SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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): SEPTEMBER 18, 1998
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C-PHONE CORPORATION
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(Exact name of registrant as specified in its charter)
New York 0-24424 06-1170506
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(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) File Number) Identification No.)
6714 NETHERLANDS DRIVE, WILMINGTON, NORTH CAROLINA 28405
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 395-6100
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On September 18, 1998, C-Phone Corporation (the "Company") entered
into a Private Equity Credit Agreement (the "Equity Line") with Sovereign
Partners, L.P. (the "Investor"). Pursuant to the terms of the Equity Line,
subject to the satisfaction of certain conditions, the Company may require the
Investor to purchase shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), over a period of 18 months from the effective date
of the Registration Statement (as defined below), for an aggregate purchase
price of up to $5 million (but in no event more that 1,543,765 shares of Common
Stock). Under the terms of the Equity Line, during any 30-day period following
the effective date of the Registration Statement, the Company, subject to the
satisfaction of certain conditions, can require the Investor to purchase shares
of Common Stock for an aggregate purchase price of between $500,000 and $1
million. The purchase price per share to be paid by the Investor for the shares
of Common Stock acquired under the Equity Line will equal 85% of the average
closing bid price of the Common Stock during the five trading days immediately
preceding the notice of purchase (the "Put Notice") given by the Company to the
Investor.
The Investor's obligation to purchase shares of Common Stock under the
Equity Line is subject to various conditions, including, among other things: (i)
effectiveness of the Registration Statement; (ii) the average closing bid price
of the Common Stock being at least $1.00 per share for the 20 trading days
preceding the date of the Put Notice; (iii) continued trading of the Common
Stock on The Nasdaq Stock Market; and (iv) the percentage of the Common Stock
beneficially owned by the Investor being not more than 9.9% of the then
outstanding Common Stock. The Company may terminate the Equity Line without
further obligation to the Investor at any time after it has sold to the Investor
$1 million of Common Stock.
Under a related Registration Rights Agreement, the Company has agreed
to file, and maintain effectiveness (subject to certain penalties for
non-compliance) of, a registration statement (the "Registration Statement")
under the Securities Act of 1933 (the "Securities Act") for the resale by the
Investor of the shares of Common Stock purchased by it under the Equity Line.
In connection with entering into the Equity Line, the Company issued to
Cardinal Capital Management, Inc, as finder, a two-year warrant (the "Warrant")
to purchase 100,000 shares of Common Stock at an exercise price equal to $8.00
per share. The Warrant is redeemable for $0.01 per warrant at the option of the
Company if the closing sales price of the Common Stock exceeds $10.00 for five
consecutive trading days. The Company also paid the finder a cash fee of $30,000
upon signing of the Equity Line and has agreed to pay the finder an additional
cash fee equal to 6% of the amount of any sales by the Company pursuant to the
Equity Line; with the $30,000 payment to be credited against the first sale
under the Equity Line.
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The securities to be purchased by the Investor under the Equity Line
have been offered for sale, and will be sold, without registration thereof under
the Securities Act, pursuant to the exemption from registration provided by
Section 4(2) under the Securities Act.
The foregoing summaries of agreements are necessarily incomplete and
selective, and are qualified in their entirety by reference to the agreements
summarized, each of which is attached hereto as an exhibit.
* * * * * *
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
1. Private Equity Credit Agreement, dated as of September 18, 1998,
between C-Phone Corporation and Sovereign Partners, L.P.
2. Registration Rights Agreement, dated as of September 18, 1998,
between C-Phone Corporation and Sovereign Partners, L.P.
3. Common Stock Purchase Warrant, dated as of September 18, 1998, of
C-Phone Corporation issued to Cardinal Capital Management, Inc.
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SIGNATURES
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 thereunto duly authorized.
C-PHONE CORPORATION
By: /s/ Paul H. Albritton
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Paul H. Albritton
Vice President and Chief
Financial Officer
Date: September 24, 1998
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EXHIBIT 1
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
SOVEREIGN PARTNERS, L.P.
AND
C-PHONE CORPORATION
Dated as of September 18, 1998
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ARTICLE I CERTAIN DEFINITIONS..................................... 1
Section 1.1 Defined Terms............................ 1
ARTICLE II PURCHASE AND SALE OF COMMON STOCK....................... 8
Section 2.1 Investments.............................. 8
Section 2.2 Mechanics................................ 8
Section 2.3 Closings................................. 9
Section 2.4 Special Circumstances; Adjustment Period. 9
Section 2.5 Termination of Investment Obligation..... 10
Section 2.6 Blackout Shares......................... 10
Section 2.7 Liquidated Damages...................... 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR............. 11
Section 3.1 Intent.................................. 11
Section 3.2 Sophisticated Investor.................. 11
Section 3.3 Authority............................... 11
Section 3.4 Not an Affiliate........................ 12
Section 3.5 Organization and Standing............... 12
Section 3.6 Absence of Conflicts.................... 12
Section 3.7 Disclosure; Access to Information....... 12
Section 3.8 Manner of Sale.......................... 12
Section 3.9 Financial Capability.................... 12
Section 3.10 No SEC or NASD Proceedings.............. 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... 13
Section 4.1 Organization of the Company............. 13
Section 4.2 Authority............................... 13
Section 4.3 Capitalization.......................... 13
Section 4.4 Common Stock............................ 14
Section 4.5 SEC Documents........................... 14
Section 4.6 Exemption from Registration;
Valid Issuances......................... 14
Section 4.7 No General Solicitation or Advertising
in Regard to this Transaction........... 15
Section 4.8 Corporate Documents..................... 15
Section 4.9 No Conflicts............................ 15
Section 4.10 No Material Adverse Change.............. 16
Section 4.11 No Undisclosed Liabilities.............. 16
Section 4.12 No Undisclosed Events or Circumstances.. 16
Section 4.13 No Integrated Offering.................. 16
Section 4.14 Litigation and Other Proceedings........ 16
Section 4.15 No Misleading or Untrue Communication... 17
Section 4.16 Material Non-Public Information......... 17
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ARTICLE V COVENANTS OF INVESTOR.................................. 17
Section 5.1 Compliance with Law..................... 17
Section 5.2 Limitation on Short Sales............... 17
ARTICLE VI COVENANTS OF THE COMPANY............................... 18
Section 6.1 Registration Rights..................... 18
Section 6.2 Reservation of Common Stock............. 17
Section 6.3 Listing of Common Stock................. 18
Section 6.4 Exchange Act Registration............... 18
Section 6.5 Legends................................. 18
Section 6.6 Corporate Existence..................... 18
Section 6.7 Additional SEC Documents................ 19
Section 6.8 Notice of Certain Events Affecting
Registration; Suspension of Right
to Make a Put........................... 19
Section 6.9 Expectations Regarding Put Notices...... 20
Section 6.10 Consolidation; Merger................... 20
Section 6.11 Issuance of Put Shares and Blackout
Shares.................................. 20
Section 6.12 Legal Opinion on Subscription Date...... 20
ARTICLE VII CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS
TO CLOSING............................................. 20
Section 7.1 Conditions Precedent to the Obligation
of the Company to Issue and Sell
Common Stock............................ 20
Section 7.2 Conditions Precedent to the Right of the
Company to Deliver a Put Notice and the
Obligation of Investor to Purchase Put
Shares.................................. 20
Section 7.3 Due Diligence Review; Non-Disclosure of
Non-Public Information.................. 23
ARTICLE VIII LEGENDS................................................ 24
Section 8.1 Legends................................. 24
Section 8.2 No Other Legend or Stock Transfer
Restrictions............................ 25
Section 8.3 Investor's Compliance................... 25
ARTICLE IX NOTICES; INDEMNIFICATION............................... 26
Section 9.1 Notices................................. 26
Section 9.2 Indemnification......................... 27
Section 9.3 Method of Asserting
Indemnification Claims.................. 28
ARTICLE X MISCELLANEOUS.......................................... 30
Section 10.1 Governing Law; Jurisdiction............. 30
Section 10.2 Assignment.............................. 31
Section 10.3 Third Party Beneficiaries............... 31
Section 10.4 Termination............................. 31
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Section 10.5 Entire Agreement, Amendment; No Waiver.. 31
Section 10.6 Fees and Expenses....................... 31
Section 10.7 No Brokers.............................. 31
Section 10.8 Counterparts............................ 31
Section 10.9 Survival; Severability.................. 32
Section 10.10 Further Assurances...................... 32
Section 10.11 No Strict Construction.................. 32
Section 10.12 Equitable Relief........................ 32
Section 10.13 Title and Subtitles..................... 32
Section 10.14 Reporting Entity for the Common Stock... 33
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PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 18th day of
September, 1998 (this "AGREEMENT"), by and between SOVEREIGN PARTNERS, L.P., an
entity organized and existing under the laws of Delaware ("INVESTOR"), and
C-PHONE CORPORATION, a corporation organized and existing under the laws of the
State of New York (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, up to five million
dollars ($5,000,000) of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933 and the rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings specified or indicated (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined)
"ADJUSTMENT PERIOD" shall have the meaning specified in
Section 2.4(b).
"ADJUSTMENT PERIOD NOTICE" shall have the meaning specified
in Section 2.4(a).
"AGREEMENT" shall have the meaning specified in the
preamble hereof.
"BID PRICE" shall mean the closing bid price of the Common
Stock on the Principal Market.
"BLACKOUT NOTICE" shall have the meaning specified in the
Registration Rights Agreement.
"BLACKOUT SHARES" shall have the meaning specified in
Section 2.6.
"BY-LAWS" shall have the meaning specified in Section 4.8.
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"CERTIFICATE" shall have the meaning specified in Section
4.8.
"CLAIM NOTICE" shall have the meaning specified in Section
9.3(a).
"CLOSING" shall mean one of the closings of a purchase and
sale of shares of Common Stock pursuant to Section 2.1.
"CLOSING DATE" shall mean, with respect to a Closing, the
tenth (10th) Trading Day following the Put Date related to such Closing, or such
earlier date as the Company and Investor shall agree, provided all conditions to
such Closing have been satisfied on or before such Trading Day.
"COMMITMENT PERIOD" shall mean the period commencing on the
earlier to occur of (a) the Effective Date or (b) such earlier date as the
Company and Investor shall agree, and expiring on the earlier to occur of (i)
the date on which Investor shall have purchased Put Shares pursuant to this
Agreement for an aggregate Purchase Price of the Maximum Commitment Amount, (ii)
the date this Agreement is terminated pursuant to Section 2.5, or (iii) the date
occurring eighteen (18) months from the date of commencement of the Commitment
Period.
"COMMON STOCK" shall mean the Company's common stock, par
value $.01 per share, and any shares of any other class of common stock whether
now or hereafter authorized, having the right to participate in the distribution
of dividends (as and when declared) and assets (upon liquidation of the
Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble
to this Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning
specified in Section 7.2.
"DAMAGES" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
"DISCOUNT" shall mean fifteen percent (15%).
"DISPUTE PERIOD" shall have the meaning specified in
Section 9.3(a).
"DTC" shall the meaning specified in Section 2.3.
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"DWAC" shall the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"INDEMNIFIED PARTY" shall have the meaning specified in
Section 9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in
Section 9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in
Section 9.3(b).
"INITIAL REGISTRABLE SECURITIES" shall have the meaning
specified in the Registration Rights Agreement.
"INITIAL REGISTRATION STATEMENT" shall have the meaning
specified in the Registration Rights Agreement.
"INVESTMENT AMOUNT" shall mean the dollar amount (within
the range specified in Section 2.2) to be invested by Investor to purchase Put
Shares with respect to any Put Date as notified by the Company to Investor in
accordance with Section 2.2.
"INVESTOR" shall have the meaning specified in the preamble
to this Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the average of
the Bid Prices for the five (5) Trading Days immediately preceding the Put Date.
"MAXIMUM COMMITMENT AMOUNT" shall mean five million dollars
($5,000,000), subject to increase as agreed to by the Company and Investor.
"MINIMUM COMMITMENT AMOUNT" shall mean one million dollars
($1,000,000).
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"MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties, prospects or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to enter into and
perform its obligations under any of (a) this Agreement and (b) the Registration
Rights Agreement.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put,
one million dollars ($1,000,000), subject to increase as agreed to by the
Company and Investor.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put,
five hundred thousand dollars ($500,000), subject to decrease as agreed to by
the Company and Investor.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"NEW BID PRICE" shall have the meaning specified in Section
2.6.
"OLD BID PRICE" shall have the meaning specified in Section
2.6.
"OUTSTANDING" shall mean, with respect to the Common
Stock, at any date as of which the number of shares of Common Stock is to be
determined, all issued and outstanding shares of Common Stock, including all
shares of Common Stock issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common Stock
then directly or indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"PREFERRED STOCK" shall mean the Company's preferred stock,
par value $.01 per share.
"PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
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"PURCHASE PRICE" shall mean, with respect to a Put, the
Market Price on the applicable Put Date (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of this
Agreement) less the product of the Discount and the Market Price.
"PUT" shall mean each occasion that the Company elects to
exercise its right to tender a Put Notice requiring Investor to purchase shares
of Common Stock, subject to the terms and conditions of this Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment
Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).
"PUT NOTICE" shall mean a written notice to Investor
setting forth the Investment Amount with respect to which the Company intends to
require Investor to purchase shares of Common Stock pursuant to the terms of
this Agreement.
"PUT SHARES" shall mean all shares of Common Stock issued
or issuable pursuant to a Put that has been exercised or may be exercised in
accordance with the terms and conditions of this Agreement.
"REGISTRABLE SECURITIES" shall mean the (a) Put Shares, (b)
the Blackout Shares and (c) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (i) a Registration Statement has been declared effective by the SEC and
such Registrable Securities have been disposed of pursuant to a Registration
Statement, (ii) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities Act
or the need for an exemption from any such registration requirements and without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration
rights agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the
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SEC and, if not, on such other form promulgated by the SEC for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
which form shall be available for the resale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement and
the Registration Rights Agreement and in accordance with the intended method of
distribution of such securities), for the registration of the resale by Investor
of the Registrable Securities under the Securities Act.
"REGULATION D" shall have the meaning specified in the
recitals of this Agreement.
"REMAINING PUT SHARES" shall have the meaning specified in
Section 2.6.
"RULE 144" shall mean Rule 144 under the Securities Act or
any similar provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the
recitals of this Agreement.
"SECURITIES ACT" shall have the meaning specified in the
recitals of this Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all
reports and other documents file by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since the beginning of the Company's then most
recently completed fiscal year as of the time in question (provided that if the
date in question is within ninety days of the beginning of the Company's fiscal
year, the term shall include all documents filed since the beginning of the
second preceding fiscal year).
"SUBSCRIPTION DATE" shall mean the date on which this
Agreement is executed and delivered by the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in
Section 9.3(a).
"TRADING CUSHION" shall mean a minimum of twenty (20)
Trading Days between Put Dates, unless a shorter period is agreed to by the
Company and Investor.
"TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
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"TRANSFER AGENT" shall mean the transfer agent for the
Common Stock (and to any substitute or replacement transfer agent for the Common
Stock upon the Company's appointment of any such substitute or replacement
transfer agent).
"UNDERWRITER" shall mean any underwriter participating in
any disposition of the Registrable Securities on behalf of Investor pursuant to
a Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes any
other distribution of shares of Common Stock, except for dividends paid
with respect to the Preferred Stock;
(c) issues any warrants, options or other rights to
subscribe for or purchase shares of Common Stock and the price per
share for which shares of Common Stock may at any time thereafter be
issuable pursuant to such warrants, options or other rights shall be
less than the Bid Price in effect immediately prior to such issuance;
(d) issues any securities convertible into or exchangeable
for shares of Common Stock and the consideration per share for which
shares of Common Stock may at any time thereafter be issuable pursuant
to the terms of such convertible or exchangeable securities shall be
less than the Bid Price in effect immediately prior to such issuance;
(e) issues shares of Common Stock otherwise than as
provided in the foregoing subsections (a) through (d), at a price per
share less, or for other consideration lower, than the Bid Price in
effect immediately prior to such issuance, or without consideration;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend in
liquidation or by way of return of capital or other than as a dividend
payable out of earnings or surplus legally available for dividends
under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets
(other than under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Common Stock, other than an action described in any of the foregoing
subsections (a) through (f) hereof, inclusive, which in the opinion of
the Company's Board of
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Directors, determined in good faith, would have a materially adverse
effect upon the rights of Investor at the time of a Put.
"VALUATION PERIOD" shall mean the period of five (5)
Trading Days immediately preceding the date on which the applicable Put Notice
is deemed to be delivered and during which the Purchase Price of the Common
Stock is valued; provided, however, that if a Valuation Event occurs during any
Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the fifth
Trading Day thereafter.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article VII), on any
Put Date the Company may exercise a Put by the delivery of a Put Notice. The
number of Put Shares that Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by the
Purchase Price with respect to such Put Date.
(b) MINIMUM AMOUNT OF PUTS. The Company shall, in
accordance with Section 2.2(a), deliver to Investor during the Commitment
Period, Put Notices with an aggregate Investment Amount at least equal to the
Minimum Commitment Amount. If the Company for any reason fails to issue and
deliver such Put Shares during the Commitment Period, on the first Trading Day
after the expiration of the Commitment Period, the Company shall wire to
Investor a sum in immediately available funds equal to the product of (i) the
Minimum Commitment Amount minus the aggregate Investment Amounts of the Put
Notices delivered to Investor hereunder and (ii) the Discount.
(c) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains
the requisite approval of its shareholders in accordance with the corporate laws
of the State of New York and the applicable rules of the Principal Market, no
more than 1,543,765 shares of Common Stock (representing approximately 19.99% of
the Outstanding Common Stock on the date hereof) may be issued and sold to
Investor pursuant to this Agreement.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment
Period, the Company may deliver a Put Notice to Investor, subject to the
conditions set forth in
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Section 7.2; provided, however, the Investment Amount for each Put as designated
by the Company in the applicable Put Notice shall be neither less than the
Minimum Put Amount nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall
be deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by Investor if such notice is received on or prior to 12:00 noon New
York time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon New York time on a Trading Day or at any
time on a day which is not a Trading Day.
Section 2.3 CLOSINGS. On each Closing Date for a Put, (a) the
Company shall deliver to Investor one or more certificates, at Investor's
option, representing the Put Shares to be purchased by Investor pursuant to
Section 2.1 herein, registered in the name of Investor and (b) Investor shall
deliver to the Company the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to an account designated by the Company
on or before the Closing Date. In lieu of delivering physical certificates
representing the Common Stock issuable in accordance with clause (a) of this
Section 2.3, and provided that the Transfer Agent then is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of Investor, the Company shall use its commercially
reasonable efforts to cause the Transfer Agent to electronically transmit the
Put Shares by crediting the account of the holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. In addition, on
or prior to such Closing Date, each of the Company and Investor shall deliver to
the other all documents, instruments and writings required to be delivered or
reasonably requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein.
Section 2.4 SPECIAL CIRCUMSTANCES; ADJUSTMENT PERIOD.
(a) ADJUSTMENT PERIOD NOTICE. In the event that the
Company shall in good faith anticipate executing an agreement of acquisition,
merger or consolidation within ninety (90) days after giving Investor Adjustment
Period Notice (as defined below), the Company may, in its sole discretion, give
Investor at least twenty-one (21) days' irrevocable advance notice, in the form
of Exhibit B hereto ("ADJUSTMENT PERIOD NOTICE"), that the Company shall
initiate an Adjustment Period (as defined below). The Company shall not give
such Adjustment Period Notice if it constitutes the disclosure of material
non-public information to Investor.
(b) ACTIONS DURING THE ADJUSTMENT PERIOD. During the
Adjustment Period:
(i) the Discount shall be increased to seventeen
percent (17%);
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(ii) the duration of the Trading Cushion shall be
shortened to ten (10) Trading Days until the expiration of five (5) consecutive
weeks after the date on which the Adjustment Period Notice was given (the
"ADJUSTMENT PERIOD"); and
(iii) the Company may not deliver a Put Notice
such that the number of Put Shares to be purchased by Investor upon the
applicable Closing, when aggregated with all other shares of Common Stock then
owned by Investor beneficially or deemed beneficially owned by Investor, would
result in Investor owning more than 4.9% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Section 13(d)
of the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section 2.4(b)(iii), in the event that the amount of Common Stock
outstanding as determined in accordance with Section 13(d) of the Exchange Act
is greater on a Closing Date than on the date upon which the Put Notice
associated with such Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes of determining
whether Investor, when aggregating all purchases of Common Stock made pursuant
to this Agreement would own more than 4.9% of the Common Stock following such
Closing Date.
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The
obligation of Investor to purchase shares of Common Stock shall terminate
permanently (including with respect to a Closing Date that has not yet occurred)
in the event that (a) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspension during a Blackout Period in accordance with the Registration
Rights Agreement, as a result of corporate developments subsequent to the
Subscription Date that would require such Registration Statement to be amended
to reflect such event in order to maintain its compliance with the disclosure
requirements of the Securities Act or (b) the Company shall at any time fail to
comply with the requirements of Section 6.3, 6.4, 6.5 or 6.6 and such failure
shall continue for more than thirty (30) days.
Section 2.6 BLACKOUT SHARES. In the event that, (a) within
five Trading Days following any Closing Date, the Company gives a Blackout
Notice to Investor of a Blackout Period in accordance with the Registration
Rights Agreement, and (b) the Bid Price on the Trading Day immediately preceding
such Blackout Period ("OLD BID PRICE") is greater than the Bid Price on the
first Trading Day following such Blackout Period that Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("NEW BID
PRICE"), then the Company shall issue to Investor the number of additional
shares of Registrable Securities (the "BLACKOUT SHARES") equal to the difference
between (i) the product of the number of Put Shares held by Investor immediately
prior to the Blackout Period that were issued on the most recent Closing Date
(the "REMAINING PUT SHARES") multiplied by the Old Bid Price, divided by the New
Bid Price, and (ii) the Remaining Put Shares.
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Section 2.7 LIQUIDATED DAMAGES. Each of the Company and
Investor acknowledge and agree that the sum payable under Section 2.1(b) and the
requirement to issue Blackout Shares under Section 2.6 shall give rise to
liquidated damages and not penalties. Each of the Company and Investor further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts specified in
such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by Investor in
connection with the failure by the Company to make Puts with aggregate Purchase
Prices totaling at least the Minimum Commitment Amount or in connection with a
Blackout Period under the Registration Rights Agreement, and (c) each of the
Company and Investor are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement
for its own account and Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein,
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 SOPHISTICATED INVESTOR. Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and Investor
has such experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in Common Stock. Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 AUTHORITY. (a) Investor has the requisite power
and authority to enter into and perform its obligations under this Agreement and
the transactions contemplated hereby in accordance with its terms; (b) the
execution and delivery of this Agreement and the Registration Rights Agreement,
and the consummation by it of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action and no further consent or
authorization of Investor or its partners is required; and (c) this Agreement
has been duly authorized and validly executed and delivered by Investor and is a
valid and binding agreement of Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or
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similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 3.4 NOT AN AFFILIATE. Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 ORGANIZATION AND STANDING. Investor is a limited
partnership duly organized, validly existing and in good standing under the laws
of the Delaware and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Investor is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a material adverse
effect on Investor.
Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery
of this Agreement and any other document or instrument contemplated hereby, and
the consummation of the transactions contemplated hereby and thereby, and
compliance with the requirements hereof and thereof, will not (a) violate any
law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on Investor, (b) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, or conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (that has not been obtained) pursuant to any
material contract, instrument, agreement, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Investor has
received all documents, records, books and other information pertaining to
Investor's investment in the Company that have been requested by Investor.
Investor has reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE. At no time was Investor presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the
financial capacity and the necessary capital to perform its obligations
hereunder and shall and has provided to the Company such financial and other
information that the Company has requested to demonstrate such capacity.
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Section 3.10 NO SEC OR NASD PROCEEDINGS. To the knowledge of
Investor, there are no disciplinary proceedings involving Investor or any of its
employees pending before the NASD, the SEC or any other regulatory authority to
which Investor is subject.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of New York and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company does not own more than fifty percent (50%) of the
outstanding capital stock of or control any other business entity. The Company
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the Registration Rights Agreement and to issue the Put Shares
and the Blackout Shares, if any; (b) the execution and delivery of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (c) each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3 CAPITALIZATION. As of September 15, 1998, the
authorized capital stock of the Company consisted of 20,000,000 shares of Common
Stock, of which 7,718,830 shares were issued and outstanding, and 1,000,000
shares of Preferred stock, of which 482 shares designated as Series A
Convertible Preferred Stock were issued and outstanding. Except for (a) options
to purchase 361,892 shares of Common Stock with exercises prices ranging between
$2.6875 and $10.375 per share; (b) warrants to purchase 175,000 shares of Common
Stock with an exercise price of $8.05 per share, (c) warrants to purchase 75,000
shares of Common Stock with an exercise price of $9.10 per share, (d) 482 shares
of Series A Convertible Preferred Stock, and
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(e) 30,000 shares of Common Stock issued in the Company's March 1997 private
placement which continue to have associated "contingent value rights" whereby a
maximum of 16,432 additional shares of Common Stock may be issued, as of
September 15, 1998, there were no options, warrants,
or rights to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.
Section 4.4 COMMON STOCK. The Company has registered the
Common Stock pursuant to Section 12(b) or 12(g) of the Exchange Act and is in
full compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing or quotation
of the Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. As of the date of this Agreement, the Principal Market is the
Nasdaq National Market.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made
available to Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to Investor any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and other
federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (a) as may be otherwise
indicated in such financial statements or the notes thereto or (b) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. The
sale and issuance of the Put Shares and the Blackout Shares, if any in
accordance with the terms and on the bases of the representations and warranties
set forth in this Agreement, may and shall be properly issued by the Company to
Investor pursuant to Section 4(2), Regulation D and/or any applicable state law.
When issued and paid for as herein provided, the Put Shares, and the Blackout
Shares, if any, shall be duly and validly issued, fully paid, and nonassessable.
Neither the sales of the Put Shares or the Blackout Shares, if any, pursuant to,
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nor the Company's performance of its obligations under, this Agreement or the
Registration Rights Agreement shall (a) result in the creation or imposition of
any liens, charges, claims or other encumbrances upon the Put Shares or the
Blackout Shares, if any, or any of the assets of the Company, or (b) entitle the
holders of Outstanding Common Stock to preemptive or other rights to subscribe
to or acquire the Common Stock or other securities of the Company. The Put
Shares and the Blackout Shares, if any, shall not subject Investor to personal
liability by reason of the ownership thereof.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD
TO THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (a) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D) or
general advertising with respect to any of the Put Shares or the Blackout
Shares, if any, or (b) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or
made available to Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"CERTIFICATE"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "BY-LAWS").
Section 4.9 NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby, including without limitation the
issuance of the Put Shares and the Blackout Shares, if any, do not and will not
(a) result in a violation of the Certificate or By-Laws or (b) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (c) result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect) nor is the
Company otherwise in violation of, conflict with or in default under any of the
foregoing; provided, however, that for purposes of the Company's representations
and warranties as to violations of foreign law, rule or regulation referenced in
clause (c), such representations and warranties are made only to the best of the
Company's knowledge insofar as the execution, delivery and
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performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby are or may be affected by the status of
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq National
Market); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of Investor herein.
Section 4.10 NO MATERIAL ADVERSE CHANGE. Since March 1, 1998,
no event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations that are material, individually or in the aggregate,
and that are not disclosed in the SEC Documents or otherwise publicly announced,
other than those incurred in the ordinary course of the Company's businesses
since March 1, 1998 and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since
March 1, 1998, no event or circumstance has occurred or exists with respect to
the or its businesses, properties, prospects, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 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, other than pursuant to this Agreement, under
circumstances that would require registration of the Common Stock under the
Securities Act.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may be
set forth in the SEC Documents, there are no lawsuits or proceedings pending or
to the best
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knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would have a Material Adverse Effect. Except as set forth
in the SEC Documents, no judgment, order, writ, injunction or decree or award
has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The
Company, any Person representing the Company, and, to the knowledge of the
Company, any other Person selling or offering to sell the Put Shares or the
Blackout Shares, if any, in connection with the transactions contemplated by
this Agreement, have not made, at any time, any oral communication in connection
with the offer or sale of the same which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is
not in possession of, nor has the Company or its agents disclosed to Investor,
any material non-public information that (a) if disclosed, would reasonably be
expected to have a materially adverse effect on the price of the Common Stock or
(b) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
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ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities
with respect to shares of the Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the NASD and the Principal Market on which the Common
Stock is listed.
Section 5.2 LIMITATION ON SHORT SALES. Investor and its
Affiliates shall not engage in short sales of the Common Stock; provided,
however, that Investor may enter into any short sale or other hedging or similar
arrangement it deems appropriate with respect to Put Shares after it receives a
Put Notice with respect to such Put Shares so long as such sales or arrangements
do not involve more than the number of such Put Shares (determined as of the
date of such Put Notice).
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date
hereof, the Company has available and the Company shall reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares and the Blackout Shares, if any; such amount of shares of Common Stock to
be reserved shall be calculated based upon a minimum Purchase Price of $2.00 for
the Put Shares under the terms and conditions of this Agreement and a good faith
estimate by the Company in consultation with Investor of the number of Blackout
Shares, if any, that will need to be issued. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.
Section 6.3 LISTING OF COMMON STOCK. The Company shall
maintain the listing of the Common Stock on a Principal Market, and will cause
the Put Shares and the Blackout Shares, if any, to be listed on the Principal
Market. The Company further shall, if the Company applies to have the Common
Stock traded on any other Principal Market, include in such application the Put
Shares and the Blackout Shares, if any, and shall take such other action as is
necessary or desirable in the reasonable opinion of Investor to cause the Common
Stock to be listed on such other Principal Market as promptly as possible. The
Company shall use its commercially reasonable efforts to continue the listing
and trading of the Common Stock on the Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take
all commercially reasonable steps to cause the Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its
commercially reasonable efforts to comply in all material respects with its
reporting and filing obligations under said Act, and will not take any action or
file any document (whether or not permitted by said Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.
Section 6.5 LEGENDS. The certificates evidencing the Put
Shares and the Blackout Shares, if any, shall be free of legends, except as
provided for in Article VIII.
Section 6.6 CORPORATE EXISTENCE. The Company shall take all
commercially reasonable steps necessary to preserve and continue the corporate
existence of the Company.
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Section 6.7 ADDITIONAL SEC DOCUMENTS. The Company shall
deliver to Investor, promptly after the originals thereof are submitted to the
SEC for filing, copies of all SEC Documents so furnished or submitted to the
SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify Investor
upon the occurrence of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of Registrable
Securities: (a) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or supplements to the
registration statement or related prospectus; (b) the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company undertakes to notify
Investor as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver Put Notices during such calendar quarter. The failure by the Company to
comply with this provision can be cured by the Company's notifying Investor at
any time as to its reasonable expectations with respect to the current calendar
quarter.
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Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at
any time after the date hereof, effect any merger or consolidation of the
Company with or into, or a transfer of all or substantially all of the assets of
the Company to, another entity unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligation to
deliver to Investor such shares of stock and/or securities as Investor is
entitled to receive pursuant to this Agreement.
Section 6.11 ISSUANCE OF PUT SHARES AND BLACKOUT SHARES. The
sale of the Put Shares, the issuance of the Blackout Shares, if any, shall be
made in accordance with the provisions and requirements of Regulation D and any
applicable state law.
Section 6.12 LEGAL OPINION ON SUBSCRIPTION DATE. The Company's
legal counsel shall deliver to Investor upon execution of this Agreement an
opinion in the form of Exhibit C, except for paragraph 7 thereof.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company
to issue and sell the Put Shares to Investor incident to each Closing is subject
to the satisfaction, at or before each such Closing, of each of the conditions
set forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATION AND
WARRANTIES. The representations and warranties of Investor shall be true and
correct in all material respects as of the date of this Agreement and as of the
date of each such Closing as though made at each such time, except for changes
which have not had a Material Adverse Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by Investor at or prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY
TO DELIVER A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES.
The right of the Company to deliver a Put Notice and the obligation of Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
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(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE
SEC. As set forth in the Registration Rights Agreement, the Company shall have
filed with the SEC the Initial Registration Statement with respect to the resale
of the Initial Registrable Securities by Investor and such Registration
Statement shall have been declared effective by the SEC prior to the first Put
Date, and in any event no later than ninety (90) days after filing of the
Initial Registration Statement. For the purposes of any Put Notice with respect
to the Registrable Securities other than the Initial Registrable Securities, the
Company shall have filed with the SEC a Registration Statement with respect to
the resale of such Registrable Securities by Investor which shall have been
declared effective by the SEC prior to the Put Date therefor.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in
the Registration Rights Agreement, a Registration Statement shall have
previously become effective for the resale by Investor of the Registrable
Securities subject to such Put Notice and such Registration Statement shall
remain effective on each Condition Satisfaction Date and (i) neither the Company
nor Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to such Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of such Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
such Registration Statement or related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which have
been corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental authority of competent
jurisdiction that prohibits or directly and materially adversely affects any of
the transactions contemplated by this
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Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely to
have a Material Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. The trading of the Common Stock shall not have been suspended by the SEC,
the Principal Market or the NASD and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from the Principal
Market.
(h) LEGAL OPINION. The Company shall have caused to be
delivered to Investor, within five (5) Trading Days of the effective date of the
Initial Registration Statement and each subsequent Registration Statement, an
opinion of the Company's legal counsel in the form of Exhibit C hereto,
addressed to Investor.
(i) DUE DILIGENCE. No dispute between the Company and
Investor shall exist pursuant to Section 7.3 as to the adequacy of the
disclosure contained in any Registration Statement.
(j) TEN PERCENT LIMITATION. On each Closing Date, the
number of Put Shares then to be purchased by Investor shall not exceed the
number of such shares that, when aggregated with all other shares of Registrable
Securities then owned by Investor beneficially or deemed beneficially owned by
Investor, would result in Investor owning no more than 9.9% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 7.2(j), in the event that the amount of
Common Stock outstanding as determined in accordance with Section 16 of the
Exchange Act and the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Put Notice associated with such Closing
Date is given, the amount of Common Stock outstanding on such Closing Date shall
govern for purposes of determining whether Investor, when aggregating all
purchases of Common Stock made pursuant to this Agreement and Blackout Shares,
if any, would own more than 9.9% of the Common Stock following such Closing
Date.
(k) MINIMUM BID PRICE. The average of the Bid Prices
for the twenty (20) Trading Days immediately preceding the Put Notice shall have
equaled or exceeded $1.00 (as adjusted for stock splits, stock dividends,
reverse stock splits, and similar events).
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(l) NO KNOWLEDGE. The Company shall have no knowledge
of any event more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective (which event is
more likely than not to occur within the fifteen Trading Days following the
Trading Day on which such Notice is deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have
elapsed since the immediately preceding Put Date.
(n) SHAREHOLDER VOTE. The issuance of shares of Common
Stock with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market.
(o) OTHER. On each Condition Satisfaction Date,
Investor shall have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by Investor
in order for Investor to confirm the Company's satisfaction of the conditions
set forth in this Section 7.2., including, without limitation, a certificate in
substantially the form and substance of Exhibit D hereto, executed by an
executive officer of the Company and to the effect that all the conditions to
such Closing shall have been satisfied as at the date of each such certificate.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC
INFORMATION.
(a) The Company shall make available for inspection
and review by Investor, advisors to and representatives of Investor (who may or
may not be affiliated with Investor and who are reasonably acceptable to the
Company), any Underwriter, any Registration Statement or amendment or supplement
thereto or any blue sky, NASD or other filing, all financial and other records,
all SEC Documents and other filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by Investor or any
such representative, advisor or Underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of such Registration Statement for
the sole purpose of enabling Investor and such representatives, advisors and
Underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of such
Registration Statement.
(b) Each of the Company, its officers, directors,
employees and agents shall in no event disclose non-public information to
Investor, advisors to or representatives of Investor (including, without
limitation, in connection with the giving of
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the Adjustment Period Notice pursuant to Section 2.4) unless prior to disclosure
of such information the Company identifies such information as being non-public
information and provides Investor, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require Investor's advisors and representatives to enter into a
confidentiality agreement in form and substance reasonably satisfactory to the
Company and Investor.
(c) Nothing herein shall require the Company to
disclose non-public information to Investor or its advisors or representatives,
and the Company represents that it does not disseminate non-public information
to any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company shall, as
hereinabove provided, immediately notify the advisors and representatives of
Investor and any Underwriters of any event or the existence of any circumstance
(without any obligation to disclose the specific event or circumstance) of which
it becomes aware, constituting non-public information (whether or not requested
of the Company specifically or generally during the course of due diligence by
such persons or entities), which, if not disclosed in the prospectus included in
a Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 7.3 shall be construed
to mean that such persons or entities other than Investor (without the written
consent of Investor prior to disclosure of such information) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms and conditions of this Agreement and nothing herein shall prevent
any such persons or entities from notifying the Company of their opinion that
based on such due diligence by such persons or entities, any Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in such Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following legend
(the "LEGEND"):
The securities represented by this certificate
have not been registered under the Securities Act
of 1933 (the "Securities Act") or qualified under
applicable state securities laws. These securities
may not be offered, sold, pledged, hypothecated,
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transferred or otherwise disposed of except
pursuant to (I) an effective registration
statement and qualification in effect with respect
thereto under the Securities Act and under any
applicable state securities law, (ii) to the
extent applicable, Rule 144 under the Securities
Act, or (iii) an opinion of counsel reasonably
acceptable to C-Phone Corporation that such
registration and qualification is not required
under applicable federal and state securities
laws."
As soon as practicable after the execution and delivery
hereof, the Company shall issue to the Transfer Agent instructions in
substantially the form of Exhibit E hereto. Such instructions shall be
irrevocable by the Company from and after the date thereof or from and after the
issuance thereof except as otherwise expressly provided in the Registration
Rights Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the Transfer Agent to issue to Investor certificates
evidencing shares of Common Stock incident to a Closing, free of the Legend,
without consultation by the transfer agent with the Company or its counsel and
without the need for any further advice or instruction or documentation to the
Transfer Agent by or from the Company or its counsel or Investor; provided that
(a) a Registration Statement shall then be effective, (b) Investor confirms to
the Transfer Agent and the Company that it has or intends to sell such Common
Stock to a third party which is not an affiliate of Investor or the Company and
Investor agrees to redeliver the certificate representing such shares of Common
Stock to the Transfer Agent to add the Legend in the event the Common Stock is
not sold, and (c) if reasonably requested by the transfer agent or the Company,
Investor confirms to the transfer agent and the Company that Investor has
complied with the prospectus delivery requirement under the Securities Act. At
any time after the Effective Date, upon surrender of one or more certificates
evidencing Common Stock that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No
legend other than the one specified in Section 8.1 has been or shall be placed
on the share certificates representing the Common Stock and no instructions or
"stop transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3 INVESTOR'S COMPLIANCE. Nothing in this Article
VIII shall affect in any way Investor's obligations under any agreement to
comply with all applicable securities laws upon resale of the Common Stock.
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ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (a) personally served,
(b) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (c) delivered by reputable air courier service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company:
C-Phone Corporation
6714 Netherlands Drive
Attention: Daniel P. Flohr
Wilmington, North Carolina 28405
Telephone: (910) 395-6100
Facsimile: (910) 395-6108
with a copy (which shall not constitute notice) to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attention: Michael D. Schwamm
Telephone: (212) 984-7832
Facsimile: (212) 984-7893
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if to Investor:
Sovereign Partners, L.P.
Executive Pavilion
90 Grove Street
Ridgefield, Connecticut 06877
Attn: Steve Hicks
Telephone: (203) 431-8300
Facsimile: (203) 431-8301
Either party hereto may from time to time change its
address or facsimile number for notices under this Section 9.1 by giving at
least ten (10) days' prior written notice of such changed address or facsimile
number to the other party hereto.
Section 9.2 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
Investor and its officers, directors, employees, and agents, and each Person or
entity, if any, who controls Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the Controlling
Persons (as defined in the Registration Rights Agreement) from and against any
Damages, joint or several, and any action in respect thereof to which Investor,
its partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from Investor's failure to perform any
covenant or agreement contained in this Agreement or Investor's or its officers,
directors, employees, agents or Controlling Persons negligence, recklessness or
bad faith in performing its obligations under this Agreement.
(b) Investor agrees to indemnify and hold harmless the
Company and its officers, directors, employees, and agents, and each Person or
entity, if any, who controls Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, together with the Controlling
Persons from and against any Damages, joint or several, and any action in
respect thereof to which Investor, its partners, affiliates, officers,
directors, employees, and duly authorized agents, and any such Controlling
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred, except to the extent such Damages result primarily
from the Company's failure to perform any covenant or agreement contained in
this Agreement or the Company's or its officers, directors, employees, agents or
Controlling Persons negligence, recklessness or bad faith in performing its
obligations under this Agreement.
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Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All
claims for indemnification by any Indemnified Party (as defined below) under
Section 9.2 shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of
which any person claiming indemnification under any provision of Section 9.2 (an
"INDEMNIFIED PARTY") might seek indemnity under Section 9.2 is asserted against
or sought to be collected from such Indemnified Party by a person other than a
party hereto or an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of Section 9.2 against any person (the
"INDEMNIFYING PARTY"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "CLAIM NOTICE") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "DISPUTE PERIOD") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.2 and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim.
(i) If the Indemnifying Party notifies the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Indemnified Party with respect to the Third Party Claim pursuant to this
Section 9.3(a), then the Indemnifying Party shall have the right to defend, with
counsel reasonably satisfactory to the Indemnified Party, at the sole cost and
expense of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 9.2). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate
28
<PAGE>
to protect its interests; and provided further, that if requested by the
Indemnifying Party, the Indemnified Party will, at the sole cost and expense of
the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party
in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party Claim at any time
if it irrevocably waives its right to indemnity under Section 9.2 with respect
to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 9.3(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party fails
to give any notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the Indemnified Party
(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause (ii), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in clause
(iii) below, the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this clause (ii) or of
the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause (ii), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified
Party that it does not dispute its liability or the amount of its liability to
the Indemnified
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Party with respect to the Third Party Claim under Section 9.2 or fails to notify
the Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes its liability or the amount of its liability to the Indemnified Party
with respect to such Third Party Claim, the amount of Damages specified in the
Claim Notice shall be conclusively deemed a liability of the Indemnifying Party
under Section 9.2 and the Indemnifying Party shall pay the amount of such
Damages to the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute; provided, however, that it the
dispute is not resolved within thirty (30) days after the Claim Notice, the
Indemnifying Party shall be enlisted to institute such legal action as it deems
appropriate.
(b) In the event any Indemnified Party should have a
claim under Section 9.2 against the Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver a written notification of
a claim for indemnity under Section 9.2 specifying the nature of and basis for
such claim, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such claim (an "INDEMNITY
NOTICE") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that the Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim or the amount
of the claim described in such Indemnity Notice or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 9.2 and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute; provided, however, that it the dispute is not resolved within
thirty (30) days after the Claim Notice, the Indemnifying Party shall be
enlisted to institute such legal action as it deems appropriate.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall
be governed by and interpreted in accordance with the laws of the State of New
York without regard to the principles of conflicts of law. Each of the Company
and Investor hereby submit to the exclusive jurisdiction of the United States
Federal and state courts located in New York, New York with respect to any
dispute arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby.
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Section 10.2 ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Company and Investor and their respective
successors and permitted assigns. Neither this Agreement nor any rights of
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by Investor hereunder with respect to the
Common Stock held by such person, and (b) Investor's interest in this Agreement
may be assigned at any time, in whole but not in part, to any affiliate of
Investor.
Section 10.3 THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the Company and Investor and their respective
successors and permitted assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
Section 10.4 TERMINATION. This Agreement shall terminate twelve
(12) months after the commencement of the Commitment Period (unless extended by
the agreement of the Company and Investor); provided, however, that the
provisions of Article VI, VIII, and Sections 10.1, 10.2, and 10.4 shall survive
the termination of this Agreement.
Section 10.5 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This
Agreement and the instruments referenced herein contain the entire understanding
of the Company and Investor with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor Investor makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the party to be charged
with enforcement.
Section 10.6 FEES AND EXPENSES. Each of the Company and
Investor agrees to pay its own expenses in connection with the preparation of
this Agreement and performance of its obligations hereunder.
Section 10.7 NO BROKERS. Each of the Company and Investor
represents that it has had no dealings in connection with this transaction with
any finder or broker who will demand payment of any fee or commission from the
other party. The Company on the one hand, and Investor, on the other hand, agree
to indemnify the other against and hold the other harmless from any and all
liabilities to any persons claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 10.8 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
Company and
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Investor and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. This Agreement,
once executed by a party, may be delivered to the other parties hereto by
facsimile transmission of a copy of this Agreement bearing the signature of the
parties so delivering this Agreement.
Section 10.9 SURVIVAL; SEVERABILITY. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder for a period of one year. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.10 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.
Section 10.11 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.
Section 10.12 EQUITABLE RELIEF. The Company recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to Investor. The Company therefore agrees that Investor shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
Section 10.13 TITLE AND SUBTITLES. The titles and subtitles used
in this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.
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Section 10.14 REPORTING ENTITY FOR THE COMMON STOCK. The
reporting entity relied upon for the determination of the trading price of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg L.P. or any successor thereto. The written mutual consent of
Investor and the Company shall be required to employ any other reporting entity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
C-PHONE CORPORATION
By: /s/ DANIEL P. FLOHR
-------------------------
Name: Daniel P. Flohr
Title: President &
Chief Executive Officer
SOVEREIGN PARTNERS, L.P.
By: Southridge Capital Management LLC
general partner
By: /s/ STEVE HICKS
-------------------------
Name: Steve Hicks
Title:
34
EXHIBIT 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
18, 1998, is made and entered into by and between C-PHONE CORPORATION, a New
York corporation (the "COMPANY"), and SOVEREIGN PARTNERS, L.P., a Delaware
limited partnership (the "INVESTOR").
WHEREAS, the Company and the Investor have entered into that certain
Private Equity Credit Agreement, dated as of the date hereof (the "INVESTMENT
AGREEMENT"), pursuant to which the Company may issue and sell, from time to
time, to the Investor up to $5,000,000 worth of shares of its common stock, par
value $.01 per share (the "COMMON STOCK"); and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Investment Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the Registrable Securities;
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein and in the Investment
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound
hereby, the parties hereto agree as follows (capitalized terms used herein and
not defined herein shall have the respective meanings ascribed to them in the
Investment Agreement):
ARTICLE I
REGISTRATION RIGHTS
Section
1.1 Form S-3 Registration Statements.
(a) FILING OF FORM S-3 REGISTRATION STATEMENT. Subject to the terms and
conditions of this Agreement, the Company shall (i) prepare and, within thirty
(30) days following the Subscription Date, deliver to the Investor a draft of a
registration statement on Form S-3 under the Securities Act (the "INITIAL
REGISTRATION STATEMENT") for the registration for the resale by the Investor of
at least one million five hundred thousand (1,500,000) Registrable Securities
(the "INITIAL REGISTERABLE SECURITIES") and accompanied or preceded by a
questionnaire (a "SELLING SHAREHOLDER QUESTIONNAIRE") and of the type commonly
used for offerings of this kind and (ii) within ten (10) days after the Company
has received comments, if any, and a properly completed Selling Shareholder
Questionnaire from the Investor, file the Initial Registration Statement with
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the SEC. Thereafter, if the Company desires to issue and sell to the Investor
any Registerable Securities in addition to the Initial Registerable Securities,
the Company shall first file with the SEC a registration statement on Form S-3
under the Securities Act (the Initial Registration Statement and any subsequent
registration statement, each, a "REGISTRATION STATEMENT").
(b) EFFECTIVENESS OF THE INITIAL REGISTRATION STATEMENT. The Company
shall use its commercially reasonable efforts (i) to have the Initial
Registration Statement declared effective by the SEC by no later than ninety
(90) days after the filing of the Initial Registration Statement and (ii) to
insure that the Initial Registration Statement and any subsequent Registration
Statement remains in effect throughout the term of this Agreement as set forth
in Section 4.2, subject to the terms and conditions of this Agreement.
(c) FAILURE TO OBTAIN EFFECTIVENESS OF THE INITIAL REGISTRATION
STATEMENT. In the event the Company fails for any reason to obtain the
effectiveness of the Initial Registration Statement within the time period set
forth in Section 1.1(b), the Company shall pay to the Investor, within three (3)
Trading Days of the date by which such Registration Statement was required to
have been declared effective, the sum of $10,000 in immediately available funds
into an account designated by the Investor; provided, however, that such amount
shall not be payable with respect to the postponement of the effectiveness of a
Registration Statement (or use of the underlying prospectus) pursuant to Section
1.1(e). Any payment required to me made pursuant to this Section 1.1(c) shall be
made by wire transfer of immediately available funds to an account designated by
the Investor.
(d) FAILURE TO MAINTAIN EFFECTIVENESS OF A REGISTRATION STATEMENT. In
the event the Company fails to maintain the effectiveness of any Registration
Statement (or the underlying prospectus) throughout the term of this Agreement,
other than temporary suspensions permitted by Section 1.1(e), and the Investor
holds any Registrable Securities at any time during the period of such
ineffectiveness (an "INEFFECTIVE PERIOD"), the Company shall pay to the Investor
in immediately available funds into an account designated by the Investor an
amount equal to one percent (1%) of the aggregate Purchase Price of all of the
Registrable Securities then held by the Investor for each thirty (30) calendar
day period (prorated for partial periods) of such Ineffective Period; provided,
that, the Company shall be entitled to credit against any such payment the value
of the Blackout Shares (based on the applicable New Bid Price) issued to the
Investor pursuant to Section 2.6 of the Investment Agreement. The payments
required by this Section 1.1(d) shall be made on the first Trading Day after the
earliest to occur of (i) the expiration of the Commitment Period, and (ii) the
expiration of an Ineffective Period (or if an Ineffective Period shall last more
than thirty (30) calendar days, the expiration of each thirty (30) calendar days
of an Ineffective Period).
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(e) DEFERRAL OR SUSPENSION DURING A BLACKOUT PERIOD. Notwithstanding
the provisions of Sections 1.1 (c) and (d), if the Company shall furnish to the
Investor notice (a "BLACKOUT NOTICE") signed by the Chief Executive Officer or
Chief Financial Officer of the Company stating that he has determined in good
faith that it would be seriously detrimental to the Company and its shareholders
for the Initial Registration Statement to be filed (or for any Registration
Statement to remain in effect) and it is therefore desirable to defer the filing
of such Initial Registration Statement (or temporarily suspend the effectiveness
of any Registration Statement or use of the related prospectus), the Company
shall have the right (i) immediately to defer such filing for a period of not
more than thirty (30) days beyond the date by which such Initial Registration
Statement was otherwise required hereunder to be filed or (ii) suspend the
effectiveness of any Registration Statement for a period of not more than thirty
(30) (any such deferral or suspension period of up to thirty days, a "BLACKOUT
PERIOD"). The Investor acknowledges that it would be seriously detrimental to
the Company and its shareholders for such initial Registration Statement to be
filed (or for any Registration Statement to remain in effect) during a Blackout
Period and therefore essential to defer such filing (or suspend such
effectiveness) during such Blackout Period and agrees to cease any disposition
of Registrable Securities during such Blackout Period. The Company may not
utilize any of its rights under this Section 1.1(e) to defer the filing of a
Registration Statement (or suspend its effectiveness) more than twice in any
twelve (12) month period. Following such deferral or suspension, the Investor
shall be entitled to such additional number of shares of Common Stock as set
forth in Section 2.7 of the Investment Agreement.
(f) LIQUIDATED DAMAGES. The Company and the Investor hereto acknowledge
and agree that the sums payable under subsections 1(c) or 1(d) above shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (i) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (ii) the amounts specified in such subsections
bear a reasonable relationship to, and are not plainly or grossly
disproportionate to the probable loss likely to be incurred in connection with
any failure by the Company to obtain or maintain the effectiveness of a
Registration Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the uncertainty and cost
of litigation regarding the question of actual damages, and (iv) the Company and
the Investor are sophisticated business parties and have been represented by
sophisticated and able legal counsel and negotiated this Agreement at arm's
length.
ARTICLE II
REGISTRATION PROCEDURES
Section 2.1 FILINGS; INFORMATION. The Company will effect the
registration and sale of the Registrable Securities in accordance with the
intended methods of disposition thereof. Without limiting the foregoing, the
Company in each such case will
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do the following as expeditiously as possible, but in no event later than the
deadline, if any, prescribed therefor in this Agreement:
(a) The Company shall (i) prepare and file with the SEC a Registration
Statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies, that counsel for the Company shall
deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and in accordance with the intended method of
distribution of such Registrable Securities); (ii) use commercially reasonable
efforts to cause such filed Registration Statement to become and remain
effective (pursuant to Rule 415 under the Securities Act or otherwise); (iii)
prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for the time period
prescribed by Section 1.1(b); and (iv) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the Investor set forth in such Registration Statement.
(b) The Company shall file all necessary amendments to any Registration
Statement in order to effectuate the purpose of this Agreement and the
Investment Agreement.
(c) No later than five (5) days prior to filing any amendment or
supplement to the Initial Registration Statement or any subsequent Registration
Statement or prospectus, or any amendment or supplement thereto (excluding, in
each case, amendments deemed to result from the filing of documents incorporated
by reference therein), or such shorter period as is reasonable under the
circumstances, the Company shall deliver to the Investor and one firm of counsel
representing the Investor, in accordance with the notice provisions of Section
4.8, copies of such Registration Statement as proposed to be filed, together
with exhibits thereto, which documents will be subject to review by the Investor
and such counsel, and thereafter deliver to the Investor and such counsel, in
accordance with the notice provisions of Section 4.8, such number of copies of
the Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such Registration
Statement (including each preliminary prospectus) and such other documents or
information as the Investor or counsel may reasonably request in order to
facilitate the disposition of the Registrable Securities.
(d) The Company shall deliver, in accordance with the notice provisions
of Section 4.8, to each seller of Registrable Securities covered by a
Registration Statement such number of conformed copies of such Registration
Statement and of each amendment and supplement thereto (in each case including
all
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exhibits and documents incorporated by reference), such number of copies of the
prospectus contained in any Registration Statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under Rule
424 promulgated under the Securities Act relating to such seller's Registrable
Securities, and such other documents, as such seller may reasonably request to
facilitate the disposition of its Registrable Securities.
(e) After the filing of a Registration Statement, the Company shall
promptly notify the Investor of any stop order issued or threatened by the SEC
in connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(f) The Company shall use its commercially reasonable efforts to (i)
register or qualify the Registrable Securities under such other securities or
blue sky laws of such jurisdictions in the United States as the Investor may
reasonably request in light of its intended plan of distribution and (ii) cause
the Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable the
Investor to consummate the disposition of the Registrable Securities in light of
its intended plan of distribution; provided, however, that the Company will not
be required to qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (f), subject
itself to taxation in any such jurisdiction, or consent or subject itself to
general service of process in any such jurisdiction.
(g) The Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt of any request by the SEC or any other federal or state governmental
authority for additional information, amendments or supplements to such
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of such Registration Statement or notification of the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in such Registration Statement, related
prospectus or documents so that, in the case of such Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, in the light of the circumstances under which they
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were made, and that in the case of the related prospectus, it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(v) the Company's reasonable determination that a post-effective amendment to
such Registration Statement would be appropriate, and the Company will promptly
make available to the Investor any such supplement or amendment to the related
prospectus.
(h) The Company shall enter into customary agreements and take such
other customary actions as are reasonably required in order to expedite or
facilitate the disposition by the Investor of such Registrable Securities
(whereupon the Investor may, at its option, require that any or all of the
representations, warranties and covenants of the Company also be made to and for
the benefit of the Investor).
(i) The Company shall make available to the Investor (and will deliver
to Investor's counsel), subject to restrictions imposed by the United States
federal government or any agency or instrumentality thereof, copies of all
correspondence between the SEC and the Company, its counsel or its auditors and
will also make available for inspection by the Investor and any attorney,
accountant or other professional retained by the Investor (collectively, the
"INSPECTORS"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "RECORDS") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested by any Inspectors in connection with a
Registration Statement. Records that the Company determines, in good faith, to
be confidential and that it notifies the Inspectors are confidential shall not
be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or (ii) the disclosure or release of such Records is requested or
required pursuant to oral questions, interrogatories, requests for information
or documents or a subpoena or other order from a court of competent jurisdiction
or other legal process; provided, however, that prior to any disclosure or
release pursuant to clause (ii), the Inspectors shall provide the Company with
prompt notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and, provided, further, that if failing the entry of a
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records that counsel has advised the Inspectors that the Inspectors are
compelled to disclose. The Investor agrees that information obtained by it as a
result of such inspections (not including any information obtained from a third
party who, insofar as is known to the Investor after reasonable inquiry, is not
prohibited from providing such information by a contractual, legal or fiduciary
obligation to the Company) shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the Company
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unless and until such information has been made generally available to the
public. The Investor further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of the Records deemed confidential.
(j) The Company shall otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(k) The Company may require the Investor to promptly furnish in writing
to the Company such information as may be legally required in connection with
such registration including, without limitation, all such information as may be
requested by the SEC or the NASD. The Investor agrees to provide such
information requested in connection with such registration within five (5)
calendar days after receiving such written request, or such shorter period as is
reasonable under the circumstances, and the Company shall not be responsible for
any delays in obtaining or maintaining the effectiveness of any Registration
Statement caused by the Investor's failure to timely provide such information.
Section 2.2 REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all registration expenses incurred in
connection with the registration thereunder (the "REGISTRATION EXPENSES"),
including, without limitation: (a) all registration, filing, securities exchange
listing and fees required by the NASD, (b) all registration, filing,
qualification and other fees and expenses of compliance with securities or blue
sky laws (including reasonable fees and disbursements of counsel for the
Company), (c) all word processing, duplicating, printing, messenger and delivery
expenses, (d) the Company's internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), and (e) reasonable fees and disbursements of counsel for the
Company and customary fees and expenses for independent certified public
accountants retained by the Company.
ARTICLE III
INDEMNIFICATION AND CONTRIBUTION
Section 3.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Investor, its partners, Affiliates, officers, directors,
employees and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the partners, Affiliates,
officers, directors, employees and
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duly authorized agents of such controlling Person or entity (collectively, the "
CONTROLLING PERSONS"), from and against any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of investigating and defending any such
claim) (collectively, "DAMAGES"), joint or several, and any action or proceeding
in respect thereof to which the Investor, its partners, Affiliates, officers,
directors, employees and duly authorized agents, and any Controlling Person, may
become subject under the Securities Act or otherwise, as incurred, insofar as
such Damages (or actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or prospectus
relating to the Registrable Securities or arises out of, or are based upon, any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, except insofar as any
such untrue statement, alleged untrue statement, omission or alleged omission is
made in reliance upon and in conformity with written information furnished to
the Company by the Investor which is specifically intended by the Investor for
use in the preparation of any such Registration Statement, preliminary
prospectus or prospectus, and shall reimburse the Investor, its partners,
Affiliates, officers, directors, employees and duly authorized agents, and each
such Controlling Person, for any legal and other expenses reasonably incurred by
the Investor, its partners, Affiliates, officers, directors, employees and duly
authorized agents, or any such Controlling Person, as incurred, in investigating
or defending or preparing to defend against any such Damages or actions or
proceedings; provided, however, that the Company shall not be liable to the
Investor to the extent that any such Damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Investor failed to send or deliver a copy of the final prospectus delivered by
the Company to the Investor with or prior to the delivery of written
confirmation of the sale by the Investor to the Person asserting the claim from
which such Damages arise, and (ii) the final prospectus would have corrected
such untrue statement or alleged untrue statement or such omission or alleged
omission.
(b) INDEMNIFICATION BY THE INVESTOR. The Investor agrees to indemnify
and hold harmless the Company, its Affiliates, officers, directors, employees
and duly authorized agents, and each Controlling Persons of the Company, from
and against any and all Damages, joint or several, and any action or proceeding
in respect thereof to which the Investor, its partners, Affiliates, officers,
directors, employees and duly authorized agents, and any such Controlling
Person, may become subject under the Securities Act or otherwise, as incurred,
insofar as such Damages (or actions or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
prospectus relating to the Registrable Securities or arises out of, or are based
upon, any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
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misleading in light of the circumstances under which they were made, but only
to the extent that any such untrue statement, alleged untrue statement, omission
or alleged omission is made in reliance upon and in conformity with written
information furnished to the Company by the Investor which is specifically
intended for by the Investor for use in the preparation of any such Registration
Statement, preliminary prospectus or prospectus, and shall reimburse the
Company, its partners, Affiliates, officers, directors, employees and duly
authorized agents, and each such Controlling Person, for any legal and other
expenses reasonably incurred by the Investor, its partners, Affiliates,
officers, directors, employees and duly authorized agents, or any such
Controlling Person, as incurred, in investigating or defending or preparing to
defend against any such Damages or actions or proceedings.
Section 3.2 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after
receipt by any person or entity in respect of which indemnity may be sought
pursuant to Section 3.1 (an "INDEMNIFIED PARTY") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person or entity against whom such indemnity
may be sought (the "INDEMNIFYING PARTY"), notify the Indemnifying Party in
writing of the claim or the commencement of such action. In the event an
Indemnified Party shall fail to give such notice as provided in this Section 3.2
and the Indemnifying Party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, the indemnification provided for in Section 3.1
shall be reduced to the extent of any actual prejudice resulting from such
failure to so notify the Indemnifying Party; provided, however, that the failure
to notify the Indemnifying Party shall not relieve the Indemnifying Party from
any liability that it may have to an Indemnified Party otherwise than under
Section 3.1. If any such claim or action shall be brought against an Indemnified
Party, and it shall notify the Indemnifying Party thereof, the Indemnifying
Party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified Indemnifying Party, to assume
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party. After notice from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of such claim or action, the Indemnifying Party
shall not be liable to the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Indemnified Party shall have the right to employ separate counsel to
represent the Indemnified Party and its Controlling Persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the Indemnified Party against the Indemnifying Party, but the fees and
expenses of such counsel shall be for the account of such Indemnified Party,
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) in the reasonable judgment of
the Indemnifying Party and the Indemnified Party, representation of both parties
by the same counsel would be inappropriate due to actual or potential conflicts
of interest between them, it being understood, however, that
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the Indemnifying Party shall not, in connection with any one such claim or
action or separate but substantially similar or related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for all Indemnified
Parties, or for fees and expenses that are not reasonable. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or could have been a party and indemnity is sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding. Whether or not the defense of any claim or action
is assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any liability for any settlement made without its consent, which
consent will not be unreasonably withheld.
Section 3.3 OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Article III (with appropriate
modifications) shall be given by the Company with respect to any required
registration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Securities Act. The
provisions of this Article III shall be in addition to any other rights to
indemnification, contribution or other remedies which an Indemnified Party may
have pursuant to law, equity, contract or otherwise.
Section 3.4 CONTRIBUTION. If the indemnification and reimbursement
obligations provided for in any section of this Article III is unavailable or
insufficient to hold harmless the Indemnified Parties in respect of any Damages
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the Company on the one
hand and the Investor on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Investor in connection with
such statements or omissions, as well as other equitable considerations. The
relative fault of the Company on the one hand and of the Investor on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 3.4 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
Damages referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations
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set forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 3.4, the Investor shall
in no event be required to contribute any amount in excess of the amount by
which the total price at which the Registrable Securities of the Investor were
sold to the public (less underwriting discounts and commissions) exceeds the
amount of any damages which the Investor has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
ARTICLE IV
MISCELLANEOUS
Section 4.1 NO OUTSTANDING REGISTRATION RIGHTS. The Company represents
and warrants to the Investor that there is not in effect on the date hereof any
agreement by the Company pursuant to which any holders of securities of the
Company have a right to cause the Company to register or qualify such securities
under the Securities Act or any securities or blue sky laws of any jurisdiction,
except as disclosed in the Company's Annual Report on Form 10-KSB for the fiscal
year ended February 28, 1998 (including the documents incorporated therein by
reference).
Section 4.2 TERM. The obligations of the Company and the rights
provided to the holders of Registrable Securities hereunder shall terminate at
such time as all the Commitment Period has expired and any Registrable
Securities theretofore issued have ceased to be Registrable Securities in
accordance with the definition thereof contained in the Investment Agreement.
Notwithstanding the foregoing, Section 1.1(c) and (d), Article III, Section 4.8,
and Section 4.9 shall survive the termination of this Agreement.
Section 4.3 RULE 144. The Company will use its commercially reasonable
efforts to file in a timely manner information, documents and reports in
compliance with the Securities Act and the Exchange Act and will, at its
expense, promptly take such further action as holders of Registrable Securities
may reasonably request to enable such holders of Registrable Securities to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act
("RULE 144"), as such Rule may be amended from time to time, or (b) any similar
rule or regulation hereafter adopted by the SEC. If at any time the Company is
not required to file such reports, it will, at its expense, forthwith upon the
written request of any holder of Registrable Securities, make available
adequate current public information with respect to the Company within the
meaning of paragraph (c)(2) of Rule 144 or such other information as necessary
to permit sales pursuant to Rule 144. Upon the request of the Investor, the
Company will deliver to the Investor a
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written statement, signed by the Company's principal executive or financial
officer, as to whether it has complied with such requirements.
Section 4.4 CERTIFICATE. The Company will, at its expense, forthwith
upon the request of any holder of Registrable Securities, deliver to such holder
a certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's SEC
file number, (d) the number of shares of each class of Stock outstanding as
shown by the most recent report or statement published by the Company, and (e)
whether the Company has filed the reports required to be filed under the
Exchange Act for a period of at least ninety (90) days prior to the date of such
certificate and in addition has filed the most recent annual report required to
be filed thereunder.
Section 4.5 AMENDMENT AND MODIFICATION. No provision of this Agreement
may be waived, unless such waiver is set forth in a writing executed by both
parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable Securities. Notwithstanding the foregoing,
the waiver of any provision hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other holders of Registrable Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such holders; provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this Agreement or any rights or obligations of
any person under or by reason of this Agreement.
Section 4.6 SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns. The
Investor may assign its rights under this Agreement to any subsequent holder of
the Registrable Securities, provided that the Company shall have the right to
require any holder of Registrable Securities to execute a counterpart of this
Agreement as a condition to such holder's claim to any rights hereunder. This
Agreement, together with the Investment Agreement, sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
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Section 4.7 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 4.8 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (a) personally served,
(b) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (c) delivered by reputable air courier service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company: C-Phone Corporation
6714 Netherlands Drive
Wilmington, North Carolina 28405
Attention: Daniel P. Flohr
Telephone: (910) 395-6100
Facsimile: (910) 395-6108
with a copy (which shall not constitute notice) to:
Warshaw Burstein Cohen Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attention: Michael D. Schwamm
Telephone: (212) 984-7832
Facsimile: (212) 984-7893
if to Investor: Sovereign Partners, L.P.
Executive Pavilion
90 Grove Street
Ridgefield, Connecticut 06877
Attn: Steve Hicks
Telephone: (203) 431-8300
Facsimile: (203) 431-8301
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Either party hereto may from time to time change its address or
facsimile number for notices under this Section 4.8 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
Section 4.9 GOVERNING LAW, JURISDICTION. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of New York
without regard to the principles of conflicts of law. The parties hereto hereby
submit to the exclusive jurisdiction of the United States Federal and state
courts located in New York, New York with respect to any dispute arising under
this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
Section 4.10 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 4.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.
Section 4.12 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.
Section 4.13 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
C-PHONE CORPORATION
By: /s/ DANIEL P. FLOHR
---------------------------------------
Name: Daniel P. Flohr
Title: President & Chief Executive Officer
SOVEREIGN PARTNERS, L.P.
By: Southridge Capital Management LLC,
general partner
By: /s/ STEVE HICKS
---------------------------------------
Name: Steve Hicks
Title:
15
EXHIBIT 3
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT") OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
AND QUALIFICATION IN EFFECT WITH RESPECT THERETO UNDER THE 1933 ACT AND UNDER
ANY APPLICABLE STATE SECURITIES LAW, (ii TO THE EXTENT APPLICABLE, RULE 144
UNDER THE 1933 ACT, OR (iii) AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
C-PHONE CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED
UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
No. WC-1 100,000 Warrants
COMMON STOCK PURCHASE WARRANT
C-Phone Corporation, a New York corporation (the "COMPANY"), hereby
certifies that for $10.00 and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, Cardinal Capital Management,
Inc. (the "INVESTOR") is entitled, on the terms and conditions set forth below,
to purchase from the Company up to 100,000 fully paid and nonassessable shares
of Common Stock, par value $.01 per share, of the Company (the "COMMON STOCK")
at the price per share set forth in Section 6, subject to adjustment.
1. DEFINITIONS. All capitalized terms used herein but not otherwise
defined herein shall have the meanings assigned to them in the Private Equity
Credit Agreement, dated as of September 18, 1998, among the Company and the
Investor.
2. EXPIRATION DATE. The Investor and its registered assigned (the
"HOLDER") is hereby granted the right to purchase, at any time from and after
the date hereof until 5:00 P.M., New York time, on the earlier of (a) September
18, 2000 and (b) and the business day preceding the Redemption Date (as defined
in Section 9(d))] (the "EXPIRATION DATE").
3. EXERCISE OF WARRANT. This Warrant initially is exercisable at an
exercise price (subject to adjustment as provided in Section 8 hereof) per share
of Common Stock set forth in Section 6 hereof payable by certified or official
bank check in New York Clearing House funds. Upon surrender of this Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal offices presently
located at 6714 Netherlands Drive, Wilmington, North Carolina 28405 the Holder
shall be entitled to receive a certificate or certificates for the shares of
Common Stock so purchased. This Warrant is exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying this Warrant). In the case of the purchase of less than
all the shares of Common Stock
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purchasable under this Warrant, the Company shall cancel this Warrant upon the
surrender thereof and shall execute and deliver a new Warrant of like tenor for
the balance of the shares of Common Stock purchasable hereunder.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of this Warrant, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying this Warrant shall be made forthwith (and in any
event within three (3) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder hereof (consistent with the terms and conditions of this
Warrant); provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
This Warrant Certificates and the certificates representing the Common
Stock (and/or other securities, property or rights issuable upon the exercise of
this Warrant) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. This Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant, by
its acceptance thereof, covenants and agrees that this Warrant is being acquired
as an investment and not with a view to the distribution thereof.
6. EXERCISE PRICE.
a. INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise provided
in Section 8 hereof, the initial exercise price of this Warrant shall be $8.00
per share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
b. EXERCISE PRICE. The term "EXERCISE PRICE" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
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7. REGISTRATION RIGHTS.
The shares of Common Stock issuable upon exercise of this Warrant
(the "WARRANT SHARES") shall be included in the registration statement (the
"REGISTRATION STATEMENT") to be prepared and filed by the Company with the
Securities and Exchange Commission ("SEC") pursuant to the terms of the
Registration Rights Agreement.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
a. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE
OF COMMON STOCK. Except as otherwise provided in Section 8(c), 8(d) and 8(f)
hereof, if and whenever on or after the date of issuance of this Warrant, the
Company issues or sells, or in accordance with Section 8(b) hereof is deemed to
have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than 80%
of the Market Price (as hereinafter defined) (or in the case of Section
(8(b)(i), 100% of the Market Price) on the date of issuance (a "DILUTIVE
ISSUANCE"), then immediately upon the Dilutive Issuance, the Exercise Price will
be reduced to a price determined by multiplying the Exercise Price in effect
immediately prior to the Dilutive Issuance by a fraction, (i) the numerator of
which is an amount equal to the sum of (x) the number of shares of Common Stock
actually outstanding immediately prior to the Dilutive Issuance, plus (y) the
quotient of the aggregate consideration, calculated as set forth in Section 8(b)
hereof, received by the Company upon such Dilutive Issuance divided by the
Market Price in effect immediately prior to the Dilutive Issuance, and (ii) the
denominator of which is the total number of shares of Common Stock Deemed
Outstanding (as defined below) immediately after the Dilutive Issuance.
b. EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 8(a) hereof, the following
will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "OPTIONS") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by
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dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than 80% of the Market Price on the date of
issuance, then the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
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(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be 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 securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, 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 corporation 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 in good faith by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
c. SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
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d. STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall pay
a dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, in respect of the Common
Stock. the Exercise Price shall forthwith be proportionately decreased. An
adjustment made pursuant to this Section 8(b) shall be made as of the record
date for the subject stock dividend or distribution.
e. ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Securities issuable upon the exercise at the adjusted exercise price of this
Warrant shall be adjusted to the nearest non-fractional amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
f. MERGER OR CONSOLIDATION. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder an amended warrant providing that the holder of this Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of this Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such amended
Warrant shall provide for adjustments which shall be identical to the
adjustments provided in Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers. The Company will not
effect any consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Section 8 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.
g. DISTRIBUTION OF ASSETS. In case the Company shall declare or make
any distribution of its assets (including cash but excluding any Common Stock
held in treasury) to holders of Common Stock as a partial liquidating dividend,
by way of return of capital or otherwise, then, after the date of record for
determining stockholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets which would have been payable to
the holder had such holder been the holder of such shares of Common
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Stock on the record date for the determination of stockholders entitled to such
distribution.
h. CERTAIN DEFINITIONS.
i. The term "COMMON STOCK" shall mean (x) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
may be amended as of the date hereof, or (y) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
ii. The term "COMMON STOCK DEEMED OUTSTANDING" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) pursuant to Section
8(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Section 8(b)(ii) hereof, the maximum total
number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
iii. The term "MARKET PRICE," as of any date, (x) means the
average of the closing bid price of the Common Stock on the Principal Market or
(y) if the Common Stock is then not traded on a Principal Market, the fair
market value as reasonably determined in good faith by the Board of Directors of
the Corporation. The manner of determining the Market Price of the Common Stock
set forth in the foregoing definition shall apply with respect to any other
security in respect of which a determination as to market value must be made
hereunder.
i. NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment
of the Exercise Price shall be made:
i. Upon the issuance or sale of this Warrant or the shares of
Common Stock issuable upon the exercise of this Warrant; or
ii. If the amount of said adjustment shall be less than two cents
(2(cent)) per Warrant Share, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
two cents (2(cent)) per Warrant Share.
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9. REDEMPTION OF WARRANTS.
a. REDEMPTION PRICE AND REDEMPTION ACCELERATION PRICE. The Company
may, at its option, redeem all or any portion of the this Warrant at a
redemption price of $.01 a Warrant (such price is hereinafter referred to as the
"REDEMPTION PRICE") if (a) the Closing Price per share of Common Stock, as
determined pursuant to Section 9(c), shall have been greater than 125% of the
then exercise price (such price, as the same may from time to time be adjusted,
is hereinafter referred to as the "REDEMPTION ACCELERATION PRICE") for any five
consecutive trading days ending not more than 20 trading days prior to the date
that notice of such redemption shall have been given to the Holder by the
Company pursuant to Section 9(d), and (b) the Registration Statement covering
the Warrant Shares is then effective.
b. PAYMENT OF REDEMPTION PRICE. On or prior to the opening of
business on the Redemption Date (as defined in Section 9(d)), the Company will
set aside the funds sufficient to purchase such portion of this Warrant which
are to be redeemed. Payment of the Redemption Price will be made by the Company
upon presentation and surrender of this Warrant Certificates to the Company at
its principal office.
c. DETERMINATION OF CLOSING PRICE. For the purposes of Section 9(a),
the Closing Price for each day shall be the last reported sale price of the
Common Stock on the Principal Market.
d. NOTICE OF REDEMPTION. Notice of redemption shall be given to the
Holder by the Company not less than 15 days and not more than 45 days prior to
the date established for such redemption (the "REDEMPTION DATE"). Each such
notice of redemption will specify the Redemption Date and the Redemption Price.
The notice will state that payment of the Redemption Price will be made by the
Company upon presentation and surrender of this Warrant Certificates
representing such Warrants to the Company at its principal office, and will also
state that the right to exercise this Warrant will terminate at 5:00 P.M., New
York City time, on the business day immediately preceding the Redemption Date.]
10. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be reasonably designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and
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reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant Certificate of like tenor, in lieu thereof.
11. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of this Warrant, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
12. CERTAIN AGREEMENTS OF THE COMPANY
a. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of this Warrant, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of this Warrant and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as this Warrant shall be
outstanding, the Company shall use its commercially reasonable efforts to cause
all shares of Common Stock issuable upon the exercise of this Warrant to be
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock issued to the public in connection herewith may then be
listed and/or quoted on the Principal Market.
b. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter 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. 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 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.
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c. SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
13. CASHLESS EXERCISE. Notwithstanding the provisions of Section 3, if
the resale of the Warrant Shares by the holder is not then registered pursuant
to an effective registration statement under the 1933 Act as a result of a
breach by the Company of its obligations under the Registration Rights
Agreement, this Warrant may be exercised by presentation and surrender of this
Warrant to the Company at its principal executive offices with a written notice
of the holder's intention to effect a cashless exercise, including a calculation
of the number of shares of Common Stock to be issued upon such exercise in
accordance with the terms hereof (a "CASHLESS EXERCISE"). In the event of a
Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder
shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which (which shall not be
less than zero) shall be the then current Market Price per share of the Common
Stock less the Exercise Price, and the denominator of which shall be the then
current Market Price per share of Common Stock.
14. NOTICES TO WARRANT HOLDER. Nothing contained in this Warrant shall
be construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of this Warrant and its exercise, any of the following events
shall occur:
a. the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
b. the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
c. there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
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d. a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days (or as many days as is practicable, if
such record date is not fixed at least fifteen (15) days in advance) prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
15. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or three (3) business days after mailing, if mailed by
registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the Holder.
16. AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
17. SUCCESSORS. All the covenants and provisions of this Warrant shall
be binding upon and inure to the benefit of the Company, the Holder and their
respective successors and assigns hereunder.
18. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Warrant Certificate
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State without giving effect to its rules governing the conflicts of laws.
The Company and the Holder hereby agree that any action, proceeding or
claim against it arising out of or relating in any way to, this Warrant shall be
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submit
to such jurisdiction, which jurisdiction shall be exclusive. The Company and the
Holder hereby irrevocably waive
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any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon the Company or the Holder (at the option of
the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address referred to in
Section 14 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company and the Holder agree that the prevailing party or parties in any
such action or proceeding shall be entitled to recover from the other party or
parties all of its/their reasonable legal costs and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
19. ENTIRE AGREEMENT: MODIFICATION. This Warrant contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
20. SEVERABILITY. If any provision of this Warrant shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Warrant.
21. CAPTIONS. The caption headings of the Sections of this Warrant are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Warrant and shall be given no substantive effect.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder of the Warrant Certificates or Warrant Shares any legal or equitable
right, remedy or claim under this Warrant; and this Warrant shall be for the
sole and exclusive benefit of the Company and the Holder of this Warrant
Certificates or Warrant Shares.
23. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of September 18, 1998
C-PHONE CORPORATION
[SEAL]
By: /s/ DANIEL P. FLOHR
------------------------------
Daniel P. Flohr
President and Chief
Executive Officer
Attest:
/s/ TINA L. JACOBS
- ---------------------------
Tina L. Jacobs
Secretary
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
C-Phone Corporation in the amount of $________, all in accordance with the
terms of Section 3 of this Warrant.
Dated:
----------------------
------------------------------------
Print Name:
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
------------------------------------
Address, including zip code
------------------------------------
Delivery Address for Certificate (if
different)
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[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED) __________________________ hereby sells, assigns and
transfers unto ____________________________________.
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
---------------------
Signature:
-------------------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
-------------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
15
