will cause each of the other Loan Parties to, preserve and maintain
its entity existence and all of its leases, privileges, Licenses,
qualifications, Intellectual Property, intangible Property and contract and
other rights that are necessary or reasonably appropriate in the ordinary
conduct of its business. Without limiting the generality of the foregoing, each
of the Loan Parties has entered into, or will timely enter into, such
long-distance carrier and interconnection agreements as are, at any time of
determination, then necessary to the conduct of its business in accordance with
the Business Plan. The Borrower will, and will cause each of the other Loan
Parties to, conduct its business in an orderly and efficient manner in
accordance with good business practices and the Business Plan.
Section 8.3 Maintenance of Properties and Licenses. The Borrower will, and
will cause each of the other Loan Parties to, maintain, keep and preserve all of
its Properties and Licenses necessary in the proper conduct of its businesses in
good repair, working order and condition (ordinary wear and tear excepted) and
make all necessary repairs, renewals and replacements and improvements thereof,
unless each of the Borrower and the Administrative Agent determine in good faith
that the continued maintenance of any of the of the Borrower's or Loan Parties'
Properties is no longer economically desirable.
Section 8.4 Taxes and Claims. The Borrower will, and will cause each of
the other Loan Parties to, pay or discharge before becoming delinquent (a) all
taxes, levies, assessments and governmental charges imposed on it or its income
or profits or any of its Property and (b) all lawful claims for labor, material
and supplies, which, if unpaid, might become a Lien upon any of its Property;
provided, however, that none of the Loan Parties shall be required to pay or
discharge any tax, levy, assessment or governmental charge, or claim for labor,
material or supplies, whose amount, applicability or validity is being contested
in good faith by appropriate proceedings being diligently pursued and for which
adequate reserves have been established under GAAP.
Section 8.5 Insurance.
The Borrower will, and will cause each of the other Loan Parties to, keep
insured by financially sound and reputable insurers all Property of a character
usually insured by responsible entities engaged in the same or a similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations or entities and carry
such other insurance as is usually carried by such corporations or entities,
provided that in any event the Loan Parties will maintain:
(i) Property Insurance. Insurance against loss or damage covering
substantially all of the tangible real and personal Property (including,
without limitation, the Nortel Networks Equipment and other equipment
related to the Network) and improvements of such Person by reason of any
Peril (as defined below) in such amounts (subject to any deductibles as
shall be satisfactory to the Administrative Agent) as shall be reasonable
and customary and sufficient to avoid the insured named therein from
becoming a co-insurer of any loss under such policy, but in any event in
such amounts as are (A) reasonably available as determined by the
Borrower's independent insurance broker and (B) reasonably acceptable to
the Administrative Agent.
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(ii) Automobile Liability Insurance for Bodily Injury and Property
Damage. Insurance in respect of all vehicles (whether owned, hired or
rented by such Person) at any time located at, or used in connection with,
its Properties or operations against liabilities for bodily injury and
Property damage in such amounts as are then customary for vehicles used in
connection with similar Properties and businesses, but in any event to the
extent required by applicable law.
(iii) Comprehensive General Liability Insurance. Insurance against
claims for bodily injury, death or Property damage occurring on, in or
about the Property (and adjoining streets, sidewalks and waterways) of
such Person, in such amounts as are then customary for Property similar in
use in the jurisdictions where such Properties are located.
(iv) Worker's Compensation Insurance. Worker's compensation
insurance (including employers' liability insurance) to the extent
required by applicable law, which may be self-insurance to the extent
permitted by applicable law.
Without limiting the generality of the foregoing, the Loan Parties shall
purchase and maintain in effect all-risk, property and casualty insurance
(including casualty insurance covering earthquake and flood damage) reasonably
acceptable and in amounts reasonably acceptable to the Administrative Agent
covering all Nortel Networks Equipment and other equipment related to the
Network and liability insurance covering the operations of the Borrower and its
Subsidiaries. All insurance shall be written by financially responsible
companies selected by the applicable Loan Party and having an A.M. Best Rating
of "A-" or better and being in a financial size category of "VI" or larger, or
by other companies reasonably acceptable to the Administrative Agent. Each
policy referred to in this Section 8.5 shall name the Administrative Agent (for
the benefit of itself and the other Lenders) as loss payee (with respect to
casualty insurance policies) and additional insured (with respect to liability
insurance policies) and shall provide that it will not be canceled, amended or
reduced except after not less than 30 days' prior written notice to the
Administrative Agent and shall also provide that the interests of the
Administrative Agent and the Lenders shall not be invalidated or reduced by any
act, omission or negligence of any Loan Party. The Borrower will advise the
Administrative Agent promptly of any policy cancellation, reduction or
amendment. For purposes hereof, the term "Peril" shall mean, collectively, fire,
lightning, flood, windstorm, hail, explosion, riot and civil commotion,
vandalism and malicious mischief, damage from aircraft, vehicles and smoke and
other perils covered by the "all-risk" endorsement then in use in the
jurisdictions where the Properties of the Loan Parties are located.
(b) The Borrower will cause each Insurance Recovery (other than any
portion of an Insurance Recovery payable to a landlord to repair or replace
Property leased by any Loan Party) payable by any insurance company to be
deposited promptly with the Administrative Agent as security for the Obligations
if a Default has then occurred and is continuing, and will promptly pay all
Insurance Recoveries to the Administrative Agent for application against the
Obligations if and to the extent required in accordance with Section 2.7(a).
(c) If a Default shall have occurred and be continuing, the Borrower will
cause all proceeds of insurance paid on account of the loss of or damage to any
Property of any Loan Party
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and all awards of compensation for any Property of any Loan Party taken by
condemnation or eminent domain to be promptly paid directly to the
Administrative Agent to be applied against or held as security for the
Obligations, at the election of the Administrative Agent and the Required
Lenders.
Section 8.6 Inspection Rights. The Borrower will, and will cause each of
the other Loan Parties to, permit representatives and agents of the
Administrative Agent and the Lenders, during normal business hours and upon
reasonable notice to the Borrower, to examine, copy and make extracts from its
books and records, to visit and inspect its Properties and to discuss its
business, operations and financial condition with its officers and independent
certified public accountants. The Borrower will authorize, and will cause each
of the other Loan Parties to authorize, its accountants in writing (with a copy
to the Administrative Agent) to comply with this Section 8.6. The Administrative
Agent and/or its representatives may, at any time and from time to time, conduct
field exams for such purposes as the Administrative Agent may reasonably
request.
Section 8.7 Keeping Books and Records. The Borrower will, and will cause
each of the other Loan Parties to, maintain appropriate books of record and
account in accordance with GAAP consistently applied in which true, full and
correct entries will be made of all their respective dealings and business
affairs. If any changes in accounting principles from those used in the
preparation of the financial statements referenced in Section 8.1 are hereafter
required or permitted by GAAP and are adopted by the Borrower (as applicable)
with the concurrence of its independent certified public accountants and such
changes in GAAP result in a change in the method of calculation or the
interpretation of any of the covenants, standards or terms contained in this
Agreement, the Borrower and the Required Lenders agree to amend any such
affected terms and provisions so as to reflect such changes in GAAP with the
result that the criteria for evaluating the financial condition or performance
of the Loan Parties shall be the same after such changes in GAAP as if such
changes in GAAP had not been made.
Section 8.8 Compliance with Laws. The Borrower will, and will cause each
of the other Loan Parties to, comply with all Governmental Requirements
applicable to the operation of its business (including, without limitation, the
Communications Act, any rule or regulation of the FCC or any rule or regulation
of any federal or state public utility commission or other Governmental
Authority), except for instances of noncompliance that could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 8.9 Compliance with Agreements. The Borrower will, and will cause
each of the other Loan Parties to, comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. With respect to each Material Contract
of any Loan Party entered into after the Closing Date, the Borrower will deliver
to the Administrative Agent a complete and current copy of such Material
Contract in a reasonably prompt fashion after the creation thereof.
Section 8.10 Further Assurances. The Borrower will execute and deliver,
and will cause each of the other Loan Parties to execute and deliver, such
further agreements, documents and
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instruments (including, without limitation, financing statements and amendments
to financing statements specifying each item of the Collateral and the serial
number therefor) and take such further actions as may be reasonably requested by
the Administrative Agent to carry out the terms and provisions and purposes of
this Agreement and the other Loan Documents, to evidence the Obligations and to
create, preserve, maintain and perfect the Liens of the Administrative Agent for
the benefit of itself and the Lenders in and to the Collateral and the required
priority of such Liens. Without limiting the generality of the foregoing, each
of the Borrower will, and will cause each of the other Loan Parties to, (a) take
all necessary actions to and otherwise ensure that, at all times, the
Obligations will rank senior in respect of priority of payment to any
Subordinated Debt (to the extent of the subordination provisions in the
Subordinated Debt Documents governing such Subordinated Debt) and will rank at
least pari passu in respect of priority of treatment with all other present and
future Debt of the Borrower (excluding rights of secured parties with respect to
Permitted Liens) and (b) take all necessary actions to and otherwise ensure
that, at all times, the indebtedness, liabilities and obligations of the
Borrower under this Agreement and the Guaranty executed by the Borrower will
rank at least pari passu in respect of priority of treatment with all other
present and future Debt of the Borrower (excluding rights of secured parties
with respect to Permitted Liens).
Section 8.11 ERISA. The Borrower will, and will cause each of its ERISA
Affiliates to, comply with all minimum funding requirements and all other
material requirements of ERISA so as not to give rise to any material liability
thereunder.
Section 8.12 Non-Consolidation. The Borrower will, and will cause each of
the other Loan Parties to: (a) maintain entity records and books of account
separate from those of any other entity which is an Affiliate of such Loan
Party; (b) not commingle its funds or assets with those of any other entity
which is an Affiliate of such Loan Party; and (c) provide that its Board of
Directors or other analogous governing body will hold all appropriate meetings
to authorize and approve such Person's entity actions, which meetings will be
separate from those of other Loan Parties.
Section 8.13 Year 2000 Compliance. Except as set forth in Schedule 8.13
and except for such instances as individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, all of the material
computer software, computer hardware (whether general or special purpose), and
other similar or related items of automated, computerized or software systems
that are used or relied upon by any Loan Party in the conduct of its business
are and will continue to be Year 2000 Compliant and, without limiting the
generality of the foregoing, will not malfunction, will not cease to function,
will not generate incorrect data and will not produce incorrect results when
processing, providing or receiving (a) date-related data into and between the
twentieth and twenty-first centuries and (b) date-related data in connection
with any valid date in the twentieth and twenty-first centuries. The Borrower
will promptly notify the Administrative Agent in the event any Loan Party
discovers or determines that any computer application (including those of its
suppliers and vendors) that is material to such Loan Party's business and
operations will not be Year 2000 Compliant on a timely basis.
Section 8.14 Trade Accounts Payable. The Borrower will, and will cause
each of the other Loan Parties to, pay all trade accounts payable before the
same become more than 90 days past due, except (a) trade accounts payable
contested in good faith or (b) trade accounts payable in an
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aggregate amount not to exceed $100,000 at any time outstanding and with respect
to which no proceeding to enforce collection has been commenced or, to the
knowledge of any Loan Party, threatened.
Section 8.15 Delivery of Certain Amendments, Material Contracts and
Subordinated Debt Documents. The Borrower will, and will cause each of the other
Loan Parties to, promptly deliver to the Administrative Agent any amendment,
modification or supplement to (a) the certificate or articles of incorporation,
articles of organization, bylaws, regulations or other constitutional documents
of any Loan Party, (b) any Material Contract to which it is a party, (c) any
License which it possesses, and (d) any Subordinated Debt Document; provided,
however, that any such amendment, modification or supplement shall be subject to
the provisions of Section 9.15. The Borrower will, and will cause each of the
other Loan Parties to, deliver to the Administrative Agent, promptly after such
Material Contract or Subordinated Debt Document comes into existence, a true and
correct copy of each such Material Contract or Subordinated Debt Document in
existence which is not identified on Schedule 7.22.
Section 8.16 Interest Rate Protection. The Borrower will, commencing on or
before the 30th day after the Initial Funding Date, maintain in full force and
effect through the Maturity Date one or more Interest Rate Protection
Agreements, in form and substance reasonably satisfactory to the Administrative
Agent, with one or more counterparties rated in one of the three highest rating
categories of Standard & Poors Corporation or Moody's Investors Services, Inc.
and otherwise reasonably acceptable to the Administrative Agent, that enable the
Borrower to fix or place a limit upon a rate of interest with respect to not
less than an aggregate notional amount (not less than zero) equal to fifty
percent (50.0%) of the remainder of the aggregate amount of Total Debt of the
Borrower and its Subsidiaries minus the aggregate amount of such Total Debt with
a fixed interest rate. The maximum amount for which interest may be fixed or
limited under all such Interest Rate Protection Agreements shall not exceed one
hundred percent (100%) of the Total Debt of the Borrower and its Subsidiaries
bearing interest at a variable rate.
Section 8.17 Ownership of Telecommunications Assets and Telecommunications
Business. The Borrower shall, at all times and except as may be set forth on
Schedule 8.17, own or possess the right to use all Telecommunications Assets
used in the operation of the Telecommunications Business of the Borrower and its
Subsidiaries.
Section 8.18 Unified Cash Management System. The Borrower will, and will
cause each of the other Loan Parties to, on and after December 31, 2000,
maintain a unified cash management system and the Borrower will ensure, and will
cause each of the other Loan Parties to ensure, that all cash proceeds
(including, without limitation, proceeds of all Collateral) are (a) deposited
directly, as received, into a lockbox or collection account of such Loan Party
and (b) on a daily basis after such deposit, transferred into a lockbox or
concentration account of such Loan Party. The Borrower will, and will cause each
of the other Loan Parties to, maintain in effect an agreement governing each of
its lockbox accounts, collection accounts and/or concentration accounts and
collaterally assigning such accounts to the Administrative Agent, all of which
shall be in a form approved by the Administrative Agent and shall be with a
depository bank satisfactory to the Administrative Agent.
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Section 8.19 Observation Rights. Upon and after the initial funding of the
Loans, so long as David Robert or any other employee of Nortel Networks or its
Affiliates is not a member of the Board of Directors of the Borrower, the
Borrower shall give Nortel Networks notice of each meeting of the Board of
Directors of the Borrower not less than five Business Days prior to the dates of
any such meetings and allow a Person designated by Nortel Networks to serve as
an observer (the "Observer") who may attend all such meetings of the Board of
Directors of the Borrower and the finance committee and the compensation
committee of the Board of Directors of the Borrower. The Observer will not be a
director, nor entitled to vote on any matter submitted to the Board of Directors
of the Borrower (or any such committee of such board), and will have no rights,
duties, liabilities or obligations of a director. The Observer may share any
information gained from presence at such meetings with the employees, officers,
directors, attorneys and advisors of Nortel Networks who have a need to know
such information in the performance of their duties as it relates to this
Agreement (collectively, the "Representatives"), but such information shall
otherwise be kept confidential by Nortel Networks and its Representatives to the
same extent that financial information with regard to the Borrower is required
to be kept confidential in accordance with the terms of this Agreement. The
Borrower shall reimburse the Observer for all reasonable costs of travel to
attend all such meetings of the Board of Directors of the Borrower or any
committee of the Board of Directors of the Borrower and all other reasonable
out-of-pocket expenses of the Observer relating to such meetings and attendance.
Section 8.20 Employment Agreements, etc. The Borrower will enter into and
maintain in effect with each of Ken Cornell, David Paolo, Ray Paolo, Steve
Gilbert and Charles Cleary an employment agreement which provides for an
employment term of not less than two years and appropriate non-competition and
non-disclosure agreements, each of which agreements shall be in form and
substance reasonably satisfactory to the Administrative Agent and the Required
Lenders.
Section 8.21 Compliance with Series A Preferred Stock Agreements. The
Borrower agrees that it will comply with all of its covenants and agreements
contained in each Series A Preferred Stock Agreement and, without limiting the
generality of the foregoing, that it will issue, promptly as and when required,
all Capital Stock of the Borrower into which the Series A Preferred Stock is
convertible.
Section 8.22 Fees, Costs and Expenses relating to the Series A Preferred
Stock. The aggregate amount of fees, costs and/or expenses paid or payable by
the Borrower relating to the Series A Preferred Stock will not exceed $250,000.
ARTICLE 9
Negative Covenants
------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
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Section 9.1 Debt. The Borrower will not, nor will it permit any Subsidiary
of the Borrower to, incur, create, assume or permit to exist any Debt, except:
(a) Debt to the Lenders pursuant to the Loan Documents;
(b) unsecured Debt under Interest Rate Protection Agreements entered into
in compliance with Section 8.16; provided, however, that Debt thereunder may be
secured if such Debt constitutes a part of the Obligations;
(c) existing Debt in the principal amounts and as otherwise described on
Schedule 7.10 hereto and renewals, extensions or refinancings of such Debt which
do not increase the outstanding principal amount of such Debt, which do not
shorten the maturity of any principal of such Debt and the terms and provisions
of which are not materially more onerous than the terms and conditions of such
Debt on the Closing Date;
(d) purchase money Debt (including Capital Lease Obligations) secured by
purchase money Liens, which Debt and Liens are permitted under and meet all of
the requirements of clause (g) of the definition of Permitted Liens contained in
Section 1.1;
(e) liabilities of the Borrower in respect of unfunded vested benefits
under any Plan if and to the extent that the existence of such liabilities will
not constitute, cause or result in a Default;
(f) intercompany Debt between or among the Borrower and any of its
Wholly-Owned Subsidiaries incurred in the ordinary course of business
(including, without limitation, Debt owed by the Wholly-Owned Subsidiaries of
the Borrower to the Borrower in connection with loans of proceeds of the Loans
made by the Borrower to such Subsidiaries, the proceeds of which loans are used
for the purposes permitted by Section 2.10), subject to the following
requirements: any and all of the Debt permitted pursuant to this clause (g) (i)
shall not exceed $1,000,000 in aggregate principal amount outstanding, (ii)
shall be unsecured, (iii) shall be evidenced by instruments satisfactory to the
Administrative Agent which will be pledged to the Administrative Agent for the
benefit of the Administrative Agent and the Lenders, and (iv) shall be
subordinated to the Obligations pursuant to a subordination agreement in form
and substance satisfactory to the Administrative Agent; provided, however, that
temporary advances made from time to time in the ordinary course of business not
to exceed $500,000 in aggregate principal amount at any time owing by any
Wholly-Owned Subsidiary of the Borrower to the Borrower shall not be required to
meet the requirements of clause (iii) or clause (iv) preceding;
(g) Debt arising from a depository bank's honoring of a check, draft or
similar instrument drawn against an account of the Borrower or its Subsidiaries
which does not contain sufficient funds to cover such check, draft or similar
instrument, provided that such Debt does not exceed $50,000 in aggregate amount
at any time outstanding;
(h) Debt consisting of contingent liabilities of the Borrower or any of
its Subsidiaries in respect of loans and advances to officers, directors or
employees of the Borrower and its Subsidiaries made in the ordinary course of
business and relating to travel, entertainment and relocation expenses
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and for other purposes in furtherance of the business of the Borrower and its
Subsidiaries, so long as the aggregate amount of Debt permitted by this clause
(h), together with the principal amount of all Investments outstanding under
Section 9.5(j), shall not exceed $ in aggregate amount at any time *
outstanding; and
(i) obligations of the Borrower under the Series A Preferred Stock
Agreements which are expressly permitted to be incurred and paid in accordance
with clause (d), clause (e), clause (f), clause (g) or clause (h) of Section
9.4.
Furthermore, the issuance of shares of Series A Preferred Stock shall not be
prohibited by this Section 9.1.
Section 9.2 Limitation on Liens. The Borrower will not, nor will it permit
any Subsidiary of the Borrower to, incur, create, assume or permit to exist any
Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, except Permitted Liens and will not enter into any negative pledge or
similar arrangement in favor of other creditors (other than such negative pledge
or similar arrangement under purchase money Debts and Capital Lease Obligations
with respect to the assets financed or secured thereby).
Section 9.3 Mergers, Etc. The Borrower will not, nor will it permit any
Subsidiary of the Borrower to, (a) become a party to a merger or consolidation,
(b) wind-up, dissolve or liquidate itself, or (c) purchase or acquire all or a
material or substantial part of the business or Properties of any Person;
provided, however, that (i) any Subsidiary of the Borrower may merge with and
into the Borrower or a Wholly-Owned Subsidiary of the Borrower if the Borrower
or a Wholly-Owned Subsidiary of the Borrower is the surviving entity in such
merger, provided that no consideration is given by the surviving entity in such
merger other than the issuance of any Capital Stock of the surviving entity and
such Capital Stock is pledged to the Administrative Agent, for and on behalf of
the Administrative Agent and the Lenders, as security for the Obligations
pursuant to Section 9.6 and (ii)
*
or more. The surviving
entity in any such merger shall ratify the Guaranty, the Security Documents and
other indebtedness, liabilities and obligations of the non-surviving entity
under the Loan Documents.
Section 9.4 Restricted Payments. The Borrower will not, nor will it permit
any Subsidiary of the Borrower to, make or pay, or obligate itself to make or
pay, any Restricted Payments, except:
(a) subject to the subordination provisions relating thereto, the Borrower
may make regularly scheduled payments of interest accrued on any Subordinated
Debt if and to the extent (but only if and to the extent) permitted by the
express terms of the Subordinated Debt Documents governing such Subordinated
Debt, which terms shall have been expressly approved in writing by the
Administrative Agent;
(b) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower;
CREDIT AGREEMENT - Page 67
* Confidential Treatment Request
<PAGE>
(c) the Borrower and its Subsidiaries may make temporary loans or advances
to employees, officers and directors of the Loan Parties in the ordinary course
of business that do not exceed $1,000,000 in aggregate amount at any time
outstanding;
(d)
*
(e)
*
(f)
*
(g)
*
CREDIT AGREEMENT - Page 68
* Confidential Treatment Request
<PAGE>
(h) the Borrower may issue shares of its common stock to holders of the
Series A Preferred Stock pursuant to an exchange or conversion of shares of
Series A Preferred Stock in accordance with the Series A Preferred Stock
Agreements;
provided, however, that no Restricted Payments may be made pursuant to clause
(a) or clause (b) preceding if a Default exists at the time of such Restricted
Payment or would result therefrom.
Section 9.5 Investments. The Borrower will not, nor will it permit any
Subsidiary of the Borrower to, make or permit to remain outstanding any advance,
loan, extension of credit or capital contribution to or investment in any
Person, or purchase or own any stock, bonds, notes, debentures or other
securities of any Person, or be or become a joint venturer with or partner of
any Person (all such transactions being herein called "Investments"), except:
(a) Investments in obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to the Borrower or
another Loan Party;
(b) existing Investments identified on Schedule 9.5 hereto;
(c) Investments in securities issued or guaranteed by the U.S. or any
agency thereof with maturities of two years or less from the date of
acquisition;
(d) Investments in certificates of deposit and Eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000;
(e) Investments in repurchase obligations with a term of not more than
seven days for securities of the types described in clause (c) preceding with
any Lender or with any domestic commercial bank having capital and surplus in
excess of $500,000,000;
(f) Investments in commercial paper of a domestic issuer rated A-1 or
better or P-1 or better by Standard & Poor's Corporation or Moody's Investors
Services, Inc., respectively, maturing not more than 270 days from the date of
acquisition;
(g) (i) Investments (other than intercompany Debt referred to in clause
(h) below) by the Borrower in its directly owned Subsidiaries existing on the
Closing Date or required to occur in accordance with this Agreement, and (ii)
additional Investments by the Borrower in its directly owned Subsidiaries made
after the Closing Date which, together with intercompany Debt referred to in
clause (h) below, does not exceed $1,000,000 in aggregate amount at any time
outstanding;
(h) intercompany Debt permitted pursuant to clause (f) of Section 9.1
which, together with Investments referred to in clause (g)(ii) above, does not
exceed $1,000,000 in aggregate amount
CREDIT AGREEMENT - Page 69
<PAGE>
at any time outstanding, provided that payment of such Debt shall be fully
subordinated to the Obligations pursuant to terms and provisions approved by the
Administrative Agent in writing;
(i) Interest Rate Protection Agreements entered into in compliance with
Section 8.16;
(j) temporary loans or advances to employees, officers and directors of
the Loan Parties in the ordinary course of business that do not exceed *
$ in aggregate amount at any time outstanding; and
(k)
*
provided, however, that no Investments may be made by the Borrower pursuant to
clauses (g), (h) or (k) preceding if a Default exists at the time of such
Investment or would result therefrom.
Section 9.6 Limitation on Issuance of Capital Stock. The Borrower will not
permit any of its Subsidiaries to, at any time, issue, sell, assign or otherwise
dispose of (a) any of such Subsidiary's Capital Stock, (b) any securities
exchangeable for or convertible into or carrying any rights to acquire any of
such Subsidiary's Capital Stock, or (c) any option, warrant or other right to
acquire any of such Subsidiary's Capital Stock, in each case to any Person other
than the Borrower. All such Capital Stock, securities, options, warrants and
other rights issued, sold, assigned or disposed of shall be, and shall continue
to be, subject to a first priority Lien in favor of the Administrative Agent as
security for the payment and performance of the Obligations.
Section 9.7 Transactions with Affiliates. The Borrower will not, nor will
it permit any Subsidiary of the Borrower to, enter into any transaction,
including, without limitation, the purchase, sale or exchange of Property or the
rendering of any service, with any Affiliate of the Borrower except in the
ordinary course of and pursuant to the reasonable requirements of the Borrower's
or such Subsidiary's business and upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary, respectively, than would be
obtained in a comparable arms-length transaction with a Person not an Affiliate
of the Borrower; provided, however, that transactions between or among the
Borrower and any of the Subsidiaries or Affiliates of the Borrower may be on
terms more favorable to the Borrower than would be obtained in a comparable
arms-length transaction with a Person not an Affiliate of the Borrower. In
addition to the foregoing, no transactions between or among (a) Affiliates of
the Borrower and (b) the Borrower and its Subsidiaries relating to the purchases
of equipment from any such Affiliate or the provision of services by any such
Affiliate shall be permitted unless the same are purchased or provided at the
cost to such Affiliate.
Section 9.8 Disposition of Property. The Borrower will not, nor will it
permit any Subsidiary of the Borrower to, sell, lease, assign, transfer or
otherwise dispose of any of its Property
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* Confidential Treatment Request
<PAGE>
(including, without limitation, the Nortel Networks Equipment and the Nortel
Networks Software, except (subject to the succeeding proviso):
(a) dispositions of Inventory (other than equipment) by the Borrower and
its Subsidiaries in the ordinary course of business, and expenditures of money
(including, without limitation, money held in deposit accounts) made in the
ordinary course of business or for the purpose of making Restricted Payments
expressly permitted in accordance with this Agreement or Investments expressly
permitted in accordance with this Agreement;
(b) Asset Dispositions of Property, other than accounts and Receivables,
by the Borrower and its Subsidiaries made in the ordinary course of business if
each of the following conditions have been satisfied: (i)(A) the fair market
value of the assets subject to any single Asset Disposition or series of related
Asset Dispositions in any fiscal year do not exceed 2.5% of the total assets of
the Borrower as of the last day of the fiscal year then most recently ended, (B)
the assets subject to such Asset Dispositions were previously acquired by the
Borrower in a transaction permitted pursuant to this Agreement and consist of
assets which are not useful in the business of the Borrower, and (C) the
Borrower or its Subsidiary (as applicable) receives fair consideration for such
assets, and (ii) no Default exists at the time of or will result from such Asset
Disposition;
(c) Asset Dispositions of Property, other than equipment, accounts and
Receivables, by the Borrower and its Subsidiaries to any Wholly-Owned Subsidiary
of the Borrower if each of the following conditions have been satisfied: (i) the
assets sold, disposed of or otherwise transferred to a Wholly-Owned Subsidiary
of the Borrower shall continue to be subject to a perfected, first priority Lien
(except for Permitted Liens, if any, which are expressly permitted by the Loan
Documents to have priority over the Liens in favor of the Administrative Agent)
in favor of the Administrative Agent and the Lenders, and (ii) no Default exists
at the time of or will result from such Asset Disposition; and
(d) dispositions of Property no longer used or useful in the ordinary
course of business, including, without limitation, dispositions of equipment
being exchanged or replaced with comparable or better equipment;
provided, however, that the Borrower will not, nor will it permit any Subsidiary
of the Borrower to, sell, lease, assign, transfer or otherwise dispose of any of
the Nortel Networks Equipment without the prior written consent of the Required
Lenders and Nortel Networks.
Section 9.9 Sale and Leaseback. The Borrower will not, nor will it permit
any Subsidiary of the Borrower to, enter into any arrangement with any Person
pursuant to which it leases from such Person real or personal Property that has
been or is to be sold or transferred, directly or indirectly, by it to such
Person.
Section 9.10 Lines of Business. The Borrower will not, and will not permit
any Subsidiary of the Borrower to, (a) engage in any business other than the
build-out, implementation and operation of the Network and other
Telecommunications Businesses in the U.S. and the conduct of related
Telecommunications Businesses and matters incidental thereto, in each case as
described in and
CREDIT AGREEMENT - Page 71
<PAGE>
contemplated by the Business Plan or (b) discontinue any line or lines of
business which provide material revenues to the Borrower or a Subsidiary of the
Borrower in which it is engaged on the Closing Date.
Section 9.11 Environmental Protection. The Borrower will not, nor will it
permit any Subsidiary of the Borrower to, (a) use (or permit any tenant to use)
any of its Properties for the handling, processing, storage, transportation or
disposal of any Hazardous Material except in compliance with applicable
Environmental Laws, (b) generate any Hazardous Material except in compliance
with applicable Environmental Laws, (c) conduct any activity that is likely to
cause a Release or threatened Release of any Hazardous Material in violation of
any Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner, that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which any Loan
Party would be responsible, except for circumstances or events described in
clauses (a) through (d) preceding that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 9.12 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents, the Borrower will not, nor will it
permit any Subsidiary of the Borrower to, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of the Borrower or any Subsidiary of the Borrower to (a) pay
dividends or make any other distribution to the Borrower or any Subsidiary of
the Borrower in respect of the Capital Stock of such Loan Party or with respect
to any other interest or participation in, or measured by, its profits, (b) pay
any indebtedness owed to the Borrower or any Subsidiary of the Borrower, (c)
make any loan or advance or capital contribution to the Borrower or any
Subsidiary of the Borrower, (d) sell, lease or transfer any of its Property to
the Borrower or any Subsidiary of the Borrower, or (e) grant any Lien on any of
its Properties.
Section 9.13 Management Fees. The Borrower will not, nor will it permit
any Subsidiary of the Borrower to, pay any management fees.
Section 9.14 Master Purchase Agreement. The Borrower will not, nor will it
permit any Subsidiary of the Borrower to, terminate the Master Purchase
Agreement or any additional similar agreement between or among any one or more
of the Loan Parties and Nortel Networks prior to the later to occur of the
Amortization Commencement Date or the satisfaction in full of all purchase
commitments of the Borrower and the other Loan Parties under the Master Purchase
Agreement and any such similar agreement.
Section 9.15 Modification of Certain Agreements. The Borrower will not,
nor will it permit any other Loan Party to, consent to or implement any
termination, amendment, modification, supplement or waiver of (a) the
certificate or articles of incorporation, articles of organization, bylaws,
regulations or other constitutional documents of the Borrower or any other Loan
Party (including, without limitation, the Series A Preferred Stock Designation),
except for the adoption of a certificate of designation with respect to the
preferred stock of the Borrower (other than the Series A Preferred Stock
Designation) which is not inconsistent or in conflict with the terms and
provisions of this Agreement, (b) the Series A Preferred Stock Agreements, (c)
the Business Plan,
CREDIT AGREEMENT - Page 72
<PAGE>
(d) any Material Contract to which it is a party, or any License which it
possesses, or (e) any Subordinated Debt Documents; provided, however, that (i)
the Loan Parties may amend or modify (A) the documents referred to in clauses
(a) and (b) preceding if and to the extent that such amendment or modification
is not substantive or material and could not be adverse to any Loan Party, the
Administrative Agent or any Lender, provided, however, that none of such
documents referred to in clause (a) or (b) preceding may be amended or modified
as they relate to, in any way, any capital contribution to the Borrower or any
obligation or agreement relating thereto or any Restricted Payment or any
obligation or agreement relating thereto, (B) the Business Plan with the prior
written consent of the Administrative Agent and the Required Lenders, which
consent shall not be unreasonably withheld if such amendment or modification
could not be adverse to any Loan Party, the Administrative Agent or any Lender,
(C) the Material Contracts referred to in clause (d) preceding if and to the
extent that such amendment or modification could not reasonably be expected to
be materially adverse to any Loan Party, the Administrative Agent or any Lender,
and (D) the Subordinated Debt Documents referred to in clause (e) preceding if
and to the extent that such amendment or modification is not material and does
not result in the Debt evidenced or governed thereby not being "Subordinated
Debt" as such term is defined herein and (ii) the Borrower and/or the purchasers
of the Series A Preferred Stock may waive conditions to the consummation of
subsequent purchases of Series A Preferred Stock under the Series A Securities
Purchase Agreement, other than conditions relating to the payment of the
required purchase price therefor.
Section 9.16 ERISA. The Borrower will not, nor will it permit any
Subsidiary of the Borrower to:
(a) allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits under any
Plan (exclusive of any Multiemployer Plan) to exist or to be created that
exceeds $100,000 with respect to any such Plan or $200,000 with respect to all
such Plans in the aggregate on either a going concern or a wind-up basis; or
(b) with respect to any Multiemployer Plan, allow, or take (or permit any
ERISA Affiliate to take) any action which would cause, any unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to be
created, either individually as to any such Plan or in the aggregate as to all
such Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material Adverse
Effect.
Section 9.17 No Prepayment of Debt, Etc. The Borrower will not, nor will
it permit any Subsidiary of the Borrower to, directly or indirectly, make any
optional prepayment or distribution on account of, or voluntarily purchase,
acquire, redeem or retire, any Debt (except for the Obligations) prior to 30
days before its originally stated maturity (or its stated maturity as of the
Closing Date in the case of Debt outstanding on the Closing Date), or in the
case of interest, its stated due date, or directly or indirectly become
obligated to do any of the foregoing by amending the terms thereof or otherwise,
except for:
(a) prepayments of the Loans or other Obligations pursuant to or as
permitted by the Loan Documents;
CREDIT AGREEMENT - Page 73
<PAGE>
(b) prepayments made with the proceeds of new Debt incurred for the
purpose of refinancing the Debt being prepaid, provided that (i) no portion of
such new Debt matures or is required to be prepaid, purchased or otherwise
retired earlier than the corresponding portion of the Debt being prepaid
(including as a result of any prepayment or redemption upon the occurrence of a
condition), (ii) such new Debt (A) is subordinated to the Obligations to at
least the same extent as the Debt being refinanced if such Debt is subordinated
debt or (B) is permitted in accordance with this Agreement, and (iii) no Default
or Event of Default then exists or would result from such prepayment or
refinancing;
(c) prepayments of purchase money Debt permitted to be incurred in
accordance with Section 9.1(d);
(d) prepayments of trade payables incurred in the ordinary course of
business; and
(e) Restricted Payments with respect to the Series A Preferred Stock
expressly permitted in accordance with Section 9.4(d), Section 9.4(e), Section
9.4(f), Section 9.4(g) and Section 9.4(h).
In addition, the Borrower will not, nor will it permit any Subsidiary of the
Borrower to, prepay any rent or other obligations under any operating lease or
any other Material Contract prior to 90 days before the originally stated due
date therefor (or the due date therefor as of the Closing Date in the case of
operating leases or Material Contracts in existence on the Closing Date).
ARTICLE 10
Financial Covenants
-------------------
Section 10.1 Total Debt to Total Capitalization. The Borrower will not
permit the ratio of (a) Total Debt of the Borrower and its Consolidated
Subsidiaries outstanding at the end of any of the calendar quarters set forth on
Schedule 10.1 to (b) Total Capitalization of the Borrower and its Consolidated
Subsidiaries on such date, to exceed the ratio set forth opposite such date on
such Schedule.
Section 10.2 Senior Debt to Total Capitalization. The Borrower will not
permit the ratio of (a) Senior Debt of the Borrower and its Consolidated
Subsidiaries outstanding at the end of any of the calendar quarters set forth on
Schedule 10.2 to (b) Total Capitalization of the Borrower and its Consolidated
Subsidiaries on such date, to exceed the ratio set forth opposite such date on
such Schedule.
Section 10.3 Total Debt to Annualized EBITDA. The Borrower will not permit
the ratio of (a) Total Debt of the Borrower and its Consolidated Subsidiaries
outstanding at the end of any of the calendar quarters set forth on Schedule
10.3 to (b) Annualized EBITDA of the Borrower and its Consolidated Subsidiaries
for the period ending on such date, to exceed the ratio set forth opposite such
date on such Schedule.
Section 10.4 Senior Debt to Annualized EBITDA. [Intentionally omitted.]
CREDIT AGREEMENT - Page 74
<PAGE>
Section 10.5 Fixed Charge Coverage. The Borrower will not permit the ratio
of (a) Annualized EBITDA of the Borrower and its Consolidated Subsidiaries
during any of the calendar quarters ending on any of the dates set forth on
Schedule 10.5 plus cash balances of the Borrower and its Consolidated
Subsidiaries on such date to (b) Consolidated Fixed Charges of the Borrower and
its Consolidated Subsidiaries for the four calendar quarter period ending on
such date, to be less than the ratio set forth opposite such date on such
Schedule.
Section 10.6 Capital Expenditures. The Borrower will not permit the
cumulative Capital Expenditures of the Borrower and its Consolidated
Subsidiaries commencing on January 1, 2000 and ending on any of the dates set
forth on Schedule 10.6 to exceed the amount set forth opposite such date on such
Schedule.
Section 10.7 Minimum Gross Revenues. The Borrower will not permit the
Gross Revenues of the Borrower and its Consolidated Subsidiaries for any of the
calendar quarters ending on any of the dates set forth on Schedule 10.7 to be
less than the amount set forth opposite such date on such Schedule.
Section 10.8 EBITDA. The Borrower will not permit the EBITDA of the
Borrower and its Consolidated Subsidiaries for any of the calendar quarters
ending on any of the dates set forth on Schedule 10.8 to be less than the amount
set forth opposite such date on such Schedule.
Section 10.9 Annualized EBITDA. The Borrower will not permit the
Annualized EBITDA of the Borrower and its Consolidated Subsidiaries for any of
the calendar quarters ending on any of the dates set forth on Schedule 10.9 to
be less than the amount set forth opposite such date on such Schedule.
ARTICLE 11
Default
-------
Section 11.1 Events of Default. Notwithstanding anything to the contrary
contained in this Agreement, each of the following shall be deemed an "Event of
Default":
(a) (i) The Borrower shall fail to pay, repay or prepay when due, any
amount of principal or interest owing to the Administrative Agent or any Lender
pursuant to this Agreement or any other Loan Document, or (ii) the Borrower
shall fail to pay, within two Business Days after the due date thereof, any fee,
expense or other amount or other Obligation owing to the Administrative Agent or
any Lender pursuant to this Agreement or any other Loan Document.
(b) Any representation or warranty made or deemed made by or on behalf of
any Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
CREDIT AGREEMENT - Page 75
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(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Article 5, Section 8.1(e), Section 8.2,
Section 8.6, Section 8.10, Article 9 or Article 10; any Loan Party shall fail to
perform, observe or comply with any covenant, agreement or term contained in
Sections 8.1 (other than Section 8.1(e)), 8.3, 8.5, 8.7, 8.8, 8.9, 8.13,
8.15, 8.17, 8.18, 8.19 or 8.20, and such failure is not remedied or waived
within ten days after such failure commenced; or any Loan Party shall fail to
perform, observe or comply with any other covenant, agreement or term contained
in this Agreement or any other Loan Document (other than covenants to pay the
Obligations) and such failure is not remedied or waived within the earlier to
occur of 30 days after such failure commenced or, if a different grace period is
expressly made applicable in such other Loan Documents, such applicable grace
period.
(d) Any Loan Party ceases to be Solvent or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due.
(e) Any Loan Party shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator or
administrator of itself or of all or a substantial part of its Property, (ii)
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due, subject to any applicable grace periods, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (v) file a petition seeking to take advantage of any other
law providing for the relief of debtors or relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding up, or
composition or readjustment of debts, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or other applicable Governmental
Requirement, (vii) dissolve, or (viii) take any entity action for the purpose of
effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application or
consent of any Loan Party, in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, dissolution, arrangement, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or of
all or any substantial part of its Property, or (iii) similar relief in respect
of it, under any law providing for the relief of debtors or relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding up, or composition or readjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief shall be entered
in an involuntary case under the Bankruptcy Code against any Loan Party and
shall continue unstayed and in effect for any period of 60 consecutive days.
(g) Any Loan Party shall fail to discharge within a period of 30 days
after the commencement thereof any attachment, sequestration, forfeiture or
similar proceeding or proceedings involving an aggregate amount in excess of
$100,000 against any of its Properties.
CREDIT AGREEMENT - Page 76
<PAGE>
(h) A final judgment or judgments for the payment of money in excess of
$100,000 in the aggregate shall be rendered by a court or courts against any
Loan Party on claims not covered by insurance and the same shall not be
discharged, bonded or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof and any Loan Party shall not, within said
period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) Any Loan Party shall fail to pay when due any principal of or interest
on any Debt of such Loan Party (other than the Obligations) having (either
individually or in the aggregate) a principal amount of at least $1,000,000 or
the maturity of any such Debt shall have been accelerated, or any such Debt
shall have been required to be prepaid prior to the stated maturity thereof, or
any event shall have occurred (and shall not have been waived or otherwise
cured) that permits (or, with the giving of notice or lapse of time or both,
would permit) any holder or holders of such Debt or any Person acting on behalf
of such holder or holders to accelerate the maturity thereof or require any such
prepayment.
(j) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Loan Party or any
Loan Party shall deny that it has further liability or obligation under any of
the Loan Documents; or any Lien created or purported to be created by the Loan
Documents shall for any reason cease to be or fail to be a valid, first priority
perfected Lien upon any of the Collateral purported to be covered thereby.
(k) Any of the following events shall occur or exist with respect to any
Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction involving any
Plan; (ii) any Reportable Event with respect to any Pension Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any
Pension Plan or the termination of any Pension Plan; (iv) any event or
circumstance that could reasonably be expected to constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Pension
Plan, or the institution by the PBGC of any such proceedings; (v) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any Pension
Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency or termination of
any Pension Plan; and in each case above, such event or condition, together with
all other events or conditions, if any, have subjected or could in the
reasonable opinion of Required Lenders subject any Loan Party or any ERISA
Affiliate to any tax, penalty or other liability to a Plan, a Multiemployer
Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $100,000.
(l) The occurrence of any breach or default by the Borrower and/or any
other Loan Party under the Master Purchase Agreement or any other similar
agreement between or among any Loan Party and Nortel Networks (after giving
effect to any grace or cure period specified therein) which breach or default
entitles Nortel Networks to exercise a right or remedy under or in connection
with the Master Purchase Agreement or such other similar agreement.
CREDIT AGREEMENT - Page 77
<PAGE>
(m) Any termination, revocation or non-renewal by the FCC or any federal
or state public utility commission or other Governmental Authority of any
material License of the Borrower or any of its Subsidiaries.
(n) The occurrence of any Material Adverse Effect.
(o) The occurrence of any Change in Control.
(p) If, at any time, the subordination provisions of any of the
Subordinated Debt Documents shall be invalidated or shall otherwise cease to be
in full force and effect.
(q) If, at any time, any event or circumstance shall occur which gives any
holder of any Subordinated Debt the right to request or require the Borrower or
any other Loan Party to redeem, purchase or prepay any Subordinated Debt except
as may be expressly permitted by this Agreement.
(r) The occurrence of (i) a default under (including, without limitation,
a "Default" as such term is used or defined in) any Subordinated Debt Document,
unless (A) such default has been waived, cured or consented to in accordance
with such documents, (B) such default is not a payment default, (C) the maturity
of the Debt affected thereby has not been accelerated, (D) a blockage under such
Subordinated Debt Document has not been invoked, and (E) such waiver or consent
is not made in connection with any amendment or modification of any such
Subordinated Debt Documents or in connection with any payment to the holders of
any Subordinated Debt, (ii) a payment default under (including, without
limitation, a payment "Default" as such term is used or defined in) any
Subordinated Debt Document, (iii) an event of default under (including, without
limitation, an "Event of Default" as such term is used or defined in) any
Subordinated Debt Document, or (iv) any acceleration of the maturity of any
Subordinated Debt, in each case where the Subordinated Debt evidenced by the
Subordinated Debt Document exceeds $500,000 in aggregate amount.
(s) Any sale, transfer or other disposition of the Network or any material
portion thereof.
(t) The giving of any "Notice of Redemption at Option of Buyer" or any
"Notice of Redemption Upon Change of Control" as any such term is defined in the
Series A Preferred Stock Designation (unless such notice has been effectively
withdrawn prior to the exercise of any right or remedy of the Administrative
Agent and/or the Lenders in connection with such Event of Default).
(u) The occurrence of any default, event of default or other event or
circumstance which has the effect of obligating the Borrower, but for or
exclusive of the effect of Section 3(i) of the Series A Preferred Stock
Designation
or other subordination provision, to make or pay any Restricted Payment * or pay
any damages or penalties relating to any breach of, default under or failure to
comply with any agreement, document or instrument relating to any preferred
stock of the Borrower (including, without limitation, the Series A Preferred
Stock Agreements).
* Confidential Treatment Request
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Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower;
(b) Termination of Commitments. Terminate each of the Commitments without
notice to the Borrower or any other Loan Party;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
to secure payment and performance of the Obligations in accordance with the
terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded by the laws
of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise;
provided, however, that upon the occurrence of an Event of Default under Section
11.1(e) or Section 11.1(f), the Commitments of all of the Lenders shall
immediately and automatically terminate, and the outstanding principal of and
accrued and unpaid interest on the Loans and all other amounts payable by the
Borrower under the Loan Documents shall thereupon become immediately and
automatically due and payable, without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
Section 11.3 Performance by the Administrative Agent, etc.. If the
Borrower shall fail to perform any covenant or agreement in accordance with the
terms of the Loan Documents, the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform, such covenant or agreement on behalf of the Borrower. In
such event, the Borrower shall, at the request of the Administrative Agent,
promptly pay any amount expended by the Administrative Agent or the Lenders in
connection with such performance or attempted performance to the Administrative
Agent at its Principal Office, together with interest thereon at the applicable
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that neither the Administrative Agent nor any Lender shall have
any liability or responsibility for the performance of any obligation of the
Borrower, any Loan Party or any other Person under this Agreement or any of the
other Loan Documents.
CREDIT AGREEMENT - Page 79
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ARTICLE 12
The Administrative Agent
------------------------
Section 12.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan Documents, and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Lenders,
(d) shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, validity, effectiveness, enforceability or sufficiency of this
Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or for any failure by any Person to perform any
of its obligations hereunder or thereunder, (e) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing reasonably believed by it to be genuine and signed or sent
by the proper party or parties. As to any matters not expressly provided for by
this Agreement, the Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders; provided, however, that the Administrative
Agent shall not be required to take any action which exposes the Administrative
Agent to liability or which is contrary to this Agreement or any other Loan
Document or applicable law. The Administrative Agent shall not be deemed to have
any fiduciary relationship with any Lender or any Loan Party, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with respect to the Administrative Agent is not intended to
connote any fiduciary or other express or implied obligation arising under
agency doctrine of any applicable law; instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship among independent contracting parties.
CREDIT AGREEMENT - Page 80
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Section 12.2 Rights of Administrative Agent as a Lender. With respect to
its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, the Borrower or any of its Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders. Without limiting the generality of the
foregoing, it is contemplated that (a) Nortel Networks will be the holder of
certain capital stock issued by the Borrower and (b) Nortel Networks and/or an
Affiliate of Nortel Networks may purchase additional equity securities issued by
the Borrowers.
Section 12.3 Defaults. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 12.1) take such
action with respect to such Default as shall be directed by the Required
Lenders, provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall seem advisable and in the best interest of the
Lenders.
Section 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY THE
ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS AGAINST (TO
THE EXTENT NOT REIMBURSED UNDER SECTION 13.1 AND SECTION 13.2, BUT WITHOUT
LIMITING THE OBLIGATIONS OF THE BORROWER AND THE BORROWER UNDER SECTION 13.1 AND
SECTION 13.2), RATABLY IN ACCORDANCE WITH ITS PRO RATA SHARE (CALCULATED ON THE
BASIS OF ITS COMMITMENT PERCENTAGE OF THE AGGREGATE COMMITMENTS), ANY AND ALL
LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES),
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES,
SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND
OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST
THE ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE ADMINISTRATIVE
AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT
NO
CREDIT AGREEMENT - Page 81
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LENDER SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY
THE ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT
LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE LENDERS THAT THE
ADMINISTRATIVE AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS
AGAINST ALL OF SUCH LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL
LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE ADMINISTRATIVE AGENT
(EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE ADMINISTRATIVE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING ANY OTHER PROVISION OF THIS
SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT PROMPTLY
UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT
PERCENTAGE OF THE AGGREGATE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES
(INCLUDING ATTORNEYS' FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN CONNECTION
WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION,
AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR
OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER,
THE LOAN DOCUMENTS, TO THE EXTENT THAT THE ADMINISTRATIVE AGENT IS NOT PROMPTLY
REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.
Section 12.5 Independent Credit Decisions. Each Lender agrees that it has
independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and the other Loan
Parties and its own decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by any Loan Party of this Agreement
or any other Loan Document or to inspect the Properties or books of any Loan
Party (or any other Person). Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by the
Administrative Agent hereunder or under the other Loan Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other financial information concerning the affairs,
financial condition or business of any Loan Party which may come into the
possession of the Administrative Agent or any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other obligations of
the Lenders under this Agreement are several. The default by any Lender in
making a Loan in accordance with any of its Commitments shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each
CREDIT AGREEMENT - Page 82
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nondefaulting Lender shall be obligated to make its Loan but shall not be
obligated to advance the amount which the defaulting Lender was required to
advance hereunder. In no event shall any Lender be required to advance an amount
or amounts with respect to any of the Loans which would in the aggregate exceed
such Lender's Commitment with respect to such Loans. No Lender shall be
responsible for any act or omission of any other Lender.
Section 12.7 Successor Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by giving notice thereof to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders will
have the right to appoint another Lender as a successor Administrative Agent. If
no successor Administrative Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the U.S. or any state thereof or of a foreign country if acting through its
U.S. branch and having combined capital and surplus of at least $100,000,000.
Upon the acceptance of its appointment as successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all rights, powers, privileges, immunities and duties of the resigning
Administrative Agent, and the resigning Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents. After any Administrative Agent's resignation as Administrative Agent,
the provisions of this Article 12 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Administrative Agent. Each Administrative Agent (including each successor
Administrative Agent) agrees that, so long as it is acting as Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.
ARTICLE 13
Miscellaneous
-------------
Section 13.1 Expenses. The Borrower hereby agrees, on demand, to pay or
reimburse the Administrative Agent and each of the Lenders for paying: (a) all
reasonable out-of-pocket costs and expenses of the Administrative Agent accrued
in connection with the arranging, drafting, preparation, negotiation, execution
and/or delivery of the Loan Documents and in connection with any and all
waivers, amendments, modifications, renewals, extensions and supplements of or
to the Loan Documents, and the syndication of the Commitments and the Loans,
including, without limitation, the reasonable fees and expenses of legal counsel
(including all local counsel) for the Administrative Agent, (b) all
out-of-pocket costs and expenses of the Administrative Agent and the Lenders in
connection with any Default, the exercise of any right or remedy and the
enforcement of this Agreement or any other Loan Document or any term or
provision hereof or thereof, including, without limitation, the fees and
expenses of all legal counsel for the Administrative Agent and/or any Lender,
(c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any Governmental Authority in respect of this Agreement or any
of the other Loan Documents, (d) all costs, expenses, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any Lien contemplated by this Agreement or any other Loan
CREDIT AGREEMENT - Page 83
<PAGE>
Document, (e) all reasonable out-of-pocket costs and expenses incurred by the
Administrative Agent in connection with due diligence, computer services,
copying, appraisals, environmental audits, collateral audits, field exams,
insurance, consultants and search reports, and (f) all costs and expenses
incurred by the Observer if and to the extent provided in Section 8.19.
Section 13.2 INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY THE
ADMINISTRATIVE AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD
EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE DRAFTING, PREPARATION, NEGOTIATION,
EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE
LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY FORECLOSURE
RIGHT OR OTHER RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN COMPLIANCE
WITH LAWS AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO OTHER
PERSONS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY
BREACH BY ANY LOAN PARTY OF ANY MATERIAL REPRESENTATION, WARRANTY, COVENANT OR
OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED
USE OF ANY LOAN, (E) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL,
REMOVAL OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR
AFFECTING ANY OF THE PROPERTIES OF ANY LOAN PARTY OR ANY OF ITS AFFILIATES,
EXCEPT TO THE EXTENT THAT THE LOSS, DAMAGE OR CLAIM IS THE DIRECT RESULT OF
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED, OR (F)
ANY INVESTIGATION, LITIGATION OR OTHER PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION OR OTHER PROCEEDING
RELATING TO ANY OF THE FOREGOING, WHETHER BROUGHT BY ANY LOAN PARTY, ANY
CREDITOR OR ANY OTHER PERSON; BUT EXCLUDING ANY OF THE FOREGOING TO THE EXTENT
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE
INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER
LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH
PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL BE INDEMNIFIED FROM AND
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING
OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER TERM OR PROVISION OF THIS
AGREEMENT, THE
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OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE THE REPAYMENT
OF THE LOANS AND OTHER OBLIGATIONS AND TERMINATION OF THE COMMITMENTS.
Section 13.3 Limitation of Liability. None of the Administrative Agent,
any Lender or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable for any error of judgment or act done in good faith, or
be otherwise liable or responsible under any circumstances whatsoever (including
such Person's negligence), except for such Person's gross negligence or willful
misconduct. None of the Administrative Agent, any Lender or any Affiliate,
officer, director, employee, attorney or agent thereof shall have any liability
with respect to, and the Borrower hereby waives, releases and agrees not to sue
any of them upon, any claim for any special, indirect, incidental or
consequential damages suffered or incurred by the Borrower, any Loan Party or
any Affiliate of the Borrower in connection with, arising out of or in any way
related to this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
The Borrower hereby waives, releases and agrees not to sue the Administrative
Agent or any Lender or any of their respective Affiliates, officers, directors,
employees, attorneys or agents for exemplary or punitive damages in respect of
any claim in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty of disclosure, duty
of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to the Borrower, any Loan Party or any of their respective Affiliates
or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between the
Borrower and each Lender is solely that of debtor and creditor, and neither the
Administrative Agent nor any Lender has any fiduciary or other special
relationship with the Borrower, any Loan Party or any of their respective
Affiliates, and no term, provision or condition of any of the Loan Documents
shall be construed so as to deem the relationship between the Borrower and any
Lender, between any other Loan Party and any Lender or between any such
Affiliate and any Lender to be other than that of debtor and creditor. No joint
venture or partnership is created by this Agreement among the Lenders or among
the Borrower, any Loan Party or any of their respective Affiliates and the
Lenders.
Section 13.6 Equitable Relief. The Borrower recognizes that, in the event
it fails to pay, perform, observe or discharge any or all of the Obligations,
any remedy at law may prove to be inadequate relief to the Administrative Agent
and the Lenders. The Borrower therefore agrees that the Administrative Agent and
the Lenders, if the Administrative Agent or the Lenders so request, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of the
Administrative Agent or any Lender to exercise and no delay in exercising, and
no course of dealing
CREDIT AGREEMENT - Page 85
<PAGE>
with respect to, any right, power or privilege under this Agreement or any other
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or any other Loan
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies provided for in this
Agreement and the other Loan Documents are cumulative and not exclusive of any
rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The Borrower may not
assign or transfer any of its rights or obligations under this Agreement or any
other Loan Document without the prior written consent of the Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitments and the
Loans owing to it); provided, however, that (i) such Lender's obligations under
this Agreement and the other Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrower for the performance of such obligations, (iii) such
Lender shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents, and (v) the Lenders shall not grant any participation
under which the participant shall have the right to approve (or under which the
consent of the participant must be obtained prior to the Lenders' being able to
approve) any amendment or waiver of this Agreement or the other Loan Documents,
except to the extent that such amendment or waiver (A) increases any Commitment,
(B) reduces the interest rate or the amount of principal or fees applicable to
the Loans or Commitments in which such participant is participating, (C) extends
any Maturity Date, (D) releases any of the Collateral (except as provided for
herein or in any other Loan Document) or any guaranty of the Obligations, or (E)
releases any Loan Party from its monetary Obligations under any of the Loan
Documents.
(b) The Borrower and each of the Lenders agree that any Lender (the
"Assigning Lender") may at any time assign to one or more Eligible Assignees
(each an "Assignee") all or any part of its rights and/or obligations under this
Agreement and the other Loan Documents (including, without limitation, its
Commitments and/or Loans); provided, however, that (i) each such assignment may
be of a varying percentage of the Assigning Lender's rights and/or obligations
under this Agreement and the other Loan Documents and may relate to some but not
all of such rights and/or obligations, (ii) except in the case of (A) an
assignment of all of a Lender's rights and obligations under this Agreement and
the other Loan Documents or (B) an assignment by a Lender to an Affiliate of
such Lender, to another Lender or to an Approved Fund, the amount of the
Commitment(s) and/or Loans of the Assigning Lender being assigned pursuant to
each assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event (unless otherwise agreed by the
Administrative Agent) be less than $5,000,000 calculated based upon the
aggregate amount of the Commitment(s) and/or Loans assigned and (iii) the
parties to each such assignment shall execute and deliver to the Administrative
Agent for its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Note subject to such
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assignment, and a processing and recordation fee of $3,500. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof or such other date as may be approved
by the Administrative Agent, (1) the Assignee thereunder shall be a party hereto
as a "Lender" and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (2)
the Assigning Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
and the other Loan Documents (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of a Lender's rights and obligations under
the Loan Documents, such Lender shall cease to be a party thereto, provided that
such Lender's rights under Article 4, Section 13.1 and Section 13.2 accrued
through the date of assignment shall continue). The Borrower will provide full
and prompt assistance to each Lender as it may reasonably request from time to
time in connection with such Lender's efforts to assign its Commitments and/or
Loans or sell any participation interest therein. Such assistance shall include,
without limitation, making senior officers of the Borrower available for
meetings with prospective Lenders and participants and providing (in a timely
manner) such assistance as may be reasonably requested by such Lender and/or its
advisors, including, without limitation, providing information to and responding
to inquiries from such prospective Lenders and participants with respect to the
businesses, operations, business plan, financial condition and results of
operations of the Borrower and its Subsidiaries.
(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or document
furnished pursuant thereto; (ii) such Assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition or results of operations of the Borrower, any Loan Party or any of
their respective Affiliates or the performance or observance by the Borrower,
any Loan Party or any of their respective Affiliates of any of their respective
obligations under the Loan Documents; (iii) such Assignee confirms that it has
received a copy of the Loan Documents, together with copies of the financial
statements referred to in Section 7.2 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such Assignee will,
independently and without reliance upon the Administrative Agent or such
Assigning Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
Assignee confirms that it is an Eligible Assignee; (vi) such Assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and exercise such powers under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vii) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.
CREDIT AGREEMENT - Page 87
<PAGE>
(d) The Administrative Agent shall maintain at its Principal Office a copy
of each Assignment and Acceptance delivered to and accepted by it and a register
for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt written notice thereof to the Borrower. Within five Business
Days after its receipt of such notice, the Borrower, at the Borrower's expense,
shall execute and deliver to the Administrative Agent in exchange for each
surrendered Note evidencing the Loans assigned, a new Note evidencing such Loans
payable to the order of such Eligible Assignee in an amount equal to such Loans
assigned to it and, if the Assigning Lender has retained any Loans, a new Note
evidencing each such Loans payable to the order of the Assigning Lender in the
amount of such Loans retained by it (each such promissory note shall constitute
a "Note" for purposes of the Loan Documents). Such new Notes shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit B.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 13.8, disclose to
the Assignee or participant or proposed Assignee or participant any information
relating to the Borrower, any Loan Party or any of their respective Affiliates
furnished to such Lender by or on behalf of the Borrower, any Loan Party or any
of their respective Affiliates; provided that each such actual or proposed
Assignee or participant shall agree to be bound by the provisions of Section
13.20.
(g) Any Lender may assign and pledge any Note held by it to any Federal
Reserve Bank or the U.S. Treasury as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve System and/or Federal Reserve Bank;
provided, however, that any payment made by the Borrower for the benefit of such
assigning and/or pledging Lender in accordance with the terms of the Loan
Documents shall satisfy the Borrower's obligations under the Loan Documents in
respect thereof to the extent of such payment. No such assignment and/or pledge
shall release the assigning and/or pledging Lender from its obligations
hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register
(the "Registered Note Register") (which, at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are
CREDIT AGREEMENT - Page 88
<PAGE>
to be sent hereunder) on which it shall enter the name of the registered owner
of each of the Loans which is evidenced by a Registered Note. Notwithstanding
anything to the contrary contained in this Section 13.8, a Registered Note and
the Loans evidenced thereby may be assigned or otherwise transferred in whole or
in part only by registration of such assignment or transfer of such Registered
Note and the Loans evidenced thereby on the Registered Note Register (and each
Registered Note shall expressly so provide). Any assignment or transfer of all
or part of such Loans and the Registered Note evidencing the same shall be
registered on the Registered Note Register only upon surrender for registration
of assignment or transfer of the Registered Note evidencing such Loans, duly
endorsed by (or accompanied by a written instrument of assignment or transfer
duly executed by) the registered noteholder thereof, and thereupon one or more
new Registered Notes in the same aggregate principal amount shall be issued to
the designated assignee(s) or transferee(s). Prior to the due presentment for
registration of transfer of any Registered Note, the Borrower and the
Administrative Agent shall treat the Person in whose name such Loans and the
Registered Note(s) evidencing the same are registered as the owner thereof for
the purpose of receiving all payments thereon and for all other purposes,
notwithstanding any notice to the contrary. The Registered Note Register shall
be available for inspection by the Borrower and any Lender at any reasonable
time upon reasonable prior notice.
(i) The Borrower will not, nor will it permit any other Loan Party to,
become a party to any loan agreement, credit agreement or similar agreement
which restricts or prohibits the right or ability of any lender which is a party
thereto to become a Lender under this Agreement.
(j) The Borrower shall provide prompt assistance to the Administrative
Agent and the Lenders in connection with their efforts in syndicating the Loans
and Commitments. Such assistance shall include making senior officers and other
representatives of the Borrower and their respective Affiliates available for
meetings with prospective Lenders and providing, in a timely manner, such
assistance as may be reasonably requested by the Administrative Agent or its
advisors, including, without limitation, providing information to and responding
to inquiries from prospective Lenders with respect to the business, operations,
Business Plan, results and other matters relating to the business of the
Borrower and the other Loan Parties.
Section 13.9 Survival. All representations and warranties made or deemed
made in this Agreement or any other Loan Document or in any document, statement
or certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans, and no investigation by the Administrative Agent or any
Lender or any closing shall affect the representations and warranties or the
right of the Administrative Agent or any Lender to rely upon them. Without
prejudice to the survival of any other obligation of the Borrower hereunder, the
obligations of the Borrower under Article 4, Section 13.1 and Section 13.2 shall
survive repayment of the Loans and the Reimbursement Obligations and the other
Obligations.
Section 13.1 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS (INCLUDING, WITHOUT
LIMITATION, ANY
CREDIT AGREEMENT - Page 89
<PAGE>
COMMITMENT LETTER), TERM SHEETS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
Section 13.11 Amendments. No amendment or waiver of any provision of this
Agreement, the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Lenders and the Borrower in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders and the Borrower, do any of
the following: (a) increase the Commitments of the Lenders (or any Lender) or
subject the Lenders to any additional obligations; (b) reduce the principal of,
or interest on, the Loans or any fees or other amounts payable hereunder; (c)
postpone any date fixed for any payment (including, without limitation, any
mandatory prepayment) of principal of, or interest on, the Loans or any fees or
other amounts payable hereunder; (d) change the Commitment Percentages or the
aggregate unpaid principal amount of the Loans or the number or interests of the
Lenders which shall be required for the Lenders or any of them to take any
action under this Agreement; (e) change any provision contained in Section 3.2,
Section 3.3, Section 5.1 or this Section 13.11 or modify the definition of
"Required Lenders" contained in Section 1.1; or (f) except as expressly
authorized by this Agreement, release any Collateral from any of the Liens
created by the Security Documents; and provided further, however, that no
amendment, waiver or consent relating to Sections 12.1, 12.2, 12.3, 12.4 or 12.5
shall require the agreement of the Borrower. Notwithstanding anything to the
contrary contained in this Section 13.11, no amendment, waiver or consent shall
be made with respect to (i) Article 12 hereof without the prior written consent
of the Administrative Agent, (ii) the definition of "Master Purchase Agreement",
"Nortel Networks Equipment", "Nortel Networks Goods and Services" or "Nortel
Networks Software" or Section 2.5, Section 2.9 or Section 2.10 without the prior
written consent of Nortel Networks (whether or not Nortel Networks is then a
Lender hereunder), (iii) any condition precedent set forth in Article 6 with
respect to the making of any Loans without the prior written consent of the
Lenders that hold, at the time of such amendment, waiver or consent, at least a
majority (in Dollar amount) of the sum of the outstanding principal amount of
the Loans plus the outstanding Commitments, or (iv) the interest rate applicable
to the Loans or the Maturity Date of the Loans, in each case without the prior
written consent of the Lenders that hold, at the time of such amendment, waiver
or consent, at least a majority (in Dollar amount) of the sum of the outstanding
principal amount of the Loans plus the outstanding Commitments. Notwithstanding
the foregoing, so long as any shares of Series A Preferred Stock remain
outstanding, this Agreement may not be amended unless either (A) each holder of
Series A Preferred Stock consents in writing to such amendment, or (B) such
amendment does not (1) amend Section 9.4(d), Section 9.4(e), Section 9.4(f),
Section 9.4(g) or Section 9.4(h) in any manner that would adversely affect the
right of the holders of the Series A Preferred Stock to receive Restricted
Payments pursuant to any such Section or otherwise amend the Credit Agreement in
any manner that would effectively accomplish any of the foregoing referred to in
this clause (1) or (2) amend Section 11.1(q), Section 11.1(t) or Section 11.1(u)
in any manner that would
CREDIT AGREEMENT - Page 90
<PAGE>
allow the Administrative Agent or any Lender to claim that an Event of Default
has occurred under any such Section which such Person would not have, absent
such amendment, been able to claim prior to such amendment or otherwise amend
the Credit Agreement in any manner that would effectively accomplish any of the
foregoing referred to in this clause (2).
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this Agreement
or the other Loan Documents, none of the terms and provisions of this Agreement
or the other Loan Documents shall ever be construed to create a contract or
obligation to pay interest at a rate in excess of the Maximum Rate; and neither
the Administrative Agent nor any Lender shall ever charge, receive, take,
collect, reserve or apply, as interest on the Obligations, any amount in excess
of the Maximum Rate. The parties hereto agree that any interest, charge, fee,
expense or other obligation provided for in this Agreement or in the other Loan
Documents which constitutes interest under applicable law shall be, ipso facto
and under any and all circumstances, limited or reduced to an amount equal to
the lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section 13.12(b) or (ii)
an amount, which when added to all other interest payable under this Agreement
and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the
foregoing, the Administrative Agent or any Lender ever contracts for, charges,
receives, takes, collects, reserves or applies as interest any amount in excess
of the Maximum Rate, such amount which would be deemed excessive interest shall
be deemed a partial payment or prepayment of principal of the Obligations and
treated hereunder as such; and if the Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to the
Borrower. In determining whether the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the Borrower, the Administrative
Agent and the Lenders shall, to the maximum extent permitted by applicable law,
(i) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate does not
exceed the Maximum Rate at any time during the term of the Obligations; provided
that, if the unpaid principal balance is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Rate, the Administrative
Agent and/or the Lenders, as appropriate, shall refund to the Borrower the
amount of such excess and, in such event, the Administrative Agent and the
Lenders shall not be subject to any penalties provided by any laws for
CREDIT AGREEMENT - Page 91
<PAGE>
contracting for, charging, receiving, taking, collecting, reserving or applying
interest in excess of the Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil
Statutes of Texas 1925, as amended, the Borrower agrees that such Chapter 15
(which regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not govern or in any manner apply to the Obligations.
Section 13.13 Notices. All notices and other communications provided for
in this Agreement and the other Loan Documents to which the Borrower is a party
shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or, with respect to a Lender that becomes a party to this Agreement
pursuant to an assignment made in accordance with Section 13.8, in the
Assignment and Acceptance executed by it); or, as to any party, at such other
address as shall be designated by such party in a notice to each other party
given in accordance with this Section 13.13. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopy or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid; provided,
however, that notices to the Administrative Agent shall be deemed given when
received by the Administrative Agent.
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES HERETO
CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT PURSUANT TO
N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE LAWS OF THE
U.S. THE BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF
(1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, (2) ANY NEW
YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE U.S. DISTRICT COURT FOR
THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE COURT SITTING IN DALLAS
COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
(BY REGISTERED MAIL, POSTAGE PREPAID) OF COPIES OF SUCH PROCESS TO SUCH PERSON
AT ITS ADDRESS SET FORTH UNDERNEATH ITS SIGNATURE HERETO. THE BORROWER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN
CREDIT AGREEMENT - Page 92
<PAGE>
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 13.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 13.18 Construction. The Borrower, the Administrative Agent and
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality.
(a) Lenders' Obligations. Each Lender agrees to exercise its best efforts
to keep any information delivered or made available by the Borrower to such
Lender which is clearly indicated to be confidential information, confidential
from anyone other than Persons employed or retained by such Lender who are or
are expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Lender
from disclosing such information (a) to any other Lender, (b) to any Person if
reasonably incidental to the administration of the Loans, (c) upon the order of
any court or administrative agency, (d) upon the request or demand of any
regulatory agency or authority having jurisdiction over such Lender, (e) which
has been publicly disclosed, (f) in connection with any litigation to which the
Administrative Agent, any Lender or their respective Affiliates may be a party,
(g) to the extent reasonably required in connection with the exercise of any
right or remedy under the Loan Documents, (h) to such Lender's legal counsel,
independent auditors and Affiliates, and (i) to any actual or proposed
participant or Assignee of all or part of its rights hereunder, so long as such
actual or proposed participant or Assignee agrees to be bound by the provisions
of this Section 13.20.
(b) Loan Parties' and Affiliates' Obligations. The Borrower agrees that it
will, and will cause the other Loan Parties and their Affiliates to, keep the
terms and provisions of this Agreement
CREDIT AGREEMENT - Page 93
<PAGE>
and the other Loan Documents confidential from anyone other than individuals
employed or retained by the Borrower, any other Loan Party or any of their
Affiliates who are or are expected to become engaged in financial matters or
matters relating to compliance with the Loan Documents, provided that nothing
herein shall prevent any such Person from disclosing such information (i) to any
such other Loan Party or Affiliate or shareholder of the Borrower if (but only
if) such other Loan Party or Affiliate or shareholder of the Borrower has agreed
in writing to be bound by the terms and provisions of this Section 13.20(b),
(ii) upon the order of any court or administrative agency, (iii) upon the
request or demand of any regulatory agency or authority having jurisdiction over
such Loan Party or Affiliate, (iv) which has been publicly disclosed, or (v) to
such Loan Party's or Affiliate's legal counsel and independent auditors;
provided, however, that the Borrower will deliver to the Administrative Agent
written notice of any intention or obligation of any Loan Party to deliver or
provide a copy of this Agreement or any other Loan Document or any term or
provision hereof or thereof to any Governmental Authority at least ten Business
Days prior to the initial date upon which any such delivery or provision occurs
and Holdings and the Borrower shall, and shall cause each of the other Loan
Parties to, use all reasonable efforts to redact or delete from such copy or
such term or provision such terms or provisions or language relating to rates of
interest, fees, financial covenants, availability and other terms or provisions
of a sensitive nature as may be requested by the Administrative Agent to be so
redacted or deleted before the same is so delivered or provided. (The
Administrative Agent and the Lenders acknowledge that, subject to the preceding
proviso, the Borrower intends to file this Agreement with the Securities and
Exchange Commission as an exhibit to its Form 8-K to be so filed.) Without
limiting the generality of the foregoing, the Borrower agrees that it will not,
and will not permit any other Loan Party or its Affiliates to, without the prior
written consent of the Administrative Agent, issue or publish a press release,
tombstone or other similar announcement or publication relating to this
Agreement or any other Loan Document or the transactions contemplated hereby
unless it is required to do so by the order of any court or administrative
agency or in accordance with applicable law.
Section 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BORROWER, THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly provided
to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the Administrative Agent
or any Lender is requested or required, (a) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of the Administrative Agent or such Lender, respectively, and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such approval or consent or to exercise such judgment in
any particular manner, regardless of the reasonableness of the request or the
action or judgment of the Administrative Agent or such Lender, and (b) no
approval or consent of the
CREDIT AGREEMENT - Page 94
<PAGE>
Administrative Agent or any Lender shall in any event be effective unless the
same shall be in writing and the same shall be effective only in the specific
instance and for the specific purpose for which given.
Section 13.23 Service of Process. The Borrower irrevocably consents to the
service of process by the mailing thereof by the Administrative Agent or the
Required Lenders by registered or certified mail, postage prepaid, to the
Borrower at its address listed on the signature pages hereof. Nothing in this
Section 13.23 shall affect the right of the Administrative Agent or the Lenders
to serve legal process in any other manner permitted by law or affect the right
of the Administrative Agent or any Lender to bring any action or proceeding
against the Borrower or any of its Property in the court of any jurisdiction.
[Remainder of page intentionally left blank.]
CREDIT AGREEMENT - Page 95
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWER:
--------
LOG ON AMERICA, INC.
By: /s/ David R. Paolo
----------------------------------------
Name: David R. Paolo
Title: President and Chief Executive Officer
Address for Notices:
-------------------
Log On America, Inc.
3 Regency Plaza
Providence, Rhode Island 02903
Attention: President
Telephone: (401) 453-6100
Telecopy: (401) 459-6222
with a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
Attention: John Shin, Esq.
Telephone: 212-779-8600
Telecopy: 212-779-8858
CREDIT AGREEMENT - Page 96
<PAGE>
ADMINISTRATIVE AGENT:
--------------------
NORTEL NETWORKS INC.,
as Administrative Agent
By: /s/ Paul D. Day
----------------------------------------
Name: Paul D. Day
--------------------------------------
Title: V.P. Customer Finance
-------------------------------------
Address for Notices:
-------------------
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Paul D. Day, Vice President,
Customer Finance North America
Telephone: 972-684-2271
Telecopy: 972-684-3679
and
Nortel Networks Inc.
PO Box 833858
Mail Stop 468/05/B40
2100 Lakeside Blvd.
Richardson, Texas 75083-3858
Attention: Kimberly Poe, Director,
Loan Administration
Telephone: 972-684-7687
Telecopy: 972-685-3255
CREDIT AGREEMENT - Page 97
<PAGE>
LENDERS:
-------
NORTEL NETWORKS INC.
By: /s/ Paul D. Day
----------------------------------------
Name: Paul D. Day
--------------------------------------
Title: V.P. Customer Finance
-------------------------------------
Address for Notices:
-------------------
Commitments: $45,000,000 Nortel Networks Inc.
- ----------- ========== GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Paul D. Day, Vice President,
Customer Finance North America
Telephone: 972-684-2271
Telecopy: 972-684-3679
and
Nortel Networks Inc.
PO Box 833858
Mail Stop 468/05/B40
2100 Lakeside Blvd.
Richardson, Texas 75083-3858
Attention: Kimberly Poe, Director,
Loan Administration
Telephone: 972-684-7687
Telecopy: 972-685-3255
Lending Office for Base Rate Loans:
----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for Eurodollar Loans:
-----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
CREDIT AGREEMENT - Page 98
<PAGE>
3 Regency Plaza
Providence
[LOGO] Rhode Island 02903
Phone 401.453.6100
Log On America, Inc. Fax 401.459.6222
LOG ON AMERICA COMPLETES EQUITY PLACEMENT AND EXECUTES SENIOR CREDIT
FACILITY WITH NORTEL NETWORKS
Company Now Has Funds To Complete New England Broadband Build-out and
Implement Its Business Strategy
PROVIDENCE, RI, February 23, 2000 - Log On America, Inc. (Nasdaq: LOAX), a
rapidly growing D-CLEC+ providing DSL as well as a full line of commercial and
residential CLEC and ISP services in the Northeast, today announced that it
closed a $15 million tranche of a potential $35 million equity investment. The
investment was made by several institutional investors including Marshall
Capital Management Inc, in conjunction with a $45 million senior credit facility
with Nortel Networks. The Company will use the proceeds for the buildout of its
high-speed, broadband network in the Northeast and the acceleration of its sales
and marketing efforts.
David Paolo, Chairman and CEO of Log On America, commented, "When you combine
the recent financing from our institutional investors and our strategic partner,
Nortel Networks, we now have access to the necessary capital for our New England
roll-out of our advanced high speed broadband network. Clearly we have the
financial and strategic resources necessary to solidify Log On America's
position as a Regional New England player in the fast growing and lucrative
market for commercial and residential advanced broadband voice and DSL bundled
services."
Under the terms of the placement, the institutional investors will initially
purchase $15 million in Log On America Series A Preferred Stock and common stock
purchase warrants. Subject to certain conditions, the investors will purchase an
additional $10 million in Series A Preferred Stock with warrants. The investors
have the option at any time approximately in the first nine months to purchase
an additional $10 million at the same terms. Subject to certain exceptions, the
investors are restricted from converting their shares in the first six months,
and Log On America will maintain certain mandatory conversion rights.
About Log On America
Log On America, Inc. is a Northeast Regional D-CLEC+ providing local dial tone,
in-state toll, long distance, and high-speed Internet access and cable
programming solutions over traditional copper wire using xDSL technology to
residential and commercial clients throughout the Northeast. For more
information on Log On America, please see our Web site at http://www.loa.com.
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Log On America Page 2
Contacts:
Investors: David Pasquale, 917-639-4277 Media: Connie Lee, 917-639-4112
Both with The Ruth Group, http://www.TheRuthGroup.com
Forward-Looking Statements
Statements made in this news release, including those relating to the company's
financing by Nortel Networks and institutional investors. Actual results may
differ materially depending on a number of risk factors including, but not
limited to, the following: development, shipment, market acceptance and
additional competition from existing and new competitors which will impact new
customers. Other risks inherent in the business of the company are described in
Securities and Exchange Commission filings, including the company's prospectus
on Form SB-2. The company undertakes no obligation to revise or update any
forward-looking statements to reflect events or circumstances after the date of
this release.
