U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _____________
Commission file number 0-20843
POINTE COMMUNICATIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 84-1097751
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2839 PACES FERRY ROAD, SUITE 500,
ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices)
(770) 432-6800
(Issuer's Telephone Number, Including Area Code)
________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of May 14, 1999: 45,428,203
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
March 31, December 31,
1999 1998
------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 2,872,865 $ 1,255,199
Restricted cash. . . . . . . . . . . . . . . . . . . . . 348,900 185,000
Accounts receivable, net of allowance for
doubtful accounts of $958,894 and $900,000
at March 31, 1999 and December 31, 1998, respectively. 3,415,385 3,686,153
Accounts receivable-- affiliate, net . . . . . . . . . . 279,995 215,337
Inventory, net . . . . . . . . . . . . . . . . . . . . . 1,243,525 652,187
Prepaid expenses and other . . . . . . . . . . . . . . . 335,701 263,249
------------ --------------
Total current assets . . . . . . . . . . . . . . . . . 8,496,371 6,257,125
------------ --------------
PROPERTY AND EQUIPMENT, at cost:
Equipment and machinery. . . . . . . . . . . . . . . . . 15,820,747 14,168,428
Earth station facility . . . . . . . . . . . . . . . . . 988,570 835,527
Software . . . . . . . . . . . . . . . . . . . . . . . . 1,852,065 1,732,700
Furniture and fixtures . . . . . . . . . . . . . . . . . 698,230 578,698
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 1,219,866 1,157,344
------------ --------------
20,579,479 18,472,697
Accumulated depreciation and amortization. . . . . . . . (4,634,167) (3,984,392)
------------ --------------
Property and equipment, net. . . . . . . . . . . . . . 15,945,312 14,488,305
------------ --------------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $1,693,699 and $1,544,360,
at March 31, 1999 and December 31, 1998, respectively. 17,491,772 17,709,865
Acquired customer bases, net of accumulated
amortization of $1,061,759 and $969,182
at March 31, 1999 and December 31, 1998, respectively. 845,700 844,543
Other intangibles, net of accumulated
amortization of $1,322,079 and $1,184,062
at March 31, 1999 and December 31, 1998, respectively. 1,721,727 1,848,762
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 1,402,328 1,073,279
------------ --------------
Total other assets . . . . . . . . . . . . . . . . . . 21,461,527 21,476,449
------------ --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $45,903,210 $ 42,221,879
============ ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Balance Sheets.
<PAGE>
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable . . . . . . . . . . . . . $ 11,218,938 $ 3,728,062
Current portion of lease obligations . . . . . . . . . . . 1,458,240 1,273,298
Lines of credit. . . . . . . . . . . . . . . . . . . . . . 975,000 1,000,000
Loans from stockholders. . . . . . . . . . . . . . . . . . 520,000 670,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . 6,147,361 6,214,952
Accounts payable-- affiliate . . . . . . . . . . . . . . . - 68,000
Accrued liabilities. . . . . . . . . . . . . . . . . . . . 2,707,885 2,346,622
Unearned revenue . . . . . . . . . . . . . . . . . . . . . 2,135,619 2,928,990
------------- -------------
Total current liabilities. . . . . . . . . . . . . . . . 25,163,044 18,229,924
------------- -------------
LONG TERM LIABILITIES:
Capital and financing lease obligations. . . . . . . . . . 6,871,634 7,128,451
Convertible debentures . . . . . . . . . . . . . . . . . . 1,180,000 1,180,000
Senior subordinated notes. . . . . . . . . . . . . . . . . 697,778 690,278
Notes payable and other long term obligations. . . . . . . 560,913 626,022
------------- -------------
Total long term liabilities. . . . . . . . . . . . . . . 9,310,325 9,624,751
------------- -------------
MINORITY INTEREST. . . . . . . . . . . . . . . . . . . . . 1,981,959 1,981,959
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000 shares
authorized, 550 shares issued, - shares
outstanding at both March 31, 1999 and December 31, 1998 - -
Common stock, $0.00001 par value; 100,000,000 shares
authorized; 45,350,365 and 45,339,839 shares outstanding
at March 31, 1999 and December 31, 1998, respectively. . 454 454
Additional paid-in-capital . . . . . . . . . . . . . . . . 43,859,330 43,137,654
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (34,411,902) (30,752,863)
------------- -------------
Total stockholders' equity . . . . . . . . . . . . . . . 9,447,883 12,385,245
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . $ 45,903,210 $ 42,221,879
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Balance Sheets.
<PAGE>
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Communications services. . . . . . . $ 10,825,273 $ 3,332,636
Internet connection services . . . . 619,639 754,161
Hardware and software. . . . . . . . 108,614 12,069
---------------- ----------------
Total revenues . . . . . . . . . . . 11,553,526 4,098,866
---------------- ----------------
COSTS AND EXPENSES:
Cost of services . . . . . . . . . . 10,180,276 3,404,937
Cost of hardware and software. . . . 66,752 5,455
Selling, general, and administrative 2,833,152 1,998,123
Depreciation and amortization. . . . 1,045,947 751,984
---------------- ----------------
Total costs and expenses . . . . . . 14,126,127 6,160,499
---------------- ----------------
OPERATING LOSS . . . . . . . . . . . . (2,572,601) (2,061,633)
---------------- ----------------
INTEREST EXPENSE, NET. . . . . . . . . (1,086,438) (261,067)
---------------- ----------------
NET LOSS BEFORE INCOME TAXES . . . . . (3,659,039) (2,322,700)
INCOME TAX BENEFIT . . . . . . . . . . - -
---------------- ----------------
NET LOSS . . . . . . . . . . . . . . . $ (3,659,039) $ (2,322,700)
================ ================
NET LOSS PER SHARE -
BASIC AND DILUTED . . . . . . . . . $ (0.08) $ (0.06)
================ ================
SHARES USED IN COMPUTING
NET LOSS PER SHARE . . . . . . . . . . 45,343,348 35,928,109
================ ================
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
<PAGE>
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . $ (3,659,039) $ (2,322,700)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . 1,045,947 751,984
Bad debt expense . . . . . . . . . . . . . . . . . 58,894 56,940
Amortization of discounts on debt and lease
obligations. . . . . . . . . . . . . . . . . . . 525,479 38,475
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . 211,874 165,132
Accounts receivable-- affiliate, net. . . . . . (64,658) (513,505)
Inventory . . . . . . . . . . . . . . . . . . . (591,338) (43,574)
Prepaid expenses. . . . . . . . . . . . . . . . (72,452) 24,802
Other assets. . . . . . . . . . . . . . . . . . (522,996) (24,768)
Accounts payable, accrued and other liabilities 293,587 (827,719)
Accounts payable-- affiliate. . . . . . . . . . (68,000) (176,654)
Unearned revenue. . . . . . . . . . . . . . . . (793,371) (750,851)
---------------- ----------------
Total Adjustments. . . . . . . . . . . . . 22,966 (1,299,738)
---------------- ----------------
Net cash used in operating activities. . . (3,636,073) (3,622,438)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . (2,106,781) (670,340)
Restricted cash . . . . . . . . . . . . . . . . . . . (163,900) -
Acquisition of businesses . . . . . . . . . . . . . . - -
---------------- ----------------
Net cash used in investing activities. . . (2,270,681) (670,340)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . - 4,500,000
Proceeds from lease obligations, net . . . . . . . . (101,671) 287,570
Proceeds from receivable facility, net . . . . . . . - 574,500
Repayment of lines of credit, net. . . . . . . . . . (25,000) (15,000)
Repayment of loans from shareholders . . . . . . . . (150,000) -
Repayment of notes payable, net. . . . . . . . . . . 7,801,091 1,533
---------------- ----------------
Net cash provided by financing activities. 7,524,420 5,348,603
---------------- ----------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS. . . . 1,617,666 1,055,825
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 1,255,199 155,503
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . $ 2,872,865 $ 1,211,328
================ ================
Supplemental Non-Cash Disclosures:
- --------------------------------------------------------
Cash paid for interest . . . . . . . . . . . . . . . . . 552,883 196,526
Cash paid for income taxes . . . . . . . . . . . . . . . - -
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
<PAGE>
POINTE COMMUNICATIONS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
1. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Section 310 of Regulation
S-B of the Securities and Exchange Commission ("SEC"). The accompanying
unaudited condensed consolidated financial statements reflect, in the opinion of
management, all adjustments necessary to achieve a fair statement of financial
position and results for the interim periods presented. All such adjustments are
of a normal recurring nature. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. Certain amounts in the prior period financial statements have been
reclassified to conform to the current year presentation.
3. Basic net loss per share is computed using the weighted average number of
shares outstanding. Diluted net loss per share is computed using the weighted
average number of shares outstanding, adjusted for common stock equivalents,
when dilutive. For the periods presented, the effect of common stock equivalents
was antidilutive, as a result, basic and diluted net loss per share are the
same.
4. There was no provision for or cash payment of income taxes for the three
months ended March 31, 1999 and 1998, respectively, as the Company had net
taxable losses for 1999 and 1998, respectively, and anticipates a net taxable
loss for the year ended December 31, 1999.
5. During the quarter, the Company entered into short-term bridge loans of
$2.0 million, $2.0 million and $5.0 million, due May 31, May 29 and July 6, 1999
respectively, and redeemed a $1.0 million bridge loan outstanding at December
31, 1998. In conjunction with the loans, the Company issued 760,000, 760,000 and
5.0 million warrants to purchase common stock at $1.00 per share for 3 years, 3
years and 8 months from issuance, respectively. The two $2.0 million notes are
secured by a blanket interest in all personal property in which the Company has
an interest. Additional security for the two $2.0 million notes includes the
stock of Telecommute Solutions, Inc. and shares of Company common stock owned by
an officer of the Company, respectively. The first $2.0 million loan was issued
to an affiliate of the Company. During the quarter a $1 million note entered
into in December 1998 due April 17, 1999 was extended prior to its due date to
May 31, 1999. Also, during the quarter, the Company entered into a capital lease
facility with a major equipment vendor to purchase $25.0 million of equipment
and to provide a $3.0 million working capital line of credit. The Company
granted up to 500,000 warrants to purchase common stock at $1.125 per share for
five years in conjunction with the $3 million working capital line, which
will be issued pro rata with the amount of the proceeds used by the Company.
6. Subsequent to the quarter end, the Company completed a $30 million
private placement offering of 10,080 shares of the Company's $0.01 par value
Class A Convertible Senior Preferred Stock (the "Preferred Stock") and warrants
to purchase 10,800,000 shares of common stock. The private placement was
co-managed by investment bankers headquartered in New York and Atlanta. Gross
proceeds from this offering totaled $ 30,240,000 and will be used to fund
network expansion, repay indebtedness and fund operations. The Preferred Stock
earns dividends at a rate of 12% per annum, which are cumulative and payable in
either cash or shares of Preferred Stock at the Company's discretion. Each share
of Preferred Stock is convertible at the holders option into common stock at a
conversion price of $1.40 per share (subject to adjustment for certain diluting
issues) at any time while the Preferred Stock remains outstanding. The Company
may require the conversion of all of the Preferred Stock as follows: (a) in
conjunction with an offering of the Company's common stock in a firm commitment
underwritten public offering at a purchase price of $4.00 per share (subject to
adjustment for certain diluting issues) yielding net proceeds of $30 million; or
(b) one year after issuance if the common stock shall have been listed for
trading on the New York Stock Exchange, American Stock Exchange or the Nasdaq
<PAGE>
National Market System and the common stock shall have traded on such exchange
at a price of at least $5.00 per share (subject to adjustment for certain
diluting issues) for twenty consecutive trading days and the average daily value
of shares traded during that twenty day period was at least $1.0 million. On
the twelfth anniversary, if the Preferred Stock is still outstanding and the
underlying common stock has been listed on one of the aforementioned exchanges,
the Company is required to exchange the Preferred Stock for common stock at a
conversion price equal to the average trading price for the twenty consecutive
trading days immediately prior to the exchange date.
The warrants give the holders the right to purchase 10,800,000 shares at
a price of $1.625 per share for a period of five years after the issuance date.
The Company may require exercise of the warrants if the underlying common stock
has been registered with the SEC and is listed on one of the aforementioned
exchanges and has traded on such exchange at a price of at least $5.00 per share
(subject to adjustment for certain diluting issues) for twenty consecutive
trading days. The Company is required to file a registration statement with the
SEC within 120 days after closing the private offering of Preferred Stock and
warrants to register the shares of common stock issued or issuable upon
conversion of the Preferred Stock (including shares issued as dividends) and the
exercise of the warrants.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Pointe Communications Corporation (formerly Charter Communications
International, Inc., "PointeCom", or the "Company") is an international,
facilities-based communications company serving residential and commercial
customers in the U.S., Central America and South America. The Company's products
and services include long distance, Internet access, data transmission, private
line services and local dial tone services. The Company also offers prepaid
calling cards to specifically targeted demographic groups and telecommuting
services to corporate clients.
PointeCom began operations in 1995 predominately offering International
Private Line ("IPL") services between the U.S. and Panama. Subsequently, the
Company has secured various communications licenses in the U.S., Panama, Costa
Rica, Venezuela, El Salvador, Nicaragua, Mexico, and Honduras, has acquired nine
companies, and increased revenue from $544,000 in 1995 to $27.6 million in 1998.
Licenses held by the Company, which vary by country, typically allow the Company
to offer an array of services including international private line, long
distance, Internet access, and data transmission, especially between the U.S.
and Latin America. The Company has established an infrastructure including
satellite earth stations, interconnection agreements, peripheral infrastructure,
and sales and marketing channels in all of the above countries, except Honduras,
to service existing and future customers. The Company also enjoys strong
relationships with the responsible government agencies, telephone company
authorities and international carriers.
Since its inception, the Company has been focused on providing businesses
with dedicated voice and data services via its private line network. The
Company's primary retail offerings have been Internet access and prepaid calling
cards. As a result of a growing trend in the industry brought on by the
Telecommunications Act of 1996 and identification of an underserved market
niche, the Company recently adopted a strategy to provide a full array of
bundled telecommunications and network services to both commercial and
residential customers with particular focus on ethnic communities in "paired"
U.S and international markets. In the U.S., the Company's focus is on
communities with large Hispanic populations. Internationally, the Company has
targeted complementary markets with telecommunications traffic patterns that
correspond with the paired U.S. target markets. Management believes that
originating and terminating traffic between domestic and international cities
that share the Company as a common network carrier will provide significant
competitive, marketing, and cost advantages.
The Company's strategy assumes that there exists (i) a significant
population in the U.S. that is dissatisfied with its current telecommunications
service, (ii) substantial demand for telecommunications services in the U.S.
Hispanic population, (iii) a lack of ready access to telephony services in Latin
America for a substantial portion of the population, and (iv) a natural synergy
<PAGE>
in providing local services in both the U.S. and Latin America to meet basic
telephony needs along with bundled services to meet more advanced communications
requirements between the U.S. and Latin America.
The Company anticipates that its strategy will permit it to establish and
maintain profitable growth while developing as a local service provider and long
distance carrier. The Company is attempting to position itself as a cost
efficient, reliable alternative to Incumbent Local Exchange Carriers ("ILEC"s)
by providing bundled telecommunication services tailored specifically to the
needs of certain ethnic groups in paired domestic and international markets.
The Company is implementing a facilities based infrastructure on a staged basis
in certain identified markets with the ultimate objective of being a
full-service Competitive Local Exchange Carrier ("CLEC") with a low-cost base of
operations.
As part of its implementation plan, the Company is currently establishing
an international backbone for both voice and data switching in and between
Houston, Texas; Atlanta, Georgia; Miami, Florida; New York, New York; San Juan,
Puerto Rico; Managua, Nicaragua; and San Salvador, El Salvador. Future plans
include similar network infrastructure in other U.S. and South American and
Central American locations. The Company anticipates that this network will
provide PointeCom with a lower cost basis for its existing business and a unique
partnering opportunity with foreign Postal, Telephone and Telegraph companies
("PTTs"). The network should also provide significant marketing advantages and
cost savings to its existing prepaid calling card and telecommute solutions
product lines. Failure of the Company to raise all or a significant portion of
the funds needed to build this network could materially adversely affect the
Company's planned and continuing operations.
See "Liquidity and Capital Resources" for a discussion of the Company's
ability to meet the capital requirements associated with its expansion plans.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the three months
ended March 31, 1999 and 1998. Operating results for any period are not
necessarily indicative of results for any future period. Dollar amounts (except
per share data) are shown in thousands.
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
% of % of
Revenues Revenues
--------- --------
<S> <C> <C> <C> <C>
Revenues:
Communications
services . . . . . $ 10,825 93.7% $ 3,333 81.3%
Hardware and
Software sales. . . 109 0.9 12 0.3
Internet connection
Services. . . . . . 620 5.4 754 18.4
-------- --------- --------- -------
Total revenues. 11,554 100.0 4,099 100.0
Cost and expenses:
Cost of services. . . . 10,180 88.1 3,405 83.1
Cost of hardware
and software. . . . 68 0.6 5 0.1
Selling, general and
administrative. . . 2,833 24.5 1,998 48.7
Depreciation and
amortization. . . . 1,046 9.1 752 18.3
-------- --------- --------- -------
Total costs
and expenses . . 14,127 122.3 6,160 150.2
-------- --------- --------- -------
Operating loss . . . . <2,573> <22.2> <2,061> <50.2>
-------- --------- --------- -------
Interest expense, net . . <1,086> <9.4> <261> <6.4>
Net Loss. . . . . . . . . <3,659> <31.7> <2,322> <56.6>
-------- --------- --------- -------
Net loss per share. . . . $ <.08> $ <.06>
Shares used in computing
net loss per share. . . . 45,343 35,928
</TABLE>
<PAGE>
Consolidated revenues for the combined lines of business for the three
months ended March 31, 1999 and 1998 were $11,554,000 and $4,099,000
respectively. The increase in revenue was principally the result of increased
prepaid calling card sales, primarily driven by increased distribution within
the U.S. Hispanic community, increased quality as a result of capital
expenditures during 1998 and the first quarter of 1999, and acquisitions during
1998. Other increases came from international private line, mainly to Costa
Rica, and the telecommuting services business, which began operations in the
first quarter of 1998. Cost of services and hardware and software costs for the
quarter ended March 31, 1999 were $10,247,000 and $3,410,000 for the comparable
quarter in 1998, yielding gross profit margins of 11.3% for 1999 and 16.8% for
the same period in 1998. Gross profit margins were adversely affected by the
fact that prepaid calling card revenues, which generally carry a lower margin
than the Company's other products, represented a higher proportion of total
revenues in 1999 than in 1998. Also contributing to the lower margins were sales
of "off-net" prepaid calling cards i.e., other carriers cards, by a distributor
acquired during 1999, which carry a lower margin than revenues earned on Company
provided cards. Management expects margins to increase during the third quarter
of 1999 as proceeds from the preferred stock private placement, see Part II,
Item 2, Changes in Securities, are used to expand the Company's ATM based
network allowing the capability to add higher margin revenues while at the same
time decreasing cost by allowing for more "On-net" traffic for its lower margin
businesses.
Selling, general, and administrative ("SG&A") expenses for the first
quarter of 1999 were $2,833,000 or 24.5% of sales compared to $1,998,000 or
48.7% of sales for the same quarter in 1998. The overall increase in expenses
was primarily attributable to expansion of the Company's operations; however,
the Company was able to gain economies of scale while expanding operations as
represented by the lower SG&A as a proportion of sales in 1999. The Company
anticipates benefiting further from economies of scale, as costs such as
salaries and wages are not expected to increase in direct proportion to
increases in revenues.
Depreciation and amortization expense was $1,046,000 for the first three
months of 1999 compared to $752,000 for the first three months of 1998. The
increase is attributable to the increase in property, plant and equipment and
amortization associated with the acquisitions completed during 1998.
Interest expense was $1,086,000 and $261,000 for the quarters ended March
31, 1999 and 1998, respectively. Interest expense increased significantly
during 1999 because of a number of new debt instruments entered into in late
1998 and during the first quarter of 1999. These include $10.0 million in
bridge loans, $6.2 million in capital leases and $900,000 in promissory notes.
Approximately $400,000 of the interest expense during the first quarter of 1999
was related to amortization of discounts associated with warrants issued in
conjunction with various debt instruments.
There was no income tax benefit recorded in either 1998 or 1997, as
management recorded a valuation reserve due to the uncertainty of the timing of
future taxable income. The net losses for the quarters ended March 31, 1999 and
1998 were approximately $3,659,000 or $0.08 per share and $2,322,000 or $0.06
per share, respectively.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has not generated net cash from operations for any period
presented. The Company has primarily financed its operations to date through
private sales of equity securities and debt to affiliates and outside investors.
During the first quarter of 1999, in private placement offerings, the
Company entered into three promissory notes with a par value totaling $9.0
million. The notes earn interest at 10% per annum and mature as follows: the
earlier of closing the $30.0 million private placement offering of convertible
Preferred Stock or on May 31, May 29 and July 6, 1999 for $2.0 million, $2.0
million and $5.0 million, respectively. In conjunction with these notes, the
Company issued warrants to purchase 760,000, 760,000 and 5 million shares of
common stock at $1.00 per share for three years, three years and eight months
respectively. The $9.0 million raised in this private offering were used to
acquire assets of approximately $2.1 million, repay promissory notes of
approximately $1.0 million, offset the Company's operating cash flow deficit of
approximately $3.6 million and repay other debt obligations and vendor deposits
of approximately $0.4 million.
The Company estimates that it will need to raise approximately $67.2
million to fund existing operations during the next year, including
approximately $14.2 million to fund debt due over the next twelve months and
$53.0 million to fund capital expenditures for the upcoming year. During 1998, a
subsidiary of the Company entered into a master lease facility with a major
telecommunications equipment vendor to purchase $10.0 million of equipment. As
of March 31, 1999, $762,000 had been drawn upon under this facility. During the
first quarter of 1999, the Company entered into a $25.0 million master lease
facility and $3.0 million working capital line of credit with this same vendor
and is negotiating a $22.0 million master lease facility with another major
equipment vendor. As of March 31, 1999, the Company had not drawn down on any of
these facilities. Subsequent to quarter end, the Company completed a $30.0
million private placement offering of the Company's convertible Preferred Stock.
The proceeds from this offering will be used to fund network expansion, repay
indebtedness and fund operations. The Company intends to use the vendor lines of
credit to finance the acquisition of capital assets in excess of funds available
for such purpose from the preferred stock private placement. Additional means of
financing will be sought if necessary and may include but would not be limited
to the bank loans and private placements of debt and/or equity. Additionally,
the Company may realize proceeds from exercise of outstanding warrants and
options. However, there can be no assurance that the Company will be able to
raise any such capital on terms acceptable to the Company, or at all. Failure of
the Company to raise all or a significant portion of the funds needed could
materially and adversely affect the Company's continuing and its planned
operations.
While the Company believes it currently has adequate resources available to
achieve its potential expansion plans noted in "Management's Discussion and
Analysis" for the upcoming year, any increases in the Company's growth rate,
shortfalls in anticipated revenues or increases in anticipated expenses could
have a material adverse effect on the Company's liquidity and capital resources
and would either require the Company to raise additional capital from public or
private debt or equity or scale back operations. Additionally, the Company does
not currently have adequate resources available to achieve all of its potential
expansion plans noted in "Management's Discussion and Analysis" subsequent to
the upcoming year and will not engage in such expansion until adequate capital
sources have been arranged. Accordingly, the Company anticipates additional
future private placements and/or public offerings of debt or equity securities
will be necessary to fund such plans. If such sources of financing are
insufficient or unavailable, the Company will be required to significantly
change or scale back its operating plans to the extent of available funding.
The Company may need to raise additional funds in order to take advantage of
unanticipated opportunities, such as acquisitions of complementary businesses or
the development of new products, or to otherwise respond to unanticipated
competitive pressures. There can be no assurance that the Company will be able
to raise any such capital on terms acceptable to the Company or at all.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued a Statement of Position, Accounting for Costs of Computer
Software Developed of Obtained for Internal Use. This statement requires
capitalization of certain costs of internal-use software. The Company adopted
this statement during the first quarter of 1999 and it did not have a material
impact on the Company's financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires entities to expense certain start-up costs
and organization costs as they are incurred. The Company adopted this statement
during the first quarter of 1999 and it did not have a material impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. The statement
establishes accounting and reporting standards for derivative instruments and
transactions involving hedge accounting. The Company will adopt the Statement in
1999 and does not expect it to have a material impact on its financial
statements.
YEAR 2000
The Year 2000 Issue is a problem resulting from computer programs being
written using two digits rather than four digits to define the applicable year.
Date-sensitive software may recognize a date using 00 as the year 1900 rather
than 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company continues to address this issue on several different
fronts. First of all, a team has been assigned to evaluate risks to the
Company's internal systems used in the provisioning of telecommunications
services through a five phase process including Awareness, Assessment,
Renovation, Validation and Implementation. A web page has been established at
www.y2k.c-com.net containing additional information about the Year 2000 problem
and the Company's compliance program. Second, the Company has requested Year
2000 compliance certification from each of its major vendors and suppliers for
their hardware or software products and for their internal business applications
and processes. Finally, the Company has established a team to coordinate
solutions to the Year 2000 issue for its own internal information systems and
physical facilities. The Company currently does not expect that the cost of its
Year 2000 compliance program will be material to its financial condition or
results of operations or that its business will be adversely affected by the
Year 2000 issue in any material respect. Nevertheless, achieving Year 2000
compliance is dependent on many factors, some of which are not completely within
the Company's control. Should either the Company's internal systems or the
internal systems of one or more significant vendors or suppliers fail to achieve
Year 2000 compliance, the Company's business and its results of operations could
be adversely affected.
MARKET RISKS
Management believes the Company's exposure to market rate fluctuations on
its investments is nominal due to the short-term nature of those investments. To
the extent the Company has borrowings outstanding under credit facilities there
is market risk relating to such amounts because the interest rates under the
credit facility are variable. The Company does not believe its exposure
represents a material risk to the financial statements.
<PAGE>
The Company has operations in Central and South America, which expose it to
currency exchange rates risks. To manage the volatility attributable to these
exposures, the Company nets the exposures to take advantage of natural offsets.
Currently, the Company does not enter into any hedging arrangements to reduce
this exposure. The Company is not aware of any facts or circumstances that
would significantly impact such exposures in the near-term principally as the
significant majority of the Company's activities are settled in the US Dollar.
If, however, there was a 10 percent sustained decline in these currencies versus
the U.S. dollar, then the consolidated financial statements could be affected as
our international operations represented approximately 3.5% of our total assets
as of March 31, 1999 and 8.6% and 6.8% of our total revenues and net loss for
the three months ended March 31, 1999, respectively.
FORWARD-LOOKING STATEMENTS
This report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ from those projected in any forward-looking statements for the reasons
set forth herein and as set forth in the "Risk Factors" as well as in other
sections of the Company's report filed on Form 10-KSB for the year ended
December 31, 1998, or for other unforseen reasons. The forward-looking
statements contained herein are made as of the date of this report and the
Company assumes no obligation to update such forward-looking statements, or to
update the reasons why actual results could differ from those projected in such
forward-looking statements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the 1998 10-KSB, the Company reported an agreement in principal (pending
final documentation) upon the settlement terms of a lawsuit with its former
President over certain agreements including an Executive Employment Agreement.
The settlement obligated the Company to pay $25,000 and 77,838 shares. On April
12, 1999 a settlement agreement was signed with the same terms disclosed above.
The settlement cost and related legal fees were accrued in the Company's
financial statements for the year ended December 31, 1998.
ITEM 2. CHANGES IN SECURITIES
1. During the first quarter of 1999, the Company issued three promissory notes
with a par value totaling $9.0 million in private placements to accredited
investors including institutional investors. No underwriters were used in
these offerings, however commissions of $80,000 and 70,000 warrants to
purchase shares of common stock at $1.00 for three years were paid as
finders fees to two non-affiliated brokers on the second $2 million note.
The private placements were offered under section 4(2) of the Securities
Act of 1933, as amended (the "Act"). The notes earn interest at 10% and
mature as follows: the earlier of closing the $30 million private placement
offering of convertible preferred stock, discussed in 3 below, or on May
31, May 29 and July 6, 1999, for $2.0 million, $2.0 million, and $5.0
million, respectively. In conjunction with these notes, the Company issued
warrants to purchase 760,000, 760,000 and 5.0 million shares of common
stock at $1.00 per share for three years, three years, and eight months
respectively. The two $2.0 million notes are secured by a blanket interest
in all personal property in which the Company has an interest. Additional
security for the two $2.0 million notes includes the stock of Telecommute
Solutions, Inc. and shares of Company stock owned by an officer of the
Company, respectively. The $5.0 million note is unsecured. The $9,000,000
raised in this private offering will be used to repay a $1.0 million
promissory note entered into during the last quarter of 1998, offset the
Company's operating deficit and to fund capital expenditures as described
in the "Liquidity and Capital Resources" section of this filing.
2. Also during the quarter, the Company entered into a capital lease facility
with a major equipment vendor to purchase $25.0 million of equipment and to
provide a $3.0 million working capital line of credit. In conjunction with
the $3 million working capital line, the Company granted up to 500,000
warrants to purchase common stock at $1.125 per share for five years, which
will be issued pro rata with the amount of the proceeds used by the
Company. The warrants were issued in a private placement to an accredited
investor, which was exempt under section 4(2) of the Act. No underwriter
was used in the placement.
<PAGE>
3. Subsequent to the quarter end, the Company completed a $30 million private
placement offering of 10,080 shares of the Company's $0.01 par value Class
A Convertible Senior Preferred Stock (the "Preferred Stock") and warrants
to purchase 10,800,000 shares of common stock to accredited investors
including institutional investors. The private placement was exempt under
section 4(2) of the Act. Credit Suisse First Boston, Breckenridge
Securities Corporation, and Teemann Investments LTD., acted as placement
agents for the private offering. Gross proceeds from this offering totaled
$ 30,240,000 and will be used to pay placement expenses, fund network
expansion, repay indebtedness and fund operations. Placement fees totaled
$1,814,000 and legal fees and other miscellaneous expenses were
approximately $260,000. The Preferred Stock earns dividends at a rate of
12% per annum, which are cumulative and payable in either cash or shares of
Preferred Stock at the Company's discretion. Each share of Preferred Stock
is convertible at the holders option into common stock at a conversion
price of $1.40 per share (subject to adjustment for certain diluting
issues) at any time while the Preferred Stock remains outstanding. The
Company may require the conversion of all of the Preferred Stock as
follows: (a) in conjunction with an offering of the Company's common stock
in a firm commitment underwritten public offering at a purchase price of
$4.00 per share (subject to adjustment for certain diluting issues)
yielding net proceeds of $30 million or (b) one year after issuance if the
common stock shall have been listed for trading on the New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market System and
the common stock shall have traded on such exchange at a price of at least
$5.00 per share (subject to adjustment for certain diluting issues) for
twenty consecutive trading days and the average daily value of shares
traded during that twenty day period was at least $1.0 million. On the
twelfth anniversary, if the Preferred Stock is still outstanding and the
underlying common stock has been listed on one of the aforementioned
exchanges, the Company is required to exchange the Preferred Stock for
common stock at a conversion price equal to the average trading price for
the twenty consecutive trading days immediately prior to the exchange date.
The warrants give the holders the right to purchase 10,800,000 shares
at a price of $1.625 per share for a period of five years after the
issuance date. The Company may require exercise of the warrants if the
underlying common stock has been registered with the SEC and is listed on
one of the aforementioned exchanges and has traded on such exchange at a
price of at least $5.00 per share (subject to adjustment for certain
diluting issues) for twenty consecutive trading days. The Company is
required to file a registration statement with the SEC within 120 days
after closing the private offering of the Preferred Stock and warrants to
register the shares of common stock issued or issuable upon conversion of
the Preferred Stock (including shares issued as dividends) and the exercise
of the warrants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B
Exhibit 27 Financial Data Schedule
Exhibit 10.20 Securities Purchase Agreement
Exhibit 10.21 Certificate of Designations
Exhibit 10.22 Warrant Agreement
Exhibit 10.23 Registration Rights Agreement
Exhibit 10.24 Promissory Note
Exhibit 10.25 Warrant to Purchase Common Stock
Exhibit 10.26 Master Lease Agreement
(b) REPORTS ON FORM 8-K
Reports on Form 8-K were filed during the quarter for which this report is
filed as follows:
Form 8-K was filed with the Commission on January 21, 1999, reporting that
the Company had issued a press release complying with the requirements of Rule
135(c) of the Securities Exchange Act of 1934 which reported that the Company
had engaged investment bankers to assist in a private offering of $30 million of
its convertible Preferred Stock.
<PAGE>
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.
POINTE COMMUNICATIONS CORPORATION
Date: May 17, 1999 By: /s/ Stephen E. Raville
----------------------------------
Stephen E. Raville
Chief Executive Officer
Date: May 17, 1999 By: /s/ Patrick E. Delaney
----------------------------------
Patrick E. Delaney
Chief Financial Officer
<PAGE>
POINTE COMMUNICATIONS CORPORATION
SECURITIES PURCHASE AGREEMENT
MAY 13, 1999
<PAGE>
EXHIBITS
--------
Exhibit A Form of Certificate of Designations
Exhibit B Form of Warrant Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Legal Opinion of Gardere & Wynne L.L.P.
Schedule 1 Purchasers, Shares Purchased, Warrants Purchased and
Purchase Price
Schedule 2.2 Capitalization: Rights to Purchase Capital Stock of the
Company
Schedule 2.3 Subsidiaries
Schedule 2.7 Litigation
Schedule 2.8 Material Intellectual Property
Schedule 2.10 Material Agreements
Schedule 2.13 Conflicts of Interest
Schedule 2.14 Registration Rights and Voting Rights
Schedule 2.16 Title to Property and Assets
Schedule 2.17 Employee Benefit Plans
Schedule 2.18 Tax Returns and Audits
Schedule 2.20 Permits
Schedule 2.23 Financial Statements
Schedule 2.24 Changes
Schedule 2.27 Finder's Fee
Schedule 2.28 Insurance
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 13,
1999, is made by and among POINTE COMMUNICATIONS CORPORATION, a Nevada
corporation (the "Company"), SANDLER CAPITAL PARTNERS IV, L.P., a Delaware
limited partnership ("SCP IV"), SANDLER CAPITAL PARTNERS IV FTE, L.P., a
Delaware limited partnership (SCP IV FTE and together with "SCP IV", "Sandler"),
CPP LLC, a Delaware limited liability company ("CPP") and OGER PENSAT HOLDINGS
LTD., a Bermuda corporation ("Pensat" and, collectively with Sandler and CPP,
the "Purchasers").
WITNESSETH:
----------
WHEREAS, subject to the terms and conditions set forth herein, the Company
desires to issue and sell to the Purchasers, and the Purchasers desire to
purchase from the Company, shares of the Company's Class A Convertible Senior
Preferred Stock, par value $0.01 per share, and warrants to purchase shares of
the Company's common stock, par value $0.00001 per share (the "Common Stock")
for an aggregate purchase price of $30,240,000 as set forth on Schedule 1
----------
attached hereto.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS.
--------------------------------------------------------
1.1 Sale and Issuance of Class A Convertible Senior Preferred Stock and
-------------------------------------------------------------------
Warrants.
- --------
(a) Subject to the terms and conditions set forth herein, on
the Closing Date (as defined), each Purchaser severally agrees to purchase from
the Company, and the Company agrees to issue and sell to such Purchaser in the
amounts and for the purchase price as set forth opposite such Purchaser's name
on Schedule 1 attached hereto (i) shares of the Company's Class A Convertible
-----------
Senior Preferred Stock, par value $0.01 per share (the "Class A Preferred
Shares"), having the rights, privileges and preferences set forth in the
Certificate of Designations attached hereto as Exhibit A (the "Certificate"),
---------
and (ii) warrants to purchase an aggregate of 10,714,286 shares (as such number
may be adjusted as provided herein) of the Company's Common Stock at an exercise
price of $1.625 per share (as such price per share may be adjusted as provided
herein) (the "Warrants"), which Warrants shall be subject to the terms and
conditions set forth in one or more Warrant Agreements in substantially the form
attached hereto as Exhibit B (the "Warrant Agreement").
----------
<PAGE>
(b) The parties agree that the number of Class A Preferred
Shares and Warrants (together, the "Securities") to be issued by the Company to
the Purchasers on the Closing Date, and the exercise price of the Warrants,
shall be equitably adjusted, subject to the agreement of each party, to reflect
any spin-off, split-up, reclassification, combination of shares,
recapitalization or similar corporate reorganization, or any consolidation or
merger under which the surviving entity is or becomes the "Company" as defined
in this Agreement, in any such case which occurs between the effective date of
this Agreement and the Closing Date.
1.2 Closing.
-------
(a) Subject to the satisfaction or, to the extent permissible
by law, waiver by the parties hereto on the Closing Date of the conditions
described in Sections 3 and 4 of this Agreement, the closing of the issuance and
sale of the Securities (the "Closing") shall occur on such date as the Company
and the Purchasers may mutually agree in writing (such date on which the Closing
takes place being the "Closing Date"). The Closing shall take place at the
offices of Dow, Lohnes & Albertson, PLLC, 1200 New Hampshire Avenue, N.W., Suite
800, Washington, D.C., or at such other place as the Company and the Purchasers
may mutually agree upon in writing.
(b) At the Closing, the Company shall deliver to each
Purchaser certificates registered in the name of such Purchaser representing the
Class A Preferred Shares and the Warrants being purchased thereby in accordance
with Schedule 1 hereto and the Warrant Agreements against payment of the
-----------
purchase price therefor by wire transfer of immediately available federal funds
to such account as the Company may designate in writing to the Purchasers.
<PAGE>
1.3 Use of Proceeds. The Company hereby agrees that it shall apply the
---------------
net proceeds received hereunder from the sale of the Securities (after deduction
of all costs and expenses of such sale) to build out and interconnect its
competitive local exchange, long distance and internet networks, to repay debt
and to fund working capital and capital expenditures of the Company.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
--------------------------------------------------------------
Company hereby represents and warrants to and covenants with the Purchasers as
follows (except as set forth on the Schedules hereto, which exceptions shall be
deemed to be representations and warranties as if made hereunder):
2.1 Organization, Qualifications and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority to
own and hold its properties and to carry on its business as now conducted and as
proposed to be conducted. The Company has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to sell, issue and
deliver the Securities and the shares of Common Stock issuable upon conversion
of the Class A Preferred Shares or upon exercise of the Warrants (collectively,
the "Underlying Shares") to the Purchasers. The Company is duly qualified to
conduct business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the business (as
now conducted or as proposed to be conducted), financial condition, operating
results, assets, properties or prospects of the Company or its subsidiaries,
taken as a whole (each such effect, a "Material Adverse Effect"). The Company
has delivered to the Purchasers complete and correct copies of the Company's
Articles of Incorporation (including all amendments thereto) and Bylaws, in each
case in effect as of the date hereof (the "Existing Articles" and "Existing
Bylaws," respectively).
2.2 Capitalization.
--------------
(a) The authorized capital stock of the Company will consist,
immediately prior to the Closing, of: (1) 100,000,000 shares of Common Stock,
of which 45,350,365 shares are issued and outstanding, and (2) 100,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), none of
which are issued and outstanding.
<PAGE>
(b) The Company has reserved: (1) 3,000,000 shares of Common
Stock under its Incentive Stock Option Plan (the "Employee Plan"); (2) 1,000,000
shares of Common Stock under its Executive Long-Term Plan (the "Executive
Plan"); and (3) 1,000,000 shares of Common Stock under its Non-Employee Director
Stock Option Plan (the "Director Plan") (such shares collectively, the "Reserved
Option Shares"), in each case, for issuance upon exercise of incentive or
non-qualified stock options granted or expected to be granted to certain
executive officers, non-employee directors and employees of the Company or of
any subsidiary of the Company pursuant to the terms and conditions of the
Employee Plan, the Executive Plan and the Director Plan (collectively, the
"Plans"). The Company has reserved 500,000 shares of Common Stock for issuance
upon exercise of non-qualified stock options expected to be given to certain
consultants of the Company outside of the Plans (the "Other Reserved Option
Shares"). Each Plan has been duly adopted by the Company's Board of Directors
and approved by the Company's shareholders to the extent necessary to be
qualified under the Internal Revenue Code of 1986, as amended. As of the date
hereof: 1,298,473 options to purchase Reserved Option Shares are outstanding
under the Employee Plan; 600,000 options to purchase Reserved Option Shares are
outstanding under the Director Plan; 804,000 options to purchase Reserved Option
Shares are outstanding under the Executive Plan; and 484,241 options to purchase
shares of Common Stock are outstanding outside of the Plans (the "Other
Options"). 1,701,527 Reserved Option Shares remain available for issuance under
the Employee Plan; 196,000 Reserved Option Shares remain available for issuance
under the Executive Plan; 400,000 Reserved Option Shares remain available for
issuance under the Director Plan; and 15,759 Other Reserved Option Shares remain
available for issuance.
(c) Except as set forth in Schedule 2.2 or provided in this
------------
Agreement: (i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any securities of the
Company or any of its subsidiaries is authorized or outstanding as of the date
hereof; (ii) none of the Company or any of its subsidiaries has any obligation
(contingent or otherwise) (y) to issue any subscription, warrant, option,
convertible security or other such right or (z) to issue or distribute to
holders of any securities of the Company or any of its subsidiaries any
evidences of indebtedness or assets of the Company or any of its subsidiaries;
and (iii) none of the Company or any of its subsidiaries has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
<PAGE>
(d) All of the outstanding shares of the Company's capital
stock have been duly authorized and validly issued, are fully-paid and
nonassessable and were issued in compliance with all applicable federal and
state securities laws and regulations. Except as set forth in Schedule 2.2,
------------
there are no statutory or contractual shareholders preemptive rights, rights of
first refusal or any similar rights relating to the issuance and sale of
securities of the Company or any of its subsidiaries.
2.3 Subsidiaries. Except as set forth in Schedule 2.3, the Company
------------ ------------
does not own, directly or indirectly, any shares of capital stock, partnership
interests or other participation rights or other interests in the nature of an
equity interest in any corporation, association, partnership, joint venture
company, trust, estate, limited liability company, limited liability
partnership, joint stock company, unincorporated organization or other entity,
or any option, warrant or other security convertible into or exchangeable for
any of the foregoing. Each of the Company's subsidiaries is a corporation or a
limited liability company, as the case may be, duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company's subsidiaries has the requisite corporate
or limited liability company, as the case may be, power and authority to own and
hold its properties and to carry on its business as conducted and as proposed to
be conducted. Each of the Company's subsidiaries is duly qualified to conduct
business and is in good standing under the laws of each jurisdiction in which
the failure to so qualify would have a Material Adverse Effect.
2.4 Authorization and Validity of Investment Agreements.
--------------------------------------------------------
(a) All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the Warrant Agreement, and the Registration
Rights Agreement in the form attached hereto as Exhibit C (the "Registration
---------
Rights Agreement" and with the Certificate, this Agreement and the Warrant
Agreement, and all other documents and instruments to be executed in connection
therewith collectively, the "Investment Agreements") has been taken. All
corporate action on the part of the Company, its officers, directors and
<PAGE>
shareholders necessary for: (i) the performance of all obligations of the
Company hereunder and under the other Investment Agreements, and (ii) the
authorization, issuance, sale and delivery of the Securities and the Underlying
Shares to the Purchasers pursuant to the terms of the Investment Agreements has
been taken.
(b) (1) This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, and (2)
the other Investment Agreements, when executed and delivered by the Company,
shall constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms; except in each
case of subclause (1) and (2) (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally; (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies; or (iii) to the extent the
indemnification provisions contained in the Investment Agreements may be limited
by applicable federal or state securities laws.
2.5 Compliance with Securities Laws; Valid Issuance of Securities. The
-------------------------------------------------------------
Securities being issued to the Purchasers hereunder, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully-paid and nonassessable with the
rights, powers and privileges as set forth herein, in the Company's Articles of
Incorporation, as amended by the Articles of Amendment and in the Warrant
Agreement, and will be free and clear of all liens, charges, claims,
encumbrances and restrictions other than restrictions on transfer under the
Investment Agreements and applicable federal and state securities laws, and will
be issued pursuant to an exemption from the registration requirements of all
applicable federal and state securities laws. The Underlying Shares issuable
upon conversion of the Class A Preferred Shares and the exercise of the Warrants
purchased hereunder are duly and validly reserved for issuance, and upon
issuance in accordance with the terms of the Company's Articles of
Incorporation, as amended, and the Warrant Agreements, shall be duly and validly
issued, fully-paid and nonassessable and free of restrictions on transfer other
<PAGE>
than restrictions on transfer under the Investment Agreements and applicable
federal and state securities laws, and will be issued pursuant to an exemption
from the registration requirements of all applicable federal and state
securities laws. The issuance, sale and delivery of the Securities and the
Underlying Shares are not subject to any preemptive right of any shareholder of
the Company or to any right of first refusal or other right in favor of any
person.
2.6 Governmental Consents. No consent, approval, order or
----------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, foreign, state or local governmental authority is
required on the part of the Company or any of its subsidiaries in connection
with the consummation of the transactions contemplated by the Investment
Agreements, except for filings pursuant to applicable state securities laws and
Regulation D of the Securities Act of 1933, as amended (the "Securities Act").
2.7 Litigation. Except as set forth in Schedule 2.7, there is no
---------- -------------
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its subsidiaries,
nor, to the Company's knowledge, is there any reasonable basis for the
foregoing. None of the Company or any of its subsidiaries is a party or
expressly subject to the provisions of any order, writ, injunction, judgment or
decree of any court, administrative agency, government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its subsidiaries currently pending or which the Company or any
of its subsidiaries intends to initiate.
2.8 Intellectual Property. Set forth on Schedule 2.8 attached hereto
---------------------- ------------
is a list of all material patents, pending patent applications, trademarks,
service marks, trade names, copyrights, licenses, computer codes or computer
software, proprietary rights, proprietary processes and other intellectual
property rights (collectively "Intellectual Property") owned by, or licensed to,
the Company or any of its subsidiaries, with an indication as to which of such
items are owned by the Company or any of its subsidiaries and which are licensed
to the Company or its subsidiaries. The Company's and its subsidiaries' legal
rights to use the Intellectual Property owned by or licensed to the Company and
its subsidiaries is sufficient for the use thereof in their respective
businesses as now conducted and as proposed to be conducted, except where the
failure would not have a Material Adverse Effect. None of the Company or any of
its subsidiaries has received any communications alleging that the Company or
any of its subsidiaries has violated or, by conducting its business as now
conducted or as proposed to be conducted, would violate any of the rights in the
Intellectual Property of any other individual, corporation, association,
partnership, joint venture, trust, estate, limited liability company, limited
liability partnership, joint stock company, unincorporated organization or
government or any agency or political subdivision thereof, or other entity or
organization (each, a "Person"). To the Company's knowledge, none of the
Company or any of its subsidiaries is infringing upon the right or claimed right
of any Person with respect to any of the Intellectual Property. None of the
Company or any of its subsidiaries has licensed any of the Intellectual Property
to any other Person, nor does any other Person have an option or any other right
to acquire any of the Intellectual Property other than in the ordinary course of
<PAGE>
business (except for the Intellectual Property that is in the public domain).
To the Company's knowledge, none of the employees of the Company or any of its
subsidiaries is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any order, writ,
injunction, judgment, instrument or decree of any court, administrative agency,
government agency or instrumentality that would interfere with the use of such
employee's best efforts to promote the interests of the Company or any of its
subsidiaries or that would conflict with the business of the Company or such
subsidiary (as currently conducted or proposed to be conducted). None of the
execution or delivery of the Investment Agreements, nor the carrying on of the
business of the Company or any of its subsidiaries (as currently conducted or
proposed to be conducted) by their respective employees, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract or respective other
agreement, covenant or instrument under which any such employee is obligated.
It is not, nor will be necessary, to use any inventions of any of the current
employees of the Company or its subsidiaries (or Persons the Company currently
intends to hire) made prior to their employment with the Company or its
subsidiaries and to which the Company or its subsidiaries do not otherwise have
rights.
2.9 Compliance.
----------
(a) None of the Company or any of its subsidiaries is in
violation or in default of any provisions of its respective Articles of
Incorporation, bylaws or of any order, writ, injunction, judgment, instrument,
decree or contract to which it is a party or by which it is bound or, to its
knowledge, of any provision of federal or state statute, rule or regulation
<PAGE>
applicable to the Company or any of its subsidiaries which violations or
defaults would, either individually or in the aggregate, have a Material Adverse
Effect. The execution, delivery and performance of the Investment Agreements
and the consummation of the transactions contemplated hereby or thereby do not
and will not, with or without the passage of time and/or the giving of notice:
(i) result in any such violation or be in conflict with or constitute a default
under any such provision, order, writ, injunction, judgment, instrument, decree
or contract; (ii) result in the creation of any lien, security interest, charge
or encumbrance upon the capital stock or any assets of the Company or any of its
subsidiaries; or (iii) give any third party the right to modify, terminate or
accelerate any obligation under any such provision, order, writ, injunction,
judgment, instrument, decree or contract.
2.10 Material Contracts. Schedule 2.10 lists each contract relating to
------------------ -------------
the Company or any of its subsidiaries that: (a) represents a contract upon
which the Company or such subsidiary is substantially dependent or which is
otherwise material to the Company or such subsidiary; (b) provides for
borrowings or similar extensions of credit; (c) limits or restricts the ability
of the Company or such subsidiary to compete or otherwise to operate in any
manner or place; (d) provides for a guaranty or indemnity (other than customary
indemnities for infringement of Intellectual Property rights); (e) grants a
power of attorney, agency or similar authority to another Person; (f) contains a
right of first refusal with respect to the sale or acquisition of the capital
stock or assets of the Company or any of its subsidiaries; (g) contains a right
or obligation (other than in the ordinary course of business) of any officer or
director of the Company or any of its subsidiaries, or any of their respective
affiliates or associates; (h) is an employment or consulting agreement to which
the Company or any of its subsidiaries is a party; or (i) was not made in the
ordinary course of business (collectively, "Material Contracts"). True copies
of each Material Contract, including all amendments and supplements thereto,
have been made available to the Purchasers. Except as set forth in Schedule
--------
2.10, each Material Contract is valid and subsisting and no breach or default,
- ----
alleged breach or default, or event which would (with the passage of time,
notice or both) constitute a breach or default thereunder on the part of the
Company or any of its subsidiaries, or, to the knowledge of the Company, on the
part of any other party thereto, has occurred.
<PAGE>
2.11 Absence of Undisclosed Liabilities. Since March 31, 1999 none of
-----------------------------------
the Company or any of its subsidiaries has: (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock; (ii) made any loans or advances to any Person,
other than ordinary advances for expenses incurred in the ordinary course of
business consistent with past practices; or (iii) sold, exchanged or otherwise
disposed of any of its assets or rights, other than in the ordinary course of
business consistent with past practices. Except as set forth in the Financial
Statements (as defined) and the schedules hereto, the Company has no material
liabilities or obligations, contingent or otherwise, other than (i) liabilities
paid or incurred in the ordinary course of business subsequent to the Statement
Date (as defined), and (ii) obligations under contracts and commitments incurred
in the ordinary course of business, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company.
2.12 Disclosure.
----------
(a) As of its filing date, each document filed with the
Securities and Exchange Commission (the "Commission") by the Company, as amended
or supplemented prior to the Closing Date, if applicable, pursuant to the
Securities Act and/or the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (i) complied in all material respects with the applicable
requirements of the Securities Act and/or Exchange Act and (ii) did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. As of the date
hereof, the Company has filed all documents with the Commission as required by
the Exchange Act and the policies, rules and regulations of the Commission.
(b) None of the representations or warranties of the Company
contained in this Agreement, the schedules and exhibits attached hereto, the
other Investment Agreements or any certificate furnished or to be furnished to
the Purchasers at Closing (when read together), or that certain Private
Placement Memorandum dated as of December 18, 1998 contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. There is no fact which has not been
<PAGE>
disclosed to the Purchasers in writing of which the Company has knowledge, and
which has had or would reasonably be anticipated to have a Material Adverse
Effect, and the Company is not aware of any impending or contemplated event or
occurrence that would cause any of the representations or warranties contained
herein not to be true and complete on the date of such event or occurrence as if
made on that date.
2.13 Conflicts of Interest. Except as set forth in Schedule 2.13, none
--------------------- -------------
of the Company or any of its subsidiaries is indebted, directly or indirectly,
to any of its respective officers or directors or to their respective spouses or
immediate family members, for any amount whatsoever other than in connection
with expenses or advances of expenses incurred in the ordinary course of
business consistent with past practices or relocation expenses of employees.
Except as set forth in Schedule 2.13, no director, officer or any affiliates
-------------
thereof, (as such term is defined in Rule 405 under the Securities Act), or any
members of their immediate families (x) are, directly or indirectly, indebted to
the Company or any of its subsidiaries or, (y) have any direct or indirect
ownership interest in any Person (A) with which the Company or any of its
subsidiaries is affiliated or (B) with which the Company or any of its
subsidiaries has a material business relationship, or (C) which competes with
the Company or any of its subsidiaries; except that for purposes of this clause
(y), officers, directors or affiliates thereof or any members of their immediate
families may own stock in (but not exceeding one percent (1%) of the outstanding
capital stock of) any publicly traded companies that may compete with the
Company. To the Company's knowledge, none of the officers or directors of the
Company or any members of their immediate families are, directly or indirectly,
interested in any material contract of the Company or any of its subsidiaries.
None of the Company or any of its subsidiaries is a guarantor or indemnitor of
any indebtedness of any other Person.
2.14 Registration Rights and Voting Rights. Except as set forth in
-----------------------------------------
Schedule 2.14 and contemplated in the Registration Rights Agreement, there are
- --------------
no agreements, written or oral, between the Company and any Person relating to
the registration of its capital stock under federal or state securities laws,
including piggyback registration rights. Except as set forth in Schedule 2.14,
-------------
to the Company's knowledge, no stockholders of the Company have entered into any
agreements with respect to the voting of shares of the capital stock of the
Company.
<PAGE>
2.15 Private Placement. Subject to and in reliance in part on the
------------------
truth and accuracy of the Purchasers' representations set forth in this
Agreement, the offer, sale and issuance of the Securities as contemplated by
this Agreement is exempt from the registration requirements of the Securities
Act and any applicable state securities laws and none of the Company or any of
its subsidiaries nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption.
2.16 Title to Property and Assets. Except as set forth in Schedule
-------------------------------- --------
2.16, the Company and each of its subsidiaries owns its property and assets free
-
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business or liens
for taxes that are not delinquent or being contested in good faith and do not
materially impair the ownership or use of such property or assets by the Company
or such subsidiary. Except as set forth in Schedule 2.16 with respect to the
-------------
property and assets it leases, each of the Company and its subsidiaries is in
compliance with such leases and holds a valid leasehold interest free of any
liens, claims or encumbrances.
2.17 Employee Matters. Except as described in Schedule 2.17 attached
----------------- -------------
hereto, neither the Company nor any of its subsidiaries is a party to or bound
by, or has any liability under, any material employment contract or any deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation or benefit agreement, plan
or arrangement, of any kind including without limitation any multiemployer plan.
2.18 Tax Returns and Audits. Except as set forth in Schedule 2.18, the
---------------------- -------------
Company and its subsidiaries have accurately prepared and timely filed all
federal, state, foreign, local and other tax returns required by law to be
filed, except where failure to do so would not reasonably be expected to have a
Material Adverse Effect, have paid or made provision for the payment of all
taxes shown on such returns to be due and all additional assessments. Adequate
provisions have been made and are reflected in the Financial Statements to the
extent required by generally accepted accounting principles applied on a
consistent basis and as in effect in the United States ("GAAP") for all current
taxes and other charges to which the Company or any of its subsidiaries is
<PAGE>
subject and which are not currently due and payable. There are no additional
assessments or adjustments pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries for any period.
2.19 Labor Agreements and Actions. None of the Company or any of its
------------------------------
subsidiaries is bound by or subject to (and none of their assets or properties
are bound by or subject to) any written or oral contract, commitment, agreement
or arrangement with any labor union, and no labor union has requested or, to the
knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company or any of its subsidiaries. There is
no strike or other labor dispute involving the Company or any of its
subsidiaries pending, or to the knowledge of the Company, threatened, which
could have a Material Adverse Effect, nor is the Company aware of any labor
organization activity involving the employees, representatives or agents of the
Company or any of its subsidiaries. The Company and its subsidiaries have
complied with all applicable federal and state equal employment opportunity laws
and regulations and with all other laws and regulations related to employment
and labor issues except where the failure to comply would not have a Material
Adverse Effect.
2.20 Permits. Except as set forth in Schedule 2.20, the Company and
------- -------------
its subsidiaries have all franchises, permits, licenses and any other
governmental authority necessary for the conduct of their businesses as now
being conducted, the lack of which could have a Material Adverse Effect. None
of the Company or any of its subsidiaries is in default in any material respect
under any of such franchises, permits, licenses or other authority.
2.21 Corporate Documents. The Existing Articles and Existing Bylaws
--------------------
are in the form provided to counsel for each of the Purchasers. The copy of the
minute books of the Company provided to counsel for each of the Purchasers
contains minutes of all meetings of directors and shareholders of the Company
and all actions by written consent without a meeting by the directors and
stockholders of the Company since the date of the Company's incorporation and
reflects all actions by the directors (and any committee of directors) and
shareholders of the Company with respect to all transactions referred to in such
minutes accurately in all material respects.
<PAGE>
2.22 Real Property Holding Corporation. The Company is not a United
------------------------------------
States real property holding corporation within the meaning of Internal Revenue
Code Section 897(c)(2) and Section 1.897-2(c) of the Treasury Regulations
promulgated thereunder.
2.23 Financial Statements. Attached hereto as Schedule 2.23 are
--------------------- --------------
complete and correct copies of (i) the unaudited balance sheet of the Company
for the quarterly period ended September 30, 1998; (ii) audited consolidated
financial statements of the Company containing audited balance sheets and
statements of income at and for the Company's fiscal years ended December 31,
1996, 1997 and 1998 and (iii) an unaudited balance sheet and statement of income
of the Company at and for the three-month period ended March 31, 1999 (the
"Statement Date") (the items referred to in clauses (i) through (iii),
collectively, the "Financial Statements"). The Financial Statements have been
prepared from the books and records of the Company and have been prepared in
accordance with GAAP (except as indicated in the notes thereto) and fairly
present the consolidated financial condition and operating results of the
Company and its subsidiaries as of the dates and for each period presented in
accordance with GAAP.
2.24 Changes. Since the Statement Date and except as set forth in
-------
Schedule 2.24, there has not been:
----------
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except for changes in the ordinary course of business or
that have not resulted in a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered
by insurance, resulting in a Material Adverse Effect;
(c) any waiver, release or compromise by the Company or any
of its subsidiaries of a valuable right or of a material debt owed to it;
<PAGE>
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
subsidiaries except in the ordinary course of business or that has not resulted
in a Material Adverse Effect;
(e) any material change to a material contract or agreement
by which the Company, or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, representative, agent, officer, director or
stockholder of the Company or any of its subsidiaries;
(g) any sale, assignment or transfer of any patents, pending
patent applications, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, software source code and object code and
proprietary rights and processes or other material intangible assets of the
Company or any of its subsidiaries;
(h) any resignation or termination of employment of any
officer, director, key employee, key representative or key agent of the Company
or any of its subsidiaries and to the Company's knowledge, the Company does not
know of any impending resignation or termination of employment of any such
officer, director, key employee, key representative or key agent;
(i) receipt of notice that there has been a loss of, or order
cancellation by, any major advertiser or major customer of the Company or any of
its subsidiaries;
(j) any mortgage, pledge, transfer of a security interest in,
lien or encumbrance, created by the Company or any of its subsidiaries, with
respect to any of its capital stock, properties or assets, except liens for
taxes not yet due or payable;
(k) any loans or guarantees made by the Company or any of its
subsidiaries to or for the benefit of its employees, representatives, agents,
officers or directors, or any members of their immediate families, other than
ordinary advances for expenses incurred in the ordinary course of business;
(l) any declaration, setting aside or payment or other
distribution with respect to any of the capital stock of the Company or any of
its subsidiaries, or any direct or indirect redemption, purchase, or other
acquisition of any of such capital stock by the Company or any of its
subsidiaries; or
<PAGE>
(m) any arrangement or commitment by the Company or any of
its subsidiaries to do anything described in this Section 2.24, subject to
materiality and other qualifiers as may be set forth in this Section 2.24.
2.25 Environmental and Safety Laws. The Company, its subsidiaries, the
-----------------------------
operation of their respective businesses and any real property that they own,
lease or otherwise occupy or use are in compliance with all applicable
Environmental Laws and orders or directives of any governmental authorities
having jurisdiction under such Environmental Laws except where the failure to
comply would not result in a Material Adverse Effect. Neither the Company nor
any of its subsidiaries has received any citation, directive or notice of any
proceedings, claims or other actions from any governmental authority arising out
of the ownership or occupation of its properties or premises or the conduct of
its respective operations, nor is it aware of any basis therefor. To the
Company's knowledge, no material expenditure on behalf of the Company or any of
its subsidiaries will be required in order to comply with any Environmental Law.
As used herein, "Environmental Laws" means any federal, state, municipal, local
or foreign law, statute, ordinance, code, rule or regulation pertaining to land
use, air, soil, surface water, groundwater (including protection, cleanup,
removal, remediation or damage thereof), public or employee health or safety or
any other environmental matter, including, without limitation, the following
laws as the same may be amended from time to time: (i) Clean Air Act (42 U.S.C.
7401, et seq.), (ii) Clean Water Act (33 U.S.C. 1251, et seq.), (iii) Resource
-- --- -- ---
Conservation and Recovery Act (42 U.S.C. 6901, et seq.), (iv) Comprehensive
-- ---
Environmental Response Compensation Liability Act, as amended (42 U.S.C. 9601,
et seq.) ("CERCLA"), (v) Safe Drinking Water Act (42 U.S.C. 300f, et seq.),
- -- --- -- ---
(vi) Toxic Substance Control Act (15 U.S.C. 2601, et seq.), (vii) Rivers and
- -- -- ---
Harbors Act (33 U.S.C. 401, et seq.), (viii) Endangered Species Act (16 U.S.C.
- -- -- ---
1531, et seq.), and (ix) Occupational Safety and Health Act (29 U.S.C. 651, et
-- --- --
seq.), together with any other applicable federal, state or local laws relating
- ---
to emissions, discharges, releases or threatened releases of any Hazardous
Substance (as defined herein) into ambient air, land, surface water, ground
water, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, discharge or handling of any Hazardous Substance. As used herein,
"Hazardous Substances" means any pollutant, contaminant, hazardous or toxic
substance, material, constituent or waste or any pollutant that is labeled or
regulated as such terms are defined in any Environmental Law or that is labeled
or regulated as such by (i) the United States of America, (ii) any state,
commonwealth, territory or possession of the United States of America and (iii)
any political subdivision thereof (including counties, municipalities and the
like) or any agency, authority or instrumentality of any of the foregoing,
<PAGE>
including any court, tribunal, department, bureau, commission or board,
including, without limitation, asbestos and asbestos-containing materials and
any material or substance that is: (i) designated as a "hazardous substance"
pursuant to Section 307 of the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251, et seq. (33 U.S.C. 1317), (ii) defined as a "hazardous waste"
-- ---
pursuant to Section 1004 of the Federal Solid Waste Disposal Act, 42 U.S.C.
Section 6901, et seq. (42 U.S.C. 6903), (iii) defined as a "hazardous
-- ---
substance" pursuant to Section 101 of CERCLA or (iv) is so designated or defined
under any other applicable Environmental Law.
2.26 FCPA. The Company and its subsidiaries have complied in all
----
material respects with the United States Foreign Corrupt Practices Act of 1977,
as amended (the "FCPA"), and have obtained all consents, licenses, approvals,
authorizations, rights, and privileges in connection with the conduct of its
business required by the FCPA and have otherwise conducted their business in
compliance with all material respects with the FCPA. Each of the Company's and
its subsidiaries internal management and accounting practices and controls are
adequate to ensure compliance in all material respects with the FCPA.
2.27 Finder's Fee. Except as set forth in Schedule 2.27, the Company
------------- -------------
represents that it neither is nor will be obligated for any finder's fee or
commission in connection with the transactions contemplated by the Investment
Agreements, the documents referred to herein and the transactions contemplated
hereby and thereby.
2.28 Insurance. Schedule 2.28 sets forth all insurance policies and
--------- --------------
bonds that are material to the Company and its subsidiaries, and such policies
and bonds are in full force and effect and, to the knowledge of the Company, no
defaults exist under any of them. In the past three years neither the Company
nor any of its subsidiaries has been refused insurance for which it applied or
had any policy of insurance terminated (except at its request).
<PAGE>
2.29 Year 2000.
----------
(a) To the Company's knowledge, none of the computer
software, computer firmware, computer hardware (whether general or special
purpose) or other similar or related items of automated, computerized or
software systems that are used or relied on by the Company or by any of its
subsidiaries in the conduct of their respective businesses will malfunction,
will cease to function, will generate incorrect data or will produce incorrect
results when processing, providing or receiving (i) date-related data from, into
and between the twentieth and twenty-first centuries or (ii) date-related data
in connection with any valid date in the twentieth and twenty-first centuries.
(b) To the Company's knowledge, none of the products and
services sold, licensed, rendered, or otherwise provided by the Company or by
any of its subsidiaries in the conduct of their respective businesses will
malfunction, will cease to function, will generate incorrect data or will
produce incorrect results when processing, providing or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries or (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries.
(c) Neither the Company nor any of its subsidiaries has made
any other representations or warranties regarding the ability of any product or
service sold, licensed, rendered, or otherwise provided by the Company or by any
of its Subsidiaries in the conduct of their respective businesses to operate
without malfunction, to operate without ceasing to function, to generate correct
data or to produce correct results when processing, providing or receiving (i)
date-related data from, into and between the twentieth and twenty-first
centuries and (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries.
2.30 Other. The Company is not governed by the provisions of Sections
-----
78.411 through 78.444, inclusive of the Nevada Revised Statutes.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each Purchaser
------------------------------------------------
hereby, severally and not jointly represents and warrants to the Company, with
respect to itself only, that:
3.1 Accredited Investor; Authorization. Such Purchaser is an
------------------------------------
"accredited investor" within the meaning of Rule 501 promulgated under the
<PAGE>
Securities Act and has the corporate, partnership or individual, as the case may
be, power and authority to enter into and perform this Agreement and the other
Investment Agreements and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly authorized, executed and delivered by
such Purchaser and constitutes the legal, valid and binding obligation of such
Purchaser, enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and except as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
3.2 No Conflict With Other Agreements. The execution, delivery and
-------------------------------------
performance of the Investment Agreements and the consummation of the
transactions contemplated hereby or thereby will not, with or without the
passage of time and/or the giving of notice, result in a violation or default of
any provisions of such Purchaser's charter, bylaws or other organizational
document or of any order, writ, injunction, judgment, instrument, decree or
material contract to which it is a party or by which it is bound or, to its
knowledge, of any material provision of federal or state statute, rule or
regulation applicable to such Purchaser.
3.3 Investment Knowledge. Such Purchaser has sufficient knowledge and
---------------------
experience in financial and business matters so as to be capable of evaluating
the risks and merits of its investment in the Company and is capable of bearing
the economic risks of such investment, including a complete loss of its
investment.
3.4 Distribution. The Securities (including Class A Preferred Shares
------------
issuable as dividends and the Underlying Shares) are being acquired for such
Purchaser's own account with the present intention of holding such securities
for purposes of investment and not with a view to or for resale in connection
with any distribution thereof in violation of any securities laws. Each of the
Purchasers further represents that it understands and agrees that, until
registered under the Securities Act or transferred pursuant to the provisions of
Rule 144 as promulgated by the Securities and Exchange Commission (such
securities, "Unrestricted Securities"), all certificates evidencing any of the
Securities (including Class A Preferred Shares issuable as dividends and the
<PAGE>
Underlying Shares), whether upon initial issuance or upon any transfer thereof,
shall bear a legend, prominently stamped or printed thereon, reading
substantially as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or the securities
laws of any state. These securities have been acquired for investment and
not with a view to distribution or resale in violation of any securities
laws. Such shares may not be offered for sale, sold, delivered after sale,
transferred, pledged or hypothecated in the absence of an effective
registration statement covering such shares under the Act and any
applicable state securities laws or an exemption therefrom."
4. CONDITIONS OF PURCHASERS' OBLIGATIONS AT THE CLOSING. The
----------------------------------------------------------
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing of each of the following conditions,
unless otherwise waived in writing by such Purchaser.
4.1 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by the Company on
or before the Closing.
4.2 Qualifications. All authorizations, approvals or permits, if any,
--------------
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.3 Opinion of Company Counsel. The Purchasers shall have received
-----------------------------
from Gardere & Wynne L.L.P., counsel for the Company, an opinion, dated as of
the Closing, in substantially the form of Exhibit E.
----------
4.4 Supporting Documents. The Purchasers shall have received the
---------------------
following:
(a) A copy of resolutions of the Board of Directors of the
Company authorizing and approving the Investment Agreements and a copy of
resolutions of the Board of Directors of the Company authorizing and approving
<PAGE>
the adoption of the Certificate, all such resolutions to be certified by the
Secretary of the Company;
(b) A Certificate of Incumbency executed by the Secretary of
the Company certifying the names, titles and signatures of the officers
authorized to execute the Investment Agreements and further certifying that the
Articles of Incorporation, as amended, and Bylaws of the Company delivered to
legal counsel for the Purchasers at the time of the execution of this Agreement
have been validly adopted and have not been amended or modified; and
(c) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as legal
counsel for the Purchasers may reasonably request.
4.5 Registration Rights Agreement. The Company, each Purchaser that
-----------------------------
is a party thereto and the other parties thereto shall have executed and
delivered the Registration Rights Agreement in substantially the form attached
as Exhibit C.
----------
4.6 Warrant Agreement. The Company shall have entered into the Warrant
-----------------
Agreement in the form attached hereto as Exhibit B;
----------
4.7 Certificate of Designations. The Company shall have filed the
-----------------------------
Certificate with the Secretary of State of Nevada, which Certificate shall
continue to be in full force and effect as of the Closing.
4.8 Payment of Expenses. The Company shall have paid in accordance
---------------------
with Section 10.9 the expenses and disbursements of the Purchasers.
4.9 Minimum Investment. In addition to the other conditions specified
-------------------
in this Section 4, it shall be a further condition to the obligations of each of
(i) Sandler, that the Company shall have received an aggregate of at least
$15,000,000 from Pensat and (ii) Pensat, that the Company shall have received an
aggregate of at least $15,000,000 from Sandler and CPP.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
-------------------------------------------------------------
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived by the Company in writing.
<PAGE>
5.1 Performance. All covenants, agreements, obligations and conditions
-----------
contained in this Agreement to be performed by such Purchaser on or prior to the
Closing shall have been performed or complied with in all material respects.
5.2 Registration Rights Agreement. Such Purchaser shall have executed
------------------------------
and delivered the Registration Rights Agreement in substantially the form
attached as Exhibit C.
----------
5.3 Minimum Investment. In addition to the other conditions specified
-------------------
in this Section 5, it shall be a further condition to the obligations of the
Company, that it shall have received an aggregate of at least $30,000,000 from
the Purchasers in connection with the sale of the Securities hereunder.
6. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company covenants and
----------------------------------------
agrees as follows:
6.1 Corporate Existence. The Company will maintain its corporate
--------------------
existence in good standing in the State of Nevada and comply with all applicable
laws and regulations of the United States or of any state or political
subdivision thereof and of any foreign jurisdiction, and of any government
authority of any of the foregoing, where failure to so comply would have a
Material Adverse Effect.
6.2 Books of Account and Reserves. The Company will keep books of
---------------------------------
record and account in order to prepare its Financial Statements. The Company
will employ a certified public accounting firm of established national
reputation selected by the Board of Directors of the Company who are
"independent" within the meaning of the accounting regulations of the Securities
and Exchange Commission (the "Accountants"). The Company will have annual
audits made by such Accountants in the course of which such Accountants shall
make such examinations, in accordance with generally accepted auditing
standards, as will enable them to give such reports or opinions with respect to
the financial statements of the Company as will satisfy the requirements of the
Securities and Exchange Commission in effect at such time with respect to
reports or opinions of accountants.
6.3 Furnishing of Financial Statements and Information. The Company
-----------------------------------------------------
will deliver to each Purchaser and its respective transferees, successors and
<PAGE>
assigns (together with their respective Affiliates (as defined)) that holds at
least 10% of the Class A Preferred Shares (or the Common Stock issuable upon
conversion thereof) while any Class A Preferred Shares are outstanding (and each
recipient that receives such information agrees to keep confidential such
information as the Company designates as confidential in writing):
(a) annually, as soon as available, but in any event by the
end of each fiscal year, an operating plan and budget for the following year;
(b) as soon as available, but in any event within 30 days
after the end of each monthly accounting period in each fiscal year, unaudited
statements of income, operations and cash flows of the Company for such monthly
period and for the period from the beginning of the fiscal year to the end of
such month, and unaudited balance sheets of the Company as of the end of such
monthly period, setting forth in each case comparisons to the annual operating
plan and budget and to the corresponding period in the preceding fiscal year,
and all such statements shall be prepared in accordance with GAAP (provided,
however, that such statements need not comply with the footnote disclosure
requirements of GAAP);
(c) as soon as available, but in any event within 45 days
after the end of each quarterly accounting period in each fiscal year, unaudited
statements of income, operations and cash flows of the Company for such
quarterly period and for the period from the beginning of the fiscal year to the
end of such quarter, and unaudited balance sheets of the Company as of the end
of such quarterly period, setting forth in each case comparisons to the annual
operating plan and budget and to the corresponding period in the preceding
fiscal year, and all such statements shall be prepared in accordance with GAAP
(provided, however, that such statements need not comply with the footnote
disclosure requirements of GAAP);
(d) as soon as available, but in any event within 90 days
after the end of each fiscal year, audited statements of income, operations,
retained earnings and cash flows of the Company for such fiscal year and balance
sheets of the Company as of the end of such fiscal year, all prepared in
accordance with GAAP, all in reasonable detail and duly certified by the
Accountants, who shall have given the Company an opinion, unqualified as to the
<PAGE>
scope of the audit, regarding such statements setting forth in each case
comparisons to the annual operating plan and budget of the preceding fiscal
year;
(e) promptly after the Company learns of the commencement or
written threats of the commencement of any material lawsuit, legal or equitable,
or of any material administrative, arbitration or other proceeding against the
Company or its business, assets or properties, written notice of the nature and
extent of such suit or proceeding;
(f) promptly upon transmission thereof, copies of all
reports, proxy statements, registration statements and notifications filed by it
with the Securities and Exchange Commission pursuant to any act administered by
the Securities and Exchange Commission or furnished to stockholders of the
Company or to any national securities exchange;
(g) with reasonable promptness, notice of any default in any
agreement of the Company or any of its subsidiaries which is reasonably expected
to result in a Material Adverse Effect;
(h) with reasonable promptness, such other financial data
relating to the business, affairs and financial condition of the Company and as
is available to the Company and as from time to time the Purchasers may
reasonably request.
"Affiliate" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
first-named Person. For the purposes of this definition, "control" (including
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise. In
addition, in the case of each Purchaser, an "Affiliate" of such Purchaser shall
include the partners thereof and the Company shall not be deemed to be an
"Affiliate" of any Purchaser.
6.4 Key Person Insurance. Within 90 days after the Closing, the
----------------------
Company shall obtain and thereafter at all times maintain one or more key person
life insurance policies on the life of Stephen Raville in an aggregate amount of
not less than $10,000,000, with the proceeds of such insurance policies payable
to the Company. Copies of such keyman insurance policies shall be delivered to
the Purchasers who so request them.
<PAGE>
6.5 Subsidiaries. The Company shall (i) cause each such subsidiary to
------------
comply with the covenants set forth in Sections 6.1, 6.2, and 6.3 and (ii) all
references in Section 6.3 to financial statements shall be deemed to refer to
consolidated financial statements.
7. NEGATIVE COVENANTS OF THE COMPANY. The Company will be limited and
----------------------------------
restricted as follows:
7.1 Restrictive Agreements Prohibited. Neither the Company nor any of
----------------------------------
its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of the Investment Agreements or its
obligations under the Certificate.
7.2 Affiliate Transactions. The Company will not enter into any
-----------------------
transactions with any Affiliate unless conducted on an arm's-length basis, at
fair market value. For purposes of this Section 7.2, (i) "Affiliate" shall mean
any entity directly or indirectly controlling, controlled by or under direct or
indirect common control with the Company (or any of its subsidiaries) and
includes (a) any person who is a director or beneficial owner of at least 5% of
such person's equity securities, (b) any person (other than wholly-owned
Subsidiaries) of which the Company or any Affiliate owns at least 10% of such
person's equity securities or (c) immediate family members of any such person
specified in clauses (a) or (b) and (ii) "Subsidiary" shall mean any entity of
which the Company owns, directly or indirectly, at least a majority of the
outstanding capital stock or a partnership in which the Company (or a subsidiary
of the Company) serves as general partner.
8. CONVERSION OF CLASS A PREFERRED SHARES AND EXERCISE OF WARRANTS.
-------------------------------------------------------------------
8.1 Conversion of Preferred Shares. Each Purchaser may, at its option,
------------------------------
at any time and from time to time, convert all or any portion of the Class A
Preferred Shares into Common Stock at the rate and upon the terms and conditions
and subject to the adjustments set forth in the Certificate.
8.2 Exercise of Warrants. Each Purchaser may, at its option, exercise
---------------------
any Warrant, or any portion thereof, in exchange for Common Stock at the rate
and upon the terms and conditions set forth in the applicable Warrant Agreement.
<PAGE>
8.3 Underlying Shares Fully Paid; Reservation of Common Stock. The
-------------------------------------------------------------
Company covenants and agrees that all Underlying Shares shall be issued upon the
exercise of the conversion privilege referred to in Section 8.1 and the right of
exercise referred to in Section 8.2 and shall, upon issuance in accordance with
the terms of the Company's Articles of Incorporation, as amended, and the
Warrant Agreements, respectively, be fully paid and non-assessable, and that the
issuance thereof shall not give rise to any preemptive rights on the part of any
Person. The Company further covenants and agrees that the Company will at all
times from and after the Closing have authorized and reserved a sufficient
number of shares of its Common Stock for the purpose of issuing the Underlying
Shares.
8.4 Adjustment of Number of Shares. The number of shares of Common
----------------------------------
Stock issuable upon conversion of Class A Preferred Shares as well as the number
of shares of Common Stock issuable upon exercise of any Warrant (and the
exercise price payable in connection with such exercise) shall be subject to
adjustment from time to time as set forth in the Certificate and in the Warrant
Agreements.
9. PREEMPTIVE RIGHTS.
------------------
9.1 Each Purchaser of the Class A Preferred Shares and its respective
transferees, successors and assigns (each, a "Holder") shall be entitled to a
preemptive right to purchase its pro rata share of all or any part of any New
--- ----
Securities (as defined) which the Company may, from time to time, sell and
issue. Such Holder's pro rata share, for purposes of this preemptive right, is
--- ----
the ratio that the number of whole shares of Common Stock into which the shares
of Class A Preferred Shares held by such Holder (including any additional shares
of Class A Preferred Shares issued to such holder) are convertible plus the
number of shares of Common Stock then held by the Holder as a result of the
conversion of Class A Preferred Shares bears to the total number of shares of
Common Stock of the Company on a fully-diluted basis.
9.2 Except as set forth in the next sentence, "New Securities" shall
mean any shares of capital stock of the Company, including Common Stock, whether
now authorized or not, and rights, options or warrants to purchase said shares
of capital stock, and securities of any type whatsoever that are, or may become,
convertible into said shares of capital stock. Notwithstanding the foregoing,
"New Securities" does not include (i) securities offered to the public generally
pursuant to a registration statement filed with the Commission and declared
effective under the Securities Act,(ii) securities issued in connection with the
acquisition of another entity by the Company by merger, purchase of
substantially all of the assets or other reorganization or in a transaction
<PAGE>
governed by Rule 145 under the Securities Act, (iii) options exercisable for
Common Stock issued to employees, officers, directors or consultants of the
Company outstanding as of the first date on which Class A Preferred Shares were
first issued (the "First Issue Date") or options issued to employees, officers,
directors or consultants of the Company pursuant to the Employee Plan, the
Executive Plan or the Director Plan or a stock option plan adopted by the Board
of Directors of the Company and approved by a Supermajority of the holders of
Class A Preferred Shares after the First Issue Date, (iv) shares of Common Stock
issued on conversion of outstanding Class A Preferred Shares; (v) shares of
Common Stock issued upon exercise of rights, convertible securities or warrants
(A) outstanding as of the First Issue Date or (B) issued in connection with the
sale of Class A Preferred Shares hereunder, (vi) stock issued pursuant to any
rights or agreements, including without limitation convertible securities,
options and warrants, provided, that, the preemptive rights established by this
-------- ----
Section 9 shall apply with respect to the initial sale or grant by the Company
of interests in its capital stock pursuant to such rights or agreements, or
(vii) stock issued in connection with any stock split, stock dividend or
recapitalization by the Company.
9.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give the Holders of the Class A Preferred Shares written
notice of its intention, describing the type of New Securities, and the price
and terms upon which the Company proposes to issue the same. Each Holder of
Class A Preferred Shares shall have thirty (30) days from the date of receipt of
any such notice to agree to purchase up to its respective pro rata share of such
--- ----
New Securities for the price and upon the terms specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
9.4 In the event a Holder fails to exercise such preemptive right
within said thirty-day period (each such Holder a "Non-Electing Holder"), the
Company shall give the Holders that have elected to exercise such preemptive
right within said thirty-day period (each such Holder an "Electing Holder")
written notice of each Non-Electing Holder's failure to exercise its preemptive
right to purchase its pro rata share of the New Securities (such securities, the
--- ----
"Additional New Securities"). Each Electing Holder shall have ten (10) days
from the date of receipt of any such notice to elect to purchase up to its pro
---
<PAGE>
rata share of the Additional New Securities by giving written notice to the
---
Company and stating therein the quantity of such New Securities to be purchased.
---
9.5 In the event any Electing Holder fails to exercise its preemptive
right pursuant to Section 9.4 within said forty-day period, the Company shall
have ninety (90) days thereafter to sell or enter into an agreement (pursuant to
which the sale of Additional New Securities covered thereby shall be closed, if
at all, within sixty (60) days from the date of said agreement) to sell the
Additional New Securities not elected to be purchased by Electing Holders at the
price and upon the terms no more favorable to the purchasers of such securities
than specified in the Company's notice. In the event the Company has not sold
the Additional New Securities or entered into an agreement to sell the
Additional New Securities within said ninety-day period (or sold and issued
Additional New Securities in accordance with the foregoing within sixty (60)
days from the date of said agreement), the Company shall not thereafter issue or
sell any of such Additional New Securities, without first offering such
securities in the manner provided above.
9.6 In the event no Holders exercise their respective preemptive right
pursuant to Section 9.3 within said thirty-day period, the Company shall have
ninety (90) days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within sixty (60) days from the date of said agreement) to sell the New
Securities not elected to be purchased by Holders of the Class A Preferred
Shares at the price and upon the terms no more favorable to the purchasers of
such securities than specified in the Company's notice. In the event the
Company has not sold the New Securities or entered into an agreement to sell the
New Securities within said ninety-day period (or sold and issued New Securities
in accordance with the foregoing within sixty (60) days from the date of said
agreement), the Company shall not thereafter issue or sell any of such New
Securities, without first offering such securities in the manner provided above.
<PAGE>
10. MISCELLANEOUS.
-------------
10.1 Survival of Warranties. The warranties, representations and
------------------------
covenants of the Company and Purchasers contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
10.2 Transfer; Successors and Assigns. The terms and conditions of
-----------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
10.3 No Third Party Beneficiaries. Nothing express or implied in this
-----------------------------
Agreement is intended to confer, nor shall anything herein confer, upon any
other than the parties hereto and the respective successors or assigns of such
parties, any rights, remedies, obligations or liabilities whatsoever.
10.4 GOVERNING LAW. THIS AGREEMENT AND ALL ACTS AND TRANSACTIONS
--------------
PURSUANT HERETO AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
10.5 WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH PURCHASER DOES
--------------------
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE SUCH RIGHT
ANY PARTY OR THEIR SUCCESSORS OR ASSIGNS MAY HAVE TO A JURY TRIAL IN EVERY
JURISDICTION IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE
PARTIES HERETO OR THEIR SUCCESSORS OR ASSIGNS AGAINST ANY OTHER PARTY HERETO OR
THEIR RESPECTIVE AFFILIATES, SUCCESSORS OR ASSIGNS IN RESPECT OF ANY MATTER
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENT
EXECUTED AND DELIVERED BY ANY PARTY IN CONNECTION THEREWITH (INCLUDING, WITHOUT
LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIMS OR
DEFENSES ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR OTHERWISE
VOID OR VOIDABLE).
10.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
10.7 Titles and Subtitles. The titles and subtitles used in this
----------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
<PAGE>
10.8 Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed effectively given and received upon delivery
in person, or two business days after delivery by overnight courier service or
by telecopier transmission with acknowledgment of transmission receipt, or five
business days after deposit via certified or registered mail, return receipt
requested, addressed to the party to be notified at such party's address as set
forth below or on Schedule 1 hereto, or as subsequently modified by written
notice, and (a) if to the Company:
Pointe Communications Corporation
2839 Paces Ferry Road
Suite 500
Atlanta, GA 30339
Attention: Stephen E. Raville
Facsimile: (770) 319-2834
with a copy to (which shall not constitute notice):
Gardere & Wynne, LLP
3000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201-4761
Attention: W. Robert Dyer Jr.
Facsimile: (214) 999-3574
(b) if to Sandler:
c/o Sandler Capital Management
767 Fifth Avenue
45th Floor
New York, NY 10153
Attention: David C. Lee
Facsimile: (212) 826-0280
with a copy to (which shall not constitute notice):
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
Facsimile: (202) 776-2222
<PAGE>
(c) if to CPP:
c/o Centre Partners
30 Rockefeller Plaza
50th Floor
New York, NY 10026
Attention: Paul Zepf
Facsimile: (212) 332-5801
with a copy to (which shall not constitute notice):
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Norman D. Chirite
Facsimile: (212) 310-8007
or if to Pensat:
Oger Pensat Holdings Ltd.
c/o Saudi Oger Ltd.
P.O. Box 1449
Riyadh 11431
Saudi Arabia
Attention: Mr. Mohammed Hariri
Facsimile: 966 1477 8795
with copy to (which shall not constitute notice):
Roger & Wells LLP
607 14th Street, N.W.
Washington, D.C. 20005-2018
Attention: Anthony F. Essaye
Facsimile: (202) 434-0800
Roger & Wells LLP
200 Park Avenue
New York, NY 10166-1053
Attention: Ronald M. Sanders
Facsimile: (212) 878-8375
10.9 Expenses. Each party shall bear its own costs and expenses;
--------
provided, however, that the Company shall pay and be responsible for all
out-of-pocket expenses of Sandler and Pensat including, but not limited to,
travel, accounting and other miscellaneous expenses and the reasonable fees and
expenses of their respective counsel and other professional advisors (in the
case of Sandler, such reimbursement not to exceed $100,000 in the aggregate in
<PAGE>
the case of such counsel and other professional fees and expenses), incurred
with respect to this Agreement, the documents referred to herein and the
transactions contemplated hereby and thereby.
10.10 Amendments and Waivers. Any term of this Agreement may be
------------------------
amended or waived, and this Agreement may be terminated, with the written
consent of the Company and the holders of at least sixty-six and two thirds
percent (66 2/3%) of the Class A Preferred Shares (or the Common Stock issuable
upon conversion thereof). Any amendment or waiver effected in accordance with
this Section 10.10 shall be binding upon the Purchasers and each holder or
transferee of the Class A Preferred Shares (or the Common Stock issuable upon
conversion thereof), each future holder of all such securities, and the Company.
10.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
10.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any of the Class A Preferred Shares
(or the Common Stock issuable upon conversion thereof) or to the Company, upon
any breach or default of the Company or by the Purchasers under this Agreement,
shall impair any such right, power or remedy of such holder or the Company, as
the case may be, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder or the Company, as the case may be, of any breach or
default under this Agreement, or any waiver on the part of any holder or the
Company, as the case may be, of any provisions or conditions of this Agreement,
must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
<PAGE>
10.13 Further Assurances. The Company and each Purchaser shall take
-------------------
such additional actions and execute and deliver such additional agreements and
other instruments and documents as necessary or appropriate to effect the
transactions contemplated by this Agreement in accordance with its terms.
10.14 Entire Agreement. This Agreement, and the documents referred to
-----------------
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled. Other than the
Investment Agreements and that certain Standstill Agreement dated as of the date
hereof by and among Sandler, Pensat and the Company, there are no other
agreements existing between the Company and each of Sandler or Pensat.
[Signature Pages Follow]
<PAGE>
The parties have executed this Agreement as of the date first written
above.
COMPANY:
POINTE COMMUNICATIONS CORPORATION
By: ____________________________________
Name:
Title:
PURCHASERS:
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.
General Partner
By: Sandler Capital Management,
General Partner
MJDM Corp., a General Partner
By:______________________________
Edward G. Grinacoff
President
SANDLER CAPITAL PARTNERS IV, FTE, L.P.
By: Sandler Investment Partners, L.P.
General Partner
By: Sandler Capital Management,
General Partner
MJDM Corp., a General Partner
By:______________________________
Edward G. Grinacoff
President
<PAGE>
OGER PENSAT HOLDINGS LTD.
By:_______________________________
Name:
Title:
CPP LLC
By:________________________________
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
----------
Aggregate
Purchase
Number of Price of Aggregate
Class A Class A Purchase
Preferred Preferred Number of Price of
Purchaser Shares Shares Warrants Warrants
- --------------------------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Sandler Capital Partners IV, L.P. 3,547 $10,611,482 3,800,357 $ 29,518
Sandler Capital
Partners IV
FTE, L.P. . . . . . . . . . . . . 1,453 $ 4,338,518 1,556,786 $ 20,482
Oger Pensat
Holdings LTD. . . . . . . . . . . 5,000 $14,950,000 5,357,143 $ 50,000
CPP LLC . . . . . . . . . . . . . 80 $ 239,200 85,714 $ 800
</TABLE>
<PAGE>
CERTIFICATE OF DESIGNATIONS OF
POINTE COMMUNICATIONS CORPORATION
Pointe Communications Corporation (the "Corporation"), a corporation
organized and existing under the laws of the State of Nevada, certifies that
pursuant to the authority contained in Article V of its Articles of
Incorporation, as amended (the "Articles of Incorporation") and in accordance
with the provisions of Section 78.1955 of the Nevada Revised Statutes (the
"NRL"), the Board of Directors of the Corporation (the "Board of Directors") has
adopted the following resolution which resolution remains in full force and
effect on the date hereof.
RESOLVED, that pursuant to the authority vested in the Board of Directors
by the Articles of Incorporation, the Board of Directors does hereby designate,
create, authorize and provide for the issuance of Class A Convertible Senior
Preferred Stock (the "Class A Preferred Stock"), par value $0.01 per share
consisting of 10,080 shares, no shares of which have heretofore been issued by
the Corporation, having the following voting powers, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions thereof as follows:
Section 1. Dividends.
---------
(a) Priority of Dividends. No dividends shall be declared or set aside
---------------------
for the Common Stock or any other class or series of the Corporation's capital
stock which ranks junior to the Class A Preferred Stock (collectively, the
"Junior Stock") unless prior thereto all accumulated and unpaid dividends on the
Class A Preferred Stock shall be declared, set aside and paid. So long as any
Class A Preferred Stock remains outstanding, without the prior written consent
of the holders of a sixty-six and two-thirds percent (66 2/3%) (a
"Supermajority") of the outstanding shares of Class A Preferred Stock, the
Corporation shall not, nor shall it permit any of its subsidiaries to, redeem,
purchase or otherwise acquire directly or indirectly any Junior Stock, nor shall
the Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Stock, if at the time of any such redemption,
purchase, acquisition, dividend or distribution the Corporation has failed to
pay the full amount of dividends accumulated on the Class A Preferred Stock or
the Corporation has failed to make any redemption of the Class A Preferred Stock
required hereunder.
<PAGE>
(b) If the Board of Directors determines to pay dividends due and
payable pursuant to this Section 1 in cash, and in the event that funds legally
available for distribution of such dividends on any Dividend Payment Date (as
defined in paragraph (c) of this Section 1) are insufficient to fully pay the
cash dividend due and payable on such Dividend Payment Date to all holders of
outstanding Class A Preferred Stock, then all funds legally available for
distribution shall be paid in cash to holders of Class A Preferred Stock in
accordance with the number of shares of Class A Preferred Stock held by each
such holder. Any remaining dividend amount owed to holders of the Class A
Preferred Stock shall be accrued in accordance with paragraph (c) of this
Section 1. The holders of the Class A Preferred Stock shall have senior
preference and priority to the dividends of the Corporation.
<PAGE>
(c) Stock Dividend Rate; Dividend Payment Dates. Each holder of Class
--------------------------------------------
A Preferred Stock shall be entitled to receive when and as declared by the
Board, out of funds legally available therefor, cumulative dividends, in
preference and priority to dividends on any Junior Stock, that shall accrue
daily, and compound quarterly, on each share of the Class A Preferred Stock at
the rate of twelve percent (12%) per annum (subject to adjustment pursuant to
Section 8) on the sum of the Liquidation Price (as defined) thereof plus all
accumulated and unpaid dividends thereon, from and including the date on which
such stock was first issued (the "Original Issue Date") to and including the
date on which such share ceases to be outstanding. The accrued dividends will
be appropriately adjusted for stock splits, stock dividends, combinations,
recapitalizations, reclassifications, mergers, consolidations and other similar
events (each, a "Recapitalization Event" and collectively, "Recapitalization
Events") which affect the number of outstanding shares of the Class A Preferred
Stock. Accrued dividends on the Class A Preferred Stock shall be payable out of
funds legally available therefor on June 30, 1999 and thereafter quarterly on
September 30, December 31, March 31, and June 30, of each year (each a "Dividend
Payment Date"), to the holders of record of the Class A Preferred Stock as of
the close of business on the applicable record date. Such dividends shall
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends, and such dividends shall be fully cumulative and shall
accrue on a daily basis based on a 365-day or 366-day year, as the case may be,
without regard to the occurrence of a Dividend Payment Date and whether or not
such dividends have been declared and whether or not there are any unrestricted
funds of the Corporation legally available for the payment of dividends. The
amount of dividends "accrued" with respect to any share of Class A Preferred
Stock as of the first Dividend Payment Date after the Original Issue Date, or as
of any other date after the Original Issue Date that is not a Dividend Payment
Date, shall be calculated on the basis of the actual number of days elapsed from
and including the Original Issue Date, in the case of the first Dividend Payment
Date and any date of determination prior to the first Dividend Payment Date, or
from and including the last preceding Dividend Payment Date, in the case of any
other date of determination, to and including such date of determination which
is to be made, in each case based on a year of 365 or 366 days, as the case may
be. Whenever the Board declares any dividend pursuant to this Section 1, notice
of the applicable record date and related Dividend Payment Date shall be given
in accordance with Section 4(k) hereof.
(d) Pro Rata Declaration and Payment of Dividends. All dividends paid
----------------------------------------------
with respect to shares of the Class A Preferred Stock pursuant to this Section 1
shall be declared and paid pro rata to all the holders of the shares of Class A
--- ----
Preferred Stock outstanding as of the applicable record date.
(e) Payment of Dividends with Additional Shares. Notwithstanding any
---------------------------------------------
other provision of this Section 1, in the sole discretion of the Corporation,
any dividends accruing on the Class A Preferred Stock may be paid in lieu of
cash dividends by the issuance on the applicable Dividend Payment Date, ratably
among the holders of Class A Preferred, of that number of additional shares of
Class A Preferred Stock (including fractional shares) ("Additional Shares") in
an aggregate number equal to (i) the aggregate amount of the dividend to be paid
divided by (ii) the Stated Value then existing as of such applicable Dividend
Payment Date. If and when any Additional Shares are issued under this Section
1(e) for the payment of accrued divi-dends, such Additional Shares shall be
deemed to be validly issued and outstanding and fully-paid and nonassessable.
Section 2. Liquidation, Dissolution or Winding Up.
------------------------------------------
<PAGE>
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, any merger as a result of which
the majority of the stockholders of the Corporation are not the majority of the
stockholders of the surviving entity, or consolidation of the Corporation with
another entity (whether or not the Corporation is the surviving entity) or the
sale of substantially all of its assets (each such event, a "Liquidation"),
except as provided in paragraph (b) of this Section 2, the holders of shares of
Class A Preferred Stock then outstanding shall be entitled, ratably in
proportion to the number of shares of Class A Preferred Stock held by such
holders, to be paid out of the assets of the Corporation available for
distribution to its stockholders before payment to the holders of Junior Stock
by reason of their ownership thereof, an amount equal to $3,000.00 per share of
Class A Preferred Stock (subject to appropriate adjustment for any
Recapitalization Events) (the "Stated Value"), plus an amount equal to all
accumulated and unpaid dividends on such share of Class A Preferred Stock since
the Original Issue Date thereof as of such time of determination (collectively,
the "Liquidation Price" per share). Upon such payment, the Class A Preferred
Stock will be retired.
(b) If upon any such Liquidation the remaining assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of Class A Preferred Stock the full amount to which
they shall be entitled, then the entire assets of the Corporation shall be
distributed among the holders of shares of Class A Preferred Stock, ratably in
proportion to the full amount to which such holders are entitled.
(c) After the payment of all preferential amounts required to be paid
to the holders of Class A Preferred Stock, upon a Liquidation, the holders of
shares of the Junior Stock then outstanding shall be entitled to receive the
remaining assets and funds of the Corporation available for distribution to its
shareholders.
<PAGE>
(d) In the event of a distribution pursuant to this Section 2, such
distribution shall be paid in cash or in the event and to the extent that cash
is not available for distribution, in securities or property. Whenever such
distribution shall be in securities or property other than cash, the value of
such securities or property other than cash shall be the fair market value of
such securities or other property as determined by the Board of Directors in
good faith.
Section 3. Voting Rights.
--------------
(a) Each holder of shares of Class A Preferred Stock shall be entitled
to votes equal in the aggregate to the number of votes to which the number of
whole shares of Common Stock into which such shares of Class A Preferred Stock
held by such holder are convertible would be entitled (as adjusted from time to
time pursuant to Section 4 hereof), at each meeting of the shareholders of the
Corporation (and for purposes of written actions of shareholders in lieu of
meetings) with respect to any and all matters presented to the shareholders of
the Corporation for their action or consideration, and shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of the
Corporation. Except as otherwise provided herein or required by law, holders of
shares of Class A Preferred Stock shall vote with the holders of shares of
Common Stock and any other class of stock of the Corporation entitled to vote
and not as a separate class. Holders of shares of the Class A Preferred Stock
shall have the right to vote as a class on all matters requiring their vote or
approval under, and in the manner set forth in, the NRL. Except as otherwise
provided herein, any class vote pursuant to this Section 3 or required by law
shall be determined by the holders of a Supermajority of the shares of capital
stock of such class voting as a class as of the applicable record date.
(b) For so long as any shares of Class A Preferred Stock remain
outstanding, the Corporation shall not amend, alter or repeal or otherwise
change any provision of these Articles of Incorporation, as amended (whether by
merger, consolidation or otherwise), the resolutions of its Board authorizing
and designating the Class A Preferred Stock, or the preferences, special rights
or other powers of the Class A Preferred Stock, in each case so as to affect
adversely any of the rights, powers, preferences or privileges of the Class A
Preferred Stock, without the written consent or affirmative vote of the holders
of at least a Supermajority of the then outstanding shares of Class A Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class, in person or by proxy. For this purpose,
without limiting the generality of the foregoing, amendments, alterations,
repeals or other changes to any provision of these Articles of Incorporation, as
amended (whether by merger, consolidation or otherwise), considered to affect
adversely any of the rights, powers, preferences or privileges of the Class A
Preferred Stock shall include, but are not limited to: (i) the creation,
authorization, issuance, or increase in the authorized amount of, any preferred
stock (except for increases in the authorized amount of and issuance of shares
of Class A Preferred Stock solely for the purpose of paying dividends pursuant
to Section 1(e) hereof) or any other class or series of any equity securities,
or any warrants, options or other rights convertible or exchangeable into any
class or series of any equity securities of the Corporation, having a preference
or priority over or ranking pari passu with the Class A Preferred Stock as to
---- -----
the right to receive dividends or amounts distributable upon Liquidation of the
Corporation; (ii) those that reduce the dividend rates on the Class A Preferred
Stock or cancel accumulated and unpaid dividends; (iii) those that change the
relative seniority rights of the holders of the Class A Preferred Stock as to
the payment of dividends in relation to the holders of any other capital stock
of the Corporation; or (iv) those that reduce the amount payable to the holders
of the Class A Preferred Stock upon a Liquidation or change the seniority of the
liquidation preferences of the holders of the Class A Preferred Stock relative
to the rights upon a Liquidation of the holders of any other capital stock of
the Corporation.
<PAGE>
(c) In addition to and distinct from the matters described in Sections
3(a) and 3(b) above, holders of the Class A Preferred Stock shall have the right
to designate two individuals to be members of the Board of Directors with each
of Sandler (as defined) and Pensat (as defined), having the right to designate
------
one of such two individuals to be a member of the Board of Directors. Each
director duly designated to the Board of Directors by Sandler and Pensat in
accordance with this Section 3(c) shall be subject to removal only at the
request of Sandler and Pensat, respectively. If Sandler or Pensat, as the case
may be, for any reason fails to designate anyone to fill any such directorship,
such position shall remain vacant until such time as Sandler or Pensat, as the
case may be, designates a director to fill such position and shall not be filled
by resolution or vote of the Board of Directors or the Corporation's other
shareholders. For purposes of this Section 3, "Sandler" shall mean Sandler
Capital Partners IV, L.P. ("SCP IV") and Sandler Capital Partners IV FTE, L.P.
("SCP IV FTE") (together with their respective Affiliates (as defined)), or in
the event that none of SCP IV or SCP IV FTE (together with their respective
Affiliates) holds at least 35% in the aggregate of the Class A Preferred Stock
originally issued to them, those holders holding more than 50% in the aggregate
of the Class A Preferred Stock originally issued to Sandler. For purposes of
this Section 3, "Pensat" shall mean Oger Pensat Holdings Ltd. (together with its
respective Affiliates) or in the event Oger Pensat Holdings Ltd. (together with
its respective Affiliates) does not hold at least 35% of the Class A Preferred
Stock originally issued to Oger Pensat Holdings Ltd.(together with its
respective Affiliates), those holders holding more than 50% in the aggregate of
the Class A Preferred Stock originally issued to Oger Pensat Holdings Ltd.
(together with its respective Affiliates). "Affiliate" means, with respect to
any individual, corporation, association, partnership, joint venture, trust,
estate, limited liability company, limited liability partnership, joint stock
company, unincorporated organization or government or any agency or political
subdivision thereof, or other entity or organization (each, a "Person"), any
Person that, directly or indirectly, controls, is controlled by or is under
common control with such first-named Person. For the purposes of this
definition, "control" (including with correlative meanings, the terms
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
<PAGE>
Section 4. Conversion at the Option of a Holder.
------------------------------------------
The holders of the Class A Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Class A Preferred Stock shall be
------------------
convertible at the option of the holder thereof, at any time, into such number
of fully-paid and nonassessable shares of Common Stock as determined by dividing
the Conversion Value (as defined) by the Conversion Price (as defined) then in
effect (as appropriately adjusted in accordance with this Section 4). No
additional consideration shall be paid by a holder of Class A Preferred Stock
upon exercise of its respective Conversion Rights pursuant to this paragraph
(a).
(i) Conversion Value. The "Conversion Value" for each share of
----------------
Class A Preferred Stock shall be the Liquidation Price per share of Class A
Preferred Stock.
(ii) Conversion Price. The conversion price at which shares of
-----------------
Common Stock shall be deliverable upon conversion of Class A Preferred Stock
without the payment of additional consideration by the holder thereof shall
initially be $1.40 (the "Conversion Price"). Such initial Conversion Price (and
therefore the corresponding rate at which shares of Class A Preferred Stock may
be converted into shares of Common Stock), shall be subject to adjustment as
provided in this Section 4.
(b) Fractional Shares. No fractional shares of Common Stock shall be
------------------
issued upon conversion of the Class A Preferred Stock. In lieu of any
fractional shares to which a holder of Class A Preferred Stock would otherwise
be entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price.
(c) Mechanics of Conversion.
-------------------------
<PAGE>
(i) In order for a holder of Class A Preferred Stock to convert
shares of Class A Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Class A Preferred
Stock at the office of the transfer agent for the Class A Preferred Stock (or at
the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of Class A Preferred Stock represented by such
certificate or certificates and stating therein the name or names in which the
holder desires the certificate or certificates for shares of the Common Stock to
be issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. Each
date of receipt of such certificates and notice by the transferring agent (or by
the Corporation if the Corporation serves as its own transfer agent) shall be a
conversion date (each, a "Conversion Date"). The Corporation shall, as soon as
practicable after each Conversion Date and no later than two (2) days after the
Conversion Date, (i) issue and deliver at such office to such holder of Class A
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid, together with
cash in lieu of any fraction of a share in accordance with paragraph (b) above,
or (ii) in lieu of delivering physical certificates representing the shares of
Common Stock, provided the Corporation's transfer agent is participating in the
Depositary Trust Issuer Fast Automated Securities Transfer ("FAST") program,
upon request of the holder, the Corporation shall use its best efforts to cause
its transfer agent to electronically transmit the shares of Common Stock
issuable upon conversion of the Class A Preferred Stock to the holder by
crediting the account of the holder's prime broker with Depositary Trust Company
through its Deposit Withdrawal Agent Commission system. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
applicable Conversion Date, and the person entitled to receive certificates of
Common Stock on such date shall be regarded for all corporate purposes as the
holder of the number of shares of Common Stock to which it is entitled upon the
conversion on such Conversion Date.
<PAGE>
(ii) The Corporation shall, at all times when any of the
Class A Preferred Stock shall remain outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Class A Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Class A Preferred Stock.
(iii) All shares of Class A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares shall immediately
cease and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock and cash in lieu of fractional shares
in exchange therefor. Any shares of Class A Preferred Stock so converted shall
be retired and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Class A Preferred Stock, accordingly.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------------
(i) Special Definitions. For purposes of this Section 4(d),
--------------------
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities (as defined), excluding (1) options granted to employees, officers,
directors or consultants of the Corporation or rights, warrants, or other
convertible securities which, in each case, are outstanding as of the First
Issue Date (as defined), (2) any warrants issued in connection with or as a
direct result of the issuance of the Class A Preferred Stock pursuant to the
Securities Purchase Agreement dated as of May 13, 1999, by and among the
Corporation, Sandler Capital Partners IV, L.P., Sandler Capital Partners IV FTE,
L.P., CPP LLC and Oger Pensat Holdings Ltd. (the "Securities Purchase
<PAGE>
Agreement"), or (3) options granted to employees, officers, directors or
consultants pursuant to stock option plans existing on the First Issue Date or
adopted by the Board of Directors and approved by the Compensation Committee of
the Board of Directors after the First Issue Date.
(B) "First Issue Date" shall mean the first date on
which shares of Class A Preferred Stock were first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities other than options excluded from the
definition of "Option" in subparagraph (A) of this Section 4(d)(i) directly or
indirectly convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to subparagraph (iii) below, deemed
to be issued) by the Corporation after the First Issue Date, other than shares
of Common Stock issued or issuable:
(1) upon the conversion of shares of Class
A Preferred Stock outstanding;
(2) as a dividend or distribution on Class A
Preferred Stock;
(3) by reason of a dividend, stock split,
split-up or other distribution on shares of the Class A Preferred Stock
or Common Stock;
(4) upon the exercise of options excluded from
the definition of "Option" in subparagraph (A) of this Section 4(d)(i); or
(5) in connection with an acquisition or other
transaction by the Corporation, in either case approved by the holders of at
least a Supermajority of the then outstanding shares of the Class A Preferred
Stock, unless the Corporation agrees to include such issuance in the definition
of "Additional Shares of Common Stock" in connection with obtaining the approval
of the holders of at least a Supermajority of the then outstanding shares of the
Class A Preferred Stock to such acquisition or other transaction; or
<PAGE>
(6) by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock excluded from the
definition of "Additional Shares of Common Stock" by the foregoing clauses (1),
(2), (3), (4) and (5) or this clause (6).
(ii) No Adjustment of Conversion Price. No adjustment in the
----------------------------------
number of shares of Common Stock into which the Class A Preferred Stock is
convertible shall be made, by adjustment in the Conversion Price thereof: (A)
unless the consideration per share (determined pursuant to subparagraph (v)
below) for an Additional Share of Common Stock issued or deemed to be issued
pursuant to subparagraph (iii) below by the Corporation is less than the
Conversion Price in effect immediately prior to, the issuance of such Additional
Share of Common Stock, or (B) if prior to such issuance, the Corporation
receives written notice from the holders of at least a Supermajority of the then
outstanding shares of Class A Preferred Stock agreeing that no such adjustment
shall be made as the result of the issuance of such Additional Shares of Common
Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
------------------------------------------------------------
Common Stock. If the Corporation at any time or from time to time after the
- -------------
First Issue Date shall issue any Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issuance, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to subparagraph (v) below) of
such Additional Shares of Common Stock would be less than the Conversion Price
in effect immediately prior to such issuance, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
<PAGE>
(A) No further adjustment in the Conversion Price shall
be made uponthe subsequent issuance of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide,with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
conversion price computed upon the original issuance thereof, and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the Conversion Price on the original adjustment date; and
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of any such Option or Convertible
Security which had not been exercised or converted prior to such change been
made upon the basis of such change in the number of shares of Common Stock, but
no further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(E) Upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue date
thereof, and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
<PAGE>
(1) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company upon such exercise; or for the issue of all such Convertible Securities
which were actually converted or exchanged, plus the additional consideration,
if any, actually received by the Company upon such conversion or exchange; and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised.
(iv) Adjustment of Conversion Price Upon Issuance of
-------------------------------------------------
Additional Shares of Common Stock. In the event the Corporation shall at any
- ----------------------------------
time after the First Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
subparagraph (iii) above, but excluding shares issued as a dividend or
distribution as provided in paragraph (f) below or upon a stock split or
combination as provided in paragraph (e) below), for a consideration per share
(determined pursuant to subparagraph (v) below) less than the Conversion Price
in effect immediately prior to such issuance, then and in each such case, such
Conversion Price shall be reduced, concurrently with such issuance, to a
Conversion Price equal to the price determined by dividing (a) the sum of (1)
the product derived by multiplying the Conversion Price in effect immediately
prior to such issuance by the number of shares of Common Stock outstanding
immediately prior to such issuance (together with the number of shares of Common
Stock then issuable upon conversion of the outstanding shares of Class A
Preferred Stock and the conversion or exercise of any Convertible Securities or
Options), plus (2) the aggregate consideration received by the Corporation (as
determined pursuant to subparagraph (v) below) upon such issuance, by (b) the
number of shares of Common Stock outstanding immediately after such issuance
(together with the number of shares of Common Stock then issuable upon
conversion of the outstanding shares of Class A Preferred Stock and the
conversion or exercise of any Convertible Securities or Options).
<PAGE>
No adjustment of the Conversion Price, however, shall be made
in an amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.01 per share or more. Any adjustments to the Conversion Price
shall be rounded to the nearest $.01 per share.
(v) Determination of Consideration. For purposes of this
------------------------------
Section 4(d), the consideration received by the Corporation for the issuance of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-------------------
(1) insofar as it consists of cash, be
computed at the aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other
than cash, be computed at the fair market value thereof at the time of such
issuance, as is reasonably determined in good faith by the Board of Directors;
and
(3) in the event Additional Shares of Common
Stock are issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
is reasonably determined in good faith by the Board of Directors.
<PAGE>
(B) Options and Convertible Securities. The consideration
-------------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to subparagraph (iii) above, relating to
Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable
by the Corporation as consideration for the issuance of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) Adjustment for Stock Splits and Combinations. If the
----------------------------------------------
Corporation shall at any time or from time to time after the First Issue Date
effect a subdivision of the outstanding Common Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
First Issue Date combine the outstanding shares of Common Stock, the Conversion
Price then in effect immediately before the combination shall be proportionately
increased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective.
<PAGE>
(f) Adjustment for Certain Dividends and Distributions. In the
-----------------------------------------------------
event the Corporation at any time, or from time to time after the First Issue
Date, shall make or issue a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Conversion Price then in
effect shall be decreased as of the time of such issuance, by multiplying the
Conversion Price then in effect by a fraction:
(A) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) Adjustments for Other Dividends and Distributions. In the
----------------------------------------------------
event the Corporation at any time or from time to time after the First Issue
Date shall make or issue a dividend or other distribution payable in securities
of the Corporation other than shares of Common Stock, then and in each such
event provision shall be made so that the holders of the Class A Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had their Class A Preferred Stock been converted
into Common Stock on the date of such event and had thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Class A Preferred
Stock.
<PAGE>
(h) Adjustment for Reclassification, Exchange, or Substitution. If
----------------------------------------------------------
the Common Stock issuable upon the conversion of the Class A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Class A Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Class A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(i) Adjustment for Merger or Reorganization. In case of any
-------------------------------------------
consolidation or merger of the Corporation with or into another corporation,
each share of Class A Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Class A Preferred Stock would have been entitled if it
had converted its shares immediately prior to such consolidation or merger; and,
in such case, appropriate adjustment (as determined in good faith by the Board
of Directors) shall be made in the application of the provisions in this Section
4 set forth with respect to the rights and interest thereafter of the holders of
the Class A Preferred Stock, to the end that the provisions set forth in this
Section 4 (including provisions with respect to changes in and other adjustments
of the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be practicable, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Class A Preferred Stock.
<PAGE>
(j) No Impairment. The Corporation will not, by amendment of
--------------
these Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Class A Preferred Stock.
(k) Notice of Record Date. In the event:
------------------------
(i) that the Corporation shall propose to declare a
dividend (or any other distribution) on its Common Stock, whether payable in
cash, property, Common Stock or other securities of the Corporation, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) that the Corporation shall propose to subdivide or
combine its outstanding shares of Common Stock;
(iii) that the Corporation shall propose to effect any
reclassification or recapitalization of the Common Stock of the Corporation
outstanding (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or any
consolidation or merger of the Corporation into or with another corporation; or
(iv) that the Corporation shall propose to effect the
Liquidation of the Corporation;
then in connection with each such event, the Corporation shall cause to be filed
at its principal office or at the office of the transfer agent of the Class A
Preferred Stock and shall cause to be mailed to each of the holders of the Class
A Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten (10) days prior to the record
date specified in (A) below or at least twenty (20) days before the date
specified in (B) below, a notice stating:
<PAGE>
(A) the record date of such dividend, distribution
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or (1)
(B) the date on which such reclassification,
consolidation, merger, or Liquidation is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, or
Liquidation.
(l) Certificate as to Adjustments. Upon the occurrence of
--------------------------------
each adjustment or readjustment pursuant to this Section 4, the Corporation at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Class A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Class A Preferred
Stock furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments; (ii) the Conversion Price
then in effect; and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
Class A Preferred Stock.
(m) Stock to be Reserved. The Corporation will at all times reserve
----------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Class A Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Class A Preferred Stock. The Corporation covenants
that all shares of Common Stock which shall be so issued shall be duly and
validly issued and fully-paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, the Corporation covenants that it will from time to
<PAGE>
time take all such action as may be requisite to assure that the par value per
share of the Common Stock is at all times equal to or less than the Conversion
Price in effect at the time. The Corporation will take all such action as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirement of
any national securities exchange or market upon which the Common Stock may be
listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if the total number of shares of Common Stock
issued and issuable after such action upon conversion of the Class A Preferred
Stock would exceed the total number of shares of Common Stock then authorized by
these Articles of Incorporation, as amended.
(n) Issue Tax. The issuance of certificates for shares of Common
----------
Stock upon conversion of the Class A Preferred Stock, shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation 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
certificate in a name other than that of the holder of the Class A Preferred
Stock which is being converted.
Section 5. Mandatory Conversion.
---------------------
(a) The Corporation may require the conversion of all of the
outstanding Class A Preferred Stock (i) in conjunction with a Qualified Offering
(as defined) or (ii) at any time after the first year anniversary of the First
Issue Date if: (1) the Common Stock shall have been listed for trading on the
New York Stock Exchange, the Nasdaq National Market System or the American Stock
Exchange (each, an "Exchange"); (2) the Common Stock shall have traded on such
Exchange for a period of at least 20 consecutive trading days at a price per
share of at least $5.00 (subject to appropriate adjustment for Recapitalization
Events); and (3) the average daily trading volume of the Common Stock during
such 20 consecutive trading day period shall be at least $1,000,000; provided,
--------
that, the shares of Common Stock issuable upon such conversion shall have been
- ----
Registered (as defined) and listed on each securities exchange, over-the-counter
market or on the Nasdaq National Market on which similar securities issued by
the Corporation are then listed. "Registered" shall refer to a registration
effected by preparing and filing with the Securities and Exchange Commission
(the "Commission") a registration statement in compliance with the Securities
Act of 1933, as amended, and the declaration or ordering by the Commission of
the effectiveness of such registration statement. A mandatory conversion
pursuant to a Qualified Offering shall only be effected at the time of and
<PAGE>
subject to the closing of the Qualified Offering and upon written notice of such
mandatory conver-sion delivered to all holders of Class A Preferred Stock at
least seven (7) days prior to such closing. The Corporation shall deliver
written notice of a mandatory conversion pursuant to clause (ii) of this
paragraph (a) to all holders of Class A Preferred Stock at least seven (7) days
prior to such conversion. For purposes of this paragraph (a), the term
"Qualified Offering" shall mean the sale by the Corporation of its Common Stock
or other equity interests in a firm commitment underwritten public offering at a
purchase price per share in excess of $4.00 per share (subject to appropriate
adjustment for Recapitalization Events) yielding net aggregate proceeds to the
Corporation in excess of $30,000,000.
(b) On the date fixed for conversion, all rights with respect to
the Class A Preferred Stock so converted will terminate upon conversion. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the date of such conversion and the surrender of the certificate or certificates
for Class A Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Section 4(c) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(c) All certificates evidencing shares of Class A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Class A Preferred Stock represented thereby converted into Common
Stock for all purposes as of the date of conversion set forth in paragraph (a)
above, notwithstanding the failure of the holder or holders thereof to surrender
such certificates.
<PAGE>
Section 6. Mandatory Exchange.
-------------------
(a) The Corporation shall be required to exchange all of the
shares of Class A Preferred Stock on the twelfth anniversary of the First Issue
Date for shares of Common Stock; provided, that, the shares of Common Stock so
-------- ----
issued shall have been Registered and listed on each securities exchange,
over-the-counter market or on the Nasdaq National Market on which similar
securities issued by the Corporation are then listed.
(b) The exchange price shall be paid by the Corporation in shares
of Common Stock and shall be in an amount equal to (i) $1.40 per share of Class
A Preferred Stock (subject to appropriate adjustment for any Recapitalization
Events), plus (ii) an amount equal to all accumulated and unpaid dividends on
such share since the Original Issue Date thereof as of such time of
determination, whether or not there are any unrestricted funds of the
Corporation legally available for the payment of dividends (the "Exchange
Price"). The number of shares of Common Stock to be issued shall be determined
by dividing (i) the Exchange Price by (ii) the average trading price per share
of Common Stock for the 20 consecutive trading days immediately prior to the
date fixed for redemption discounted by five percent (5%).
(C) The Corporation shall provide each holder of Class A
Preferred Stock with a written notice of exchange (addressed to the holder at
its address as it appears on the stock transfer books of the Corporation), not
earlier than sixty (60) nor later than twenty (20) days before the date fixed
for exchange. The notice of exchange shall specify (i) the class of shares to be
exchanged; (ii) the date fixed for exchange; (iii) the Exchange Price; and (iv)
the place the holders of Class A Preferred Stock may obtain payment of the
Exchange Price upon surrender of their certificates. If shares of Common Stock
are available on the date fixed for exchange, then whether or not shares are
surrendered for payment of the Exchange Price, the shares shall no longer be
outstanding and the
<PAGE>
holders thereof shall cease to be shareholders of the Corporation with respect
to the shares exchanged on and after the date fixed for exchange and shall be
entitled to receive the Exchange Price without interest upon the surrender of
the share certificate.
Section 7. Preemptive Rights.
------------------
(a) Each holder of the Class A Preferred Stock shall be entitled
to a preemptive right to purchase its pro rata share of all or any part of any
--- ----
New Securities (as defined) which the Corporation may, from time to time, sell
and issue. Such holder's pro rata share, for purposes of this preemptive right,
--- ----
is the ratio that the number of whole shares of Common Stock into which the
shares of Class A Preferred Stock held by such holder (including any Additional
Shares) are convertible plus the number of shares of Common Stock then held by
the holder as a result of the conversion of Class A Preferred Stock bears to the
total number of shares of Common Stock of the Corporation on a fully-diluted
basis.
(b) Except as set forth in the next sentence, "New Securities"
shall mean any shares of capital stock of the Corporation, including Common
Stock, whether now authorized or not, and rights, options or warrants to
purchase said shares of capital stock, and securities of any type whatsoever
that are, or may become, convertible into said shares of capital stock.
Notwithstanding the foregoing, "New Securities" does not include (i) securities
offered to the public generally pursuant to a registration statement filed with
the Commission and declared effective under the Securities Act, (ii) securities
issued in connection with the acquisition of another entity by the Corporation
by merger, purchase of substantially all of the assets or other reorganization
or in a transaction governed by Rule 145 under the Exchange Act, (iii) options
exercisable for Common Stock issued to employees, officers, directors or
consultants of the Company outstanding as of the First Issue Date or options
issued to employees, officers, directors or consultants of the Corporation
pursuant to the Employment Plan, the Executive Plan or the Director Plan or a
stock option plan adopted by the Board of Directors and approved by a
Supermajority the holders of Class A Preferred Stock after the First Issue Date,
(iv) shares of Common Stock issued on conversion of outstanding Class A
Preferred Stock; (v) shares of Common Stock issued upon exercise of rights,
convertible securities or warrants (A) outstanding as of the First Issue Date or
(B) issued in connection with the sale of Class A Preferred Stock under the
Securities Purchase Agreement, (vi) stock issued pursuant to any rights or
<PAGE>
agreements, including without limitation convertible securities, options and
warrants, provided, that, the preemptive rights established by this Section 7
- -------- ---- shall apply with respect to the initial sale or grant by the
Corporation of interests in its capital stock pursuant to such rights or
agreements, or (vii) stock issued in connection with any stock split, stock
dividend or recapitalization by the Corporation.
(c) In the event the Corporation proposes to undertake an
issuance of New Securities, it shall give the holders of the Class A Preferred
Stock written notice of its intention, describing the type of New Securities,
and the price and terms upon which the Corporation proposes to issue the same.
Each holder of Class A Preferred Stock shall have ten (10) days from the date of
receipt of any such notice to agree to purchase up to its respective pro rata
--- ----
share of such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Corporation and stating therein the
quantity of New Securities to be purchased.
(d) In the event a holder fails to exercise such preemptive
right within said forty-day period (each such holder a "Non-Electing Holder"),
the Corporation shall give the holders that have elected to exercise such
preemptive right within said forty-day period (each such holder an "Electing
Holder") written notice of each Non-Electing Holder's failure to exercise its
preemptive right to purchase its pro rata share of the New Securities (such
--- ----
securities, the "Additional New Securities"). Each Electing Holder shall have
ten (10) days from the date of receipt of any such notice to elect to purchase
up to its pro rata share of the Additional New Securities by giving written
--- ----
notice to the Corporation and stating therein the quantity of such New
Securities to be purchased.
(e) In the event any Electing Holder fails to exercise its
preemptive right pursuant to paragraph (d) above within said thirty-day period,
the Corporation shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of Additional New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of said
<PAGE>
agreement) to sell the Additional New Securities not elected to be purchased by
Electing Holders at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Corporation notice. In the
event the Corporation has not sold the Additional New Securities or entered into
an agreement to sell the Additional New Securities within said ninety-day period
(or sold and issued Additional New Securities in accordance with the foregoing
within sixty (60) days from the date of said agreement), the Corporation shall
not thereafter issue or sell any of such Additional New Securities, without
first offering such securities in the manner provided above.
(f) In the event no holders exercise their respective preemptive
right pursuant to paragraph (c) above within said thirty-day period, the
Corporation shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within sixty (60) days from the date of said agreement) to
sell the New Securities not elected to be purchased by holders of the Class A
Preferred Stock at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Corporation's notice. In the
event the Corporation has not sold the New Securities or entered into an
agreement to sell the New Securities within said ninety-day period (or sold and
issued New Securities in accordance with the foregoing within sixty (60) days
from the date of said agreement), the Corporation shall not thereafter issue or
sell any of such New Securities, without first offering such securities in the
manner provided above.
Section 8. Events of Noncompliance.
-------------------------
(a) Definition. An Event of Noncompliance shall have occurred if:
----------
(i) the Corporation fails to pay on any Dividend Payment
Date the full amount of dividends then accrued on the Class A Preferred Stock,
whether or not such payments are legally permissible or are prohibited by any
agreement to which the Corporation is subject;
<PAGE>
(ii) the Corporation fails to exchange the Class A
Preferred Stock as required hereunder, whether or not such redemption is legally
permissible or is prohibited by any agreement to which the Corporation is
subject;
(iii) subject to subparagraph (iv) below, the Corporation
breaches any provision of that certain Registration Rights Agreement dated as of
May 13, 1999, by and among Pointe Communications Corporation, Sandler Capital
Partners IV, L.P., Sandler Capital Partners IV FTE, L.P., CPP LLC and Oger
Pensat Holdings Ltd. (the "Registration Rights Agreement") and fails to cure
such breach within 45 days of notice thereof (in which case, the Event of
Noncompliance shall be deemed to have occurred on the original date of such
breach); or
(iv) the Corporation breaches Section 2.1(a) of the
Registration Rights Agreement.
(b) Consequences of Events of Noncompliance.
-------------------------------------------
(i) If an Event of Noncompliance has occurred, (1) the
dividend rate on the Class A Preferred Stock set forth in Section 1(a) shall be
deemed to increase immediately by an increment of twelve (12) percentage points
and (2) all dividends on the Class A Preferred Stock thereafter shall be paid by
the issuance of Additional Shares as set forth in Section 1(e). Any increase of
the dividend rate resulting from the operation of this subparagraph shall
terminate as of the close of business on the date on which no Event of
Noncompliance exists.
(ii) If any Event of Noncompliance of the type described
in subparagraph 8(a)(i) has occurred, for each such occurrence of the failure to
pay on any Dividend Payment Date the full amount of dividends then accrued on
the Class A Preferred, whether or not such payments are legally permissible or
are prohibited by any agreement to which the Corporation is subject, the
Conver-sion Price shall be reduced immediately by fifty percent (50%) from the
Conversion Price in effect immediately prior to such adjustment. In no event
shall any Conversion Price adjustment be rescinded.
<PAGE>
(iii) If any Event of Noncompliance exists, each
holder of Class A Preferred Stock shall also have any other rights which such
holder is entitled to under the Securities Purchase Agreement or any other
contract or agreement with such holder at any time and any other rights which
such holder may have pursuant to applicable law.
The foregoing was duly adopted by the Board of Directors on April 28, 1999,
pursuant to the provisions of the General Corporation Law of the Nevada Revised
Statutes.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by the undersigned as of May __, 1999.
POINTE COMMUNICATIONS CORPORATION
By:______________________________
Name: Patrick E. Delaney
Title: Executive Vice President
By:______________________________
Name: Charles M. Cushing, Jr.
Title: Secretary
ACKNOWLEDGMENT
State of ________________)
) ss:
County of _______________)
On this ___ day of May, 1999, before me, the undersigned Notary Public,
duly commissioned and sworn, personally appeared Patrick E. Delaney, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
Executive Vice President of the entity that executed the within instrument, and
known to me to be the person who executed the within instrument on behalf of the
entity therein named, and acknowledged to me that such entity duly executed the
same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate above written.
______________________________
(Notary Public in and for the aforesaid
County and State)
[SEAL] My Commission Expires on:
______________________________
<PAGE>
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT (this "Agreement"), dated as of May 13, 1999, by and
among POINTE COMMUNICATIONS CORPORATION, a Nevada corporation (the "Company"),
and SANDLER CAPITAL PARTNERS IV, L.P., a Delaware limited partnership, SANDLER
CAPITAL PARTNERS IV FTE, L.P., a Delaware limited partnership, CPP LLC, a
Delaware limited liability company ("CPP") and OGER PENSAT HOLDINGS LTD., a
Bermuda corporation (collectively, the "Investors").
R E C I T A L S:
---------------
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Company is issuing and selling to the Investors Warrants of the Company in
the amount and for the aggregate purchase price as set forth on Schedule 1
----------
attached hereto, (being referred to herein as the "Warrants"), such Warrants
initially entitling the holders thereof to purchase 10,800,000 shares of common
stock of the Company, par value $0.00001 per share (the "Common Stock"), subject
to adjustment as hereinafter provided (the Common Stock and, pursuant to Article
7 hereof, such other securities as may be issuable upon exercise of the Warrants
being referred to herein as the "Warrant Shares"); and
WHEREAS, the Company wishes to define the terms and provisions of the
Warrants and the respective rights and obligations thereunder of the Company and
the holders of the Warrants (the "Warrantholders");
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements herein set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
SECTION 1.1 Certain Definitions. As used in this Agreement, the
--------------------
following terms have the meanings specified below:
"Amended Articles" means the Amended Articles of Incorporation of the
Company as amended to include the Certificate of Designations setting forth the
rights, preferences and privileges of the Class A Preferred Stock (as defined).
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than Saturday, Sunday or any other day
on which banking institutions in the City of New York, New York are permitted or
required to close.
"Class A Preferred Stock" means the Class A Convertible Senior Preferred
Stock, par value $0.01 per share, of the Company issued to the Investors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GAAP" means United States generally accepted accounting principles set
forth in opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, in each case as the same are applicable to the
circumstances as of the date of the determination.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity.
"SEC" means the Securities and Exchange Commission or any successor thereto.
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Securities Purchase Agreement" means that certain Securities Purchase
Agreement by and among the Company and the Investors dated as of May 13, 1999.
ARTICLE 2
ISSUANCE, FORM AND EXECUTION OF WARRANT CERTIFICATES
SECTION 2.1 Issuance of Warrants. The Warrants shall be originally
----------------------
issued by the Company in connection with the issuance of Class A Preferred Stock
pursuant to the Securities Purchase Agreement. The Warrants shall be evidenced
by Warrant Certificates (as defined herein), and each Warrant Certificate shall
represent the right, subject to the provisions contained herein and therein, to
purchase from the Company (and the Company shall issue and sell to the
registered holder of such Warrants) the number of shares of Common Stock (as may
be adjusted pursuant to Article 7 hereof) issuable to such Warrantholder upon
exercise of such Warrants, at the price specified herein and therein.
SECTION 2.2 Form of Warrant Certificates. The certificates evidencing
----------------------------
the Warrants (the "Warrant Certificates") shall be in registered form only and
shall be substantially in the form set forth in Exhibit A attached hereto, shall
---------
be dated the date on which signed by the Company and may have such letters,
numbers or other marks of identification or designation printed, lithographed,
engraved or otherwise affixed thereon as the Company may deem appropriate and as
are not inconsistent with the provisions of this Agreement or the Securities
Purchase Agreement, or as may be required to comply with any law or with any
rule or regulation made pursuant thereto.
SECTION 2.3 Execution of Warrant Certificates. Warrant Certificates
-----------------------------------
shall be executed on behalf of the Company by the president, any vice president
or the treasurer of the Company and signed by the secretary or any assistant
secretary of the Company and have affixed thereon the seal of the Company. Each
such signature and seal may be manual or facsimile.
<PAGE>
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before countersignature and delivery
by the Company, such Warrant Certificates, nevertheless, may be countersigned,
issued and delivered with the same force and effect as though such person had
not ceased to be such officer; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Agreement
such person was not such an officer of the Company. Upon countersignature on
behalf of the Company and delivery, the Warrant Certificate shall be valid and
binding upon the Company, and the Warrantholder thereof shall be entitled to all
of the benefits of this Agreement.
ARTICLE 3
REGISTRATION
SECTION 3.1 Registration. The Company shall number and register the
------------
Warrant Certificates in a register (the "Warrant Register") maintained at 2839
Paces Ferry Road, Suite 500, Atlanta, Georgia 30339 (the "Office") as they are
issued by the Company (or such other location as the Company may establish after
giving notice thereof to the Warrantholders). The Company shall keep copies of
this Agreement available for inspection by the Warrantholders during normal
business hours at the Office.
ARTICLE 4
TRANSFER, EXCHANGE OR REPLACEMENT OF WARRANT CERTIFICATES
<PAGE>
SECTION 4.1 Registration of Transfers. The Company shall from time to
-------------------------
time register the transfer of any outstanding Warrant Certificate on the Warrant
Register maintained at the Office, upon surrender thereof accompanied by a
written instrument or instruments of transfer in form reasonably satisfactory to
the Company, duly endorsed by the registered holder thereof or by such
Warrantholder's appointed legal representative or attorney-in-fact, or
accompanied by proper evidence of succession, assignment or authority to
transfer. In all cases of transfer by an attorney, the original power of
attorney, duly approved, or an official copy thereof, duly certified, shall be
deposited and remain with the Company. Upon any such registration or transfer
in such name or names as may be directed in writing by the Warrantholder, the
Company shall execute and deliver (or cause to be delivered) a new Warrant
Certificate(s) without charge to such Warrantholder, or to the Person or Persons
entitled to receive the same, and the surrendered Warrant Certificate shall be
canceled by the Company.
SECTION 4.2 Exchanges of Warrant Certificates. Each Warrant
------------------------------------
Certificate may be exchanged at the option of the Warrantholder without charge
to such Warrantholder when surrendered to the Company at the Office properly
endorsed in the manner described in Section 4.1 hereof for another Warrant
Certificate(s) of like tenor and representing in the aggregate a like number of
shares of Common Stock, as may be adjusted pursuant to Article 7 hereof.
Thereupon, the Company shall execute and deliver to the Person(s) entitled
thereto a new Warrant Certificate(s) as so requested. Warrant Certificates
surrendered for exchange shall be canceled by the Company.
SECTION 4.3 Mutilated or Missing Warrant Certificates. In the event
-------------------------------------------
that any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall execute and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing Warrants for a like amount of
Warrant Shares, but only, in case of a lost, stolen or destroyed Warrant
Certificate, upon receipt of evidence satisfactory to the Company of such loss,
theft or destruction and, upon the Company's request, evidence of indemnity and
bond satisfactory to the Company and the absence of actual notice to the Company
that such Warrant Certificate has been acquired by a bona fide purchaser or
holder in due course. Every substitute Warrant Certificate executed and
delivered pursuant to this Section 4.3 in lieu of any lost, stolen or destroyed
Warrant Certificate shall constitute an additional contractual obligation of the
Company, whether or not the lost, stolen or destroyed Warrant Certificate shall
<PAGE>
be at any time enforceable by anyone, and shall be entitled to the benefits of
(but shall be subject to all the limitations of rights set forth in) this
Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Section 4.3 are exclusive with respect to the replacement of mutilated, lost,
stolen or destroyed Warrant Certificates.
ARTICLE 5
EXERCISE OF WARRANTS; EXERCISE PRICE; EXERCISE PERIOD
SECTION 5.1 Exercise of Warrants. Subject to the provisions of this
----------------------
Agreement, each Warrantholder shall have the right to purchase from the Company
the number of shares of Common Stock that the Warrantholder may at the time be
entitled to purchase on exercise of the Warrants and payment of the Exercise
Price (as defined below) for such Warrant Shares.
SECTION 5.2 Mechanics of Exercise.
-----------------------
(a) Subject to the provisions of this Agreement, Warrants may be
exercised by the Warrantholder in whole or in part upon surrender at the Office
to the Company of the Warrant Certificate(s) evidencing the Warrants, together
with the form of election to purchase (the "Election to Purchase"), in the form
set forth as Exhibit B hereto or in the form set forth as Exhibit C hereto (in
--------- ---------
the case of a Warrant Exchange (as defined)), duly completed and signed by such
Warrantholder or by such Warrantholder's appointed legal representative or
attorney-in-fact and upon payment in full of the Exercise Price for each Warrant
exercised (except in the case of a Warrant Exchange). Payment of the aggregate
Exercise Price shall be made by certified or official bank check payable to the
order of the Company.
<PAGE>
(b) Upon due exercise of the Warrants and surrender of the Warrant
Certificate, duly completed and signed, and payment of the Exercise Price as
aforesaid, the Company shall cause to be issued to or upon the written order of
the Warrantholder and in such name or names as the Warrantholder may designate
in the Election to Purchase, the Warrant Shares so purchased. In lieu of
delivering physical certificates representing the Warrant Shares, provided the
Company's transfer agent is participating in the Depositary Trust Issuer Fast
Automated Securities Transfer ("FAST") program, upon request of the
Warrantholder, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Warrant Shares issuable upon exercise of
the Warrants to the holder by crediting the account of the Warrantholder's prime
broker with Depositary Trust Company through its Deposit Withdrawal Agent
Commission system (an "Electronic Transfer"). If all of the items referred to
in the first sentence of the preceding paragraph are received by the Company at
or prior to 1:00 p.m., Nevada time, on a Business Day, the exercise of the
Warrants to which such items relate will be effective on such Business Day. If
all of such items are received after 1:00 p.m., Nevada time, on a Business Day,
the exercise of the Warrants to which such items relate will be effective on the
next Business Day.
(c) The number and kind of Warrant Shares for which Warrants may be
exercised shall be subject to adjustment from time to time as set forth in
Article 7 hereof.
(d) The Warrants shall be exercisable as provided herein at the
election of the Warrantholder in whole or in part. In the event that the holder
of a Warrant Certificate shall exercise Warrants with respect to fewer than all
the Warrant Shares evidenced thereby, a new Warrant Certificate(s) evidencing
the remaining unexercised Warrant Shares shall be issued to such Warrantholder,
and the Company is hereby irrevocably authorized to execute and deliver the
required new Warrant Certificate(s) pursuant to provisions of Article 2 and
Article 3 of this Agreement.
(e) All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled and disposed of by the Company.
SECTION 5.3 Exercise Price. The price at which each of the Warrants
---------------
shall be exercisable in exchange for Warrant Shares shall be $1.625 per Warrant
Share (as such price may be adjusted pursuant to Article 7 hereof) (being
referred to herein as the "Exercise Price").
<PAGE>
SECTION 5.4 Exercise Period. The right to exercise the Warrants shall
---------------
terminate on the date which is the fifth anniversary of the date of issuance of
the Warrants (the "Expiration Date"). A Warrantholder may exercise any Warrant
from the date of issuance up to and including the Expiration Date. The Company
shall record the Expiration Date of each Warrant in the Warrant Register.
SECTION 5.5 Cashless Exercise.
------------------
(a) At any time prior to the Expiration Date of any Warrants, the
Warrantholder may, at its option, exchange such Warrants, in whole or in part (a
"Warrant Exchange"), into the number of fully paid and non-assessable Warrant
Shares determined in accordance with this Section 5.5, by surrendering the
Warrant Certificate relating to such Warrants at the Office, accompanied by a
notice stating such Warrantholder's intent to effect such cashless exchange, the
number of Warrant Shares to be issued upon such Warrant Exchange and the date on
which the Warrantholder requests that such cashless Warrant Exchange occur (the
"Notice of Exchange"). The cashless Warrant Exchange shall take place on the
date specified in the Notice of Exchange, or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Warrant Shares issuable upon such cashless Warrant Exchange and, if applicable,
a new Warrant Certificate of like tenor evidencing the balance of the Warrant
Shares remaining subject to the Warrantholder's Warrant Certificate, shall be
issued as of the Exchange Date and delivered to the Warrantholder within three
Business Days following the Exchange Date, or by Electronic Transfer. In
connection with any cashless Warrant Exchange, the Warrantholder's Warrant
Certificate shall represent the right to subscribe for and acquire the number of
Warrant Shares (rounded to the next highest integer) equal to (A) the number of
Warrant Shares specified by the Warrantholder in its Notice of Exchange (the
"Total Share Number") less (B) the number of Warrant Shares equal to the
quotient obtained by dividing (i) the product of the Total Share Number and the
existing Exercise Price per Warrant Share by (ii) the Market Price (as hereafter
defined) of a share of Common Stock.
<PAGE>
(b) As used in this Section 5.5, the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or by the Nasdaq Stock Market National Market ("Nasdaq"), or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or
similar organization if Nasdaq is no longer reporting such information, or if
the Common Stock is not quoted on Nasdaq, any exchange or similar organization,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it for the two days
immediately preceding such issuance or sale and the day of such issuance or
sale.
SECTION 5.6 Mandatory Exercise.
-------------------
(a) In the event the closing bid price of the Common Stock for twenty
(20) consecutive trading days is equal to at least $5.00 per share (as
appropriately adjusted for stock splits, stock dividends, combinations,
recapitalizations, reclassifications, mergers, consolidations and other similar
events), the Company shall have the right to cause the exercise of the Warrants
at any time thereafter by the Warrantholders by giving written notice to each
Warrantholder of such election (a "Mandatory Exercise Election Notice");
provided that the Warrant Shares issuable upon such exercise shall have been
Registered (as defined) and listed on each securities exchange, over-the-counter
market or on the Nasdaq National Market on which similar securities issued by
the Company are then listed. "Registered" refers to a registration effected by
preparing and filing with the Securities and Exchange Commission (the
"Commission") a registration statement in compliance with the Securities Act of
1933, as amended, and the declaration or ordering by the Commission of the
effectiveness of such registration statement.
<PAGE>
(b) Upon receipt of a Mandatory Exercise Election Notice, each
Warrantholder shall have the right to exercise its Warrants on the terms and
conditions herein (including Section 5.5); provided, however, that the
-------- -------
Expiration Date with respect to such Warrants shall be deemed to be the date
that is 15 Business Days immediately after the date of the Mandatory Exercise
Election Notice.
ARTICLE 6
RESERVATION OF WARRANT SHARES
SECTION 6.1 Reservation. The Company shall at all times keep reserved,
-----------
free from preemptive rights, out of its authorized Common Stock, or other
securities of the Company issuable upon the exercise of the Warrants, a number
of shares of Common Stock, or such other securities, sufficient to provide for
the exercise of the right of purchase represented by all outstanding and
unexpired Warrants.
SECTION 6.2 Covenant. The Company covenants that any Warrant Shares
--------
will, upon issuance, be (i) validly issued and upon payment of the exercise
price therefor, fully paid and free from all taxes payable by the Company,
liens, charges and security interests (except any liens, charges or security
interests created or suffered to be created by any of the Warrantholders), and
will not be subject to any restrictions on voting or transfer thereof that are
created by the Company, except for such restrictions on transfer under the
Securities Act or applicable state securities laws; and (ii) Registered and
listed on each securities exchange, over-the-counter market or on the Nasdaq
National Market on which similar securities issued by the Company are then
listed.
ARTICLE 7
ADJUSTMENTS AFFECTING THE EXERCISE OF WARRANTS
SECTION 7.1 Special Definitions. For purposes of this Article 7, the
-------------------
following definitions shall apply:
(a) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Section 7.2 below, deemed to be issued) by
the Company after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(i) upon conversion of shares of the Company's Class A
Preferred Stock outstanding on the Original Issue Date;
(ii) upon the exercise of Warrants issued under the
Securities Purchase Agreement;
<PAGE>
(iii) as a dividend or distribution on the Company's Class
A Preferred Stock or Warrants;
(vi) in connection with an acquisition or other transaction
by the Company, in either case approved by the Investors, unless the Company
agrees to include such issuance in the definition of Additional Shares of Common
Stock in connection with obtaining the approval of the Investor to such
acquisition or other transaction;
(v) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing clauses (i), (ii), (iii), and
(iv) or this clause (v); or
(vi) upon the exercise of options excluded from the
definition of "Option" in Section 7.1(c).
(b) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities other than options excluded from the
definition of "Option" in Section 7.1(c) directly or indirectly convertible into
or exchangeable for Common Stock.
(c) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible Securities,
excluding (i) options granted to employees, officers, directors or issued to
consultants of the Company or rights, convertible securities or warrants which,
in each such case, are outstanding as of the date of this Agreement, (ii) any
Warrants issued under this Agreement or as a direct result of the issuance of
Class A Preferred Stock pursuant to the Securities Purchase Agreement, or (iii)
options granted to employees, officers, directors or consultants pursuant to
stock option plans existing on the Original Issue Date (as defined) or adopted
by the Board of Directors and approved by the Compensation Committee of the
Board of Directors and by the Investors after the date hereof.
(d) "Original Issue Date" shall mean the date on which a Warrant
was first issued.
<PAGE>
SECTION 7.2 Issue of Securities Deemed Issue of Additional Shares of
---------------------------------------------------------
Common Stock. If the Company at any time or from time to time after the
- -------------
Original Issue Date shall issue any Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities and the exercise of such Options
therefor, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issuance, provided that Additional Shares of Common Stock shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to Section 7.4 hereof) of such Additional Shares of Common Stock would
be less than the applicable Exercise Price in effect immediately prior to such
issuance and provided further that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
(a) No further adjustment in the Exercise Price shall be made upon
the subsequent issuance of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(b) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Exercise Price computed upon the original issuance thereof, and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
<PAGE>
(c) No readjustment pursuant to clause (b) above shall have the
effect of increasing the Exercise Price to an amount which exceeds the Exercise
Price on the original adjustment date; and
(d) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Exercise Price then in effect shall
forthwith be readjusted to such Exercise Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security which have not been exercised or converted prior to such change in the
number of shares of Common Stock been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
<PAGE>
SECTION 7.3 Adjustment of Exercise Price Upon Issuance of Additional
---------------------------------------------------------
Shares of Common Stock. In the event the Company shall at any time after the
- -------------------------
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 7.2,
but excluding shares issued as a dividend or distribution as provided in Section
7.6 or upon a stock split or combination as provided in Section 7.5), without
consideration or for a consideration per share (determined pursuant to Section
7.4 hereof) less than the applicable Exercise Price in effect immediately prior
to such issuance, then and in such event, such Exercise Price shall be reduced,
concurrently with such issuance, to an Exercise Price equal to the price
determined by dividing (a) the sum of (1) the product derived by multiplying the
Exercise Price in effect immediately prior to such issuance by the number of
shares of Common Stock outstanding immediately prior to such issuance (together
with the number of shares of Common Stock then issuable upon exercise of the
outstanding Warrants and the conversion or exercise of any Convertible
Securities or Options), plus (2) the aggregate consideration received by the
Corporation (as determined pursuant to Section 7.4 below) upon such issuance, by
(b) the number of shares of Common Stock outstanding immediately after such
issuance (together with the number of shares of Common Stock then issuable upon
exercise of the outstanding Warrants and the conversion or exercise of any
Convertible Securities or Options).
SECTION 7.4 Determination of Consideration. For purposes of this
--------------------------------
Section 7, the consideration received by the Company for the issuance of any
Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-------------------
(i) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding amounts paid or payable for
accrued interest or accrued dividends;
(ii) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issuance, as
determined in good faith by the Board of Directors; and
(iii) in the event Additional Shares of Common Stock are
issued together with other shares of securities or other assets of the Company
for consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (i) and (ii) above, as determined in
good faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration pe share
----------------------------------
received by the Company for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 7.2, relating to Options and Convertible
Securities, shall be determined by dividing:
<PAGE>
(i) the total amount, if any, received or receivable by the
Company as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as se
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
SECTION 7.5 Adjustment for Stock Splits and Combinations. If the
------------------------------------------------
Company shall at any time or from time to time after the Original Issue Date for
the Warrants effect a subdivision of the outstanding Common Stock, the Exercise
Price of each Warrant then in effect immediately before that subdivision shall
be proportionately decreased and the number of shares of Common Stock issuable
upon exercise of such Warrant shall be proportionately increased. If the
Company shall at any time or from time to time after the Original Issue Date for
the Warrants combine the outstanding shares of Common Stock, the Exercise Price
of each Warrant then in effect immediately before the combination shall be
proportionately increased and the number of shares of Common Stock issuable upon
exercise of such Warrant shall be proportionately decreased. Any adjustment
under this Section 7.5 shall become effective at the close of business on the
date the subdivision or combination becomes effective.
SECTION 7.6 Adjustment for Certain Dividends and Distributions. In
----------------------------------------------------
the event the Company at any time or from time to time after the Original Issue
Date for the Warrants shall make or issue a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Exercise Price for the Warrants then in effect shall be decreased as of the time
of such issuance or, in the event such a record date shall have been fixed, as
of the close of business on such record date, by multiplying the Exercise Price
for the Warrants then in effect by a fraction:
(a) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
<PAGE>
(b) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
---------
however, if such record date shall have been fixed and such dividend is not
- -------
fully paid or if such distribution is not fully made on the date fixed therefor,
the Exercise Price for the Warrants shall be recomputed accordingly as of the
close of business on such record date and thereafter the Exercise Price for the
Warrants shall be adjusted pursuant to this paragraph as of the time of actual
payment of such dividends or distributions.
The number of Warrant Shares issuable upon the exercise of the Warrants
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares issuable upon the
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
SECTION 7.7 Adjustments for Other Dividends and Distributions. In the
-------------------------------------------------
event the Company at any time or from time to time after the Original Issue Date
for the Warrants shall make or issue a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, then and in each
such event provision shall be made so that the holders of the Warrants shall
receive upon exercise thereof in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Company that they
would have received had their Warrants been exercised on the date of such event
and had thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period giving application to all adjustments called for
during such period, under this paragraph with respect to the rights of the
holders of the Warrants.
<PAGE>
SECTION 7.8 Adjustment for Reclassification, Exchange, or
-------------------------------------------------
Substitution. If the Common Stock issuable upon the exercise of the Warrants
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of the
Warrants shall have the right thereafter to convert each such share of Common
Stock issuable upon the exercise of the Warrants into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock for which such Warrants might have been exercised
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
SECTION 7.9 Adjustment for Merger or Reorganization. In case of any
----------------------------------------
consolidation or merger of the Company with or into another Company, each
Warrant shall thereafter be exercisable for the kind and amount of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of such Warrant would
have been entitled upon such consolidation or merger; and, in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions in this Article 7 set forth
with respect to the rights and interest thereafter of the holders of the
Warrants, to the end that the provisions set forth in this Article 7 (including
provisions with respect to changes in and other adjustments of the Exercise
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrants.
SECTION 7.10 Notice of Adjustment to Exercise Price and Warrant Shares.
---------------------------------------------------------
(a) Whenever the Exercise Price is required to be adjusted as
provided in this Article 7, simultaneously with the adjustment of the Exercise
Price, the number of Warrant Shares issuable upon the exercise of the Warrants
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares issuable upon the
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
<PAGE>
(b) Whenever the Exercise Price is required to be adjusted as
provided in this Article 7, or any other adjustment is required pursuant to this
Article 7, the Company shall forthwith compute the adjusted Exercise Price and
the corresponding number of Warrant Shares purchaseable upon the exercise of the
Warrants or any other adjustment made pursuant to this Article 7 and shall
prepare a certificate setting forth such adjusted Exercise Price and the
corresponding number of Warrant Shares purchaseable upon the exercise of the
Warrants or any other adjustment made pursuant to this Article 7 and showing in
reasonable detail the facts upon which such adjustments are based. Whenever the
Exercise Price and the corresponding number of Warrant Shares purchaseable upon
the exercise of the Warrants are adjusted or any other adjustment is made
pursuant to this Article 7, the Company shall promptly mail, or cause to be
mailed, to the Warrantholders a statement setting forth the adjustments and the
reasons for such adjustments.
SECTION 7.11 Form of Warrant Certificate. Irrespective of any
------------------------------
adjustments in the Exercise Price or the kind of Warrant Shares purchasable upon
the exercise of the Warrants, Warrant Certificates evidencing such Warrants
theretofore or thereafter issued may continue to express the same number and
kind of Warrant Shares as are stated in the Warrant Certificates initially
issuable pursuant to this Agreement.
<PAGE>
SECTION 7.12 No Impairment. Without limiting the generality of the
--------------
foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Warrant Shares to be issued upon the exercise of
the Warrants from time to time outstanding will, when issued, be fully paid and
non-assessable. In addition, without limiting the generality of Section 6.1,
the Company shall take all such action as shall be necessary so that, after any
adjustment to the Exercise Price required hereunder, the total number of shares
of Common Stock or other capital stock of the Company then authorized by the
Amended Articles and available for the purpose of issuance upon such exercise
shall exceed the total number of shares of Common Stock issuable upon the
exercise of all of the outstanding Warrants. The Company will not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Article 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrantholders against
impairment.
ARTICLE 8
NOTICES
SECTION 8.1 Notices to Warrantholders.
---------------------------
(a) Notices to holders of Warrants shall be delivered to such
holders at the addresses of such holders as they appear in Section 8.2 hereof or
in the Warrant Register (in the case of transfers). Any such notice shall be
sufficiently given if sent by first-class certified or registered mail, postage
prepaid, facsimile or overnight courier.
<PAGE>
(b) In the event (i) of any consolidation or merger or binding
exchange of interests to which the Company is a party and for which approval of
the Investor or any holders of equity interests of the Company is required, or
of the conveyance or sale of all or substantially all of the assets of the
Company, or of any change of the Common Stock or other securities issuable upon
exercise of the Warrants; or (ii) the Company shall make any distribution in
respect of the Common Stock; or (iii) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; then the Company shall
send to each Warrantholder at least thirty days prior to the applicable date
hereinafter specified, a written notice stating (A) the date for the
determination of the holders of Common Stock (or other securities issuable upon
the exercise of the Warrants) entitled to receive any such distribution, (B) the
initial expiration date set forth in any offer for exchange of interests, or (C)
the date on which any such consolidation, merger, exchange of interests,
conveyance, transfer, reclassification, dissolution, liquidation or winding up
is expected to become effective or consummated, and the date as of which it is
expected that holders of record of Common Stock (or other securities issuable
upon the exercise of the Warrants) shall be entitled to exchange such Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, exchange of interests, conveyance,
transfer, dissolution, liquidation or winding up.
SECTION 8.2 Notices to Company. Any notice or demand authorized by
--------------------
this Agreement to be given to or on the parties shall be delivered in person or
by facsimile transmission, by courier guaranteeing overnight delivery or mailed
by first-class United States certified or registered mail, postage prepaid, as
follows:
a) if to the Company:
Pointe Communications Corporation
2839 Paces Ferry Road
Suite 500
Atlanta, GA 30339
Attention: Stephen E. Raville
Facsimile: (770) 319-2834
with a copy to:
Gardere & Wynne, LLP
3000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201-4761
Attention: W. Robert Dyer Jr.
Facsimile: (214) 999-3574
(b) if to Sandler:
c/o Sandler Capital Management
767 Fifth Avenue
45th Floor
New York, NY 10153
Attention: David C. Lee
Facsimile: (212) 826-0280
<PAGE>
with a copy to (which shall not constitute notice):
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
Facsimile: (202) 776-2222
(c) if to CPP:
c/o Centre Partners
30 Rockefeller Plaza
50th Floor
New York, NY 10026
Attention: Paul Zepf
Facsimile: (212) 332-5801
with a copy to (which shall not constitute notice):
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Norman D. Chirite
Facsimile: (212) 310-8007
or if to Pensat:
Oger Pensat Holdings Ltd.
c/o Saudi Oger Ltd.
P.O. Box 1449
Riyadh 11431
Saudi Arabia
Attention: Mr. Mohammed Hariri
Facsimile: 966 1477 8795
with copy to (which shall not constitute notice):
Roger & Wells LLP
607 14th Street, N.W.
Washington, D.C. 20005-2018
Attention: Anthony F. Essaye
Facsimile: (202) 434-0800
<PAGE>
Roger & Wells LLP
200 Park Avenue
New York, NY 10166-1053
Attention: Ronald M. Sanders
Facsimile: (212) 878-8375
SECTION 8.3 Receipt of Notice. Any notice hereunder shall be in
-------------------
writing and shall be deemed effectively given and received upon delivery in
person, or two business days after delivery by national overnight courier
service or by telecopier transmission with acknowledgment of transmission
receipt, or five business days after deposit via certified or registered mail,
return receipt requested.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH
-----------------------
INVESTOR DO HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE
SUCH RIGHT ANY PARTY MAY HAVE TO A JURY TRIAL IN EVERY JURISDICTION IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES HERETO OR THEIR
RESPECTIVE AFFILIATES, SUCCESSORS OR ASSIGNS AGAINST ANY OTHER PARTY HERETO OR
THEIR RESPECTIVE AFFILIATES, SUCCESSORS OR ASSIGNS IN RESPECT OF ANY MATTER
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENT
EXECUTED AND DELIVERED BY ANY PARTY IN CONNECTION THEREWITH (INCLUDING, WITHOUT
LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIMS OR
DEFENSES ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR OTHERWISE
VOID OR VOIDABLE).
SECTION 9.2 Payment of Taxes. The Company covenants and agrees that
-----------------
it will pay when due and payable all documentary, stamp and other taxes
attributable to the issuance or delivery of the Warrant Certificates or of the
Warrant Shares purchasable upon the exercise of Warrants; provided, however, the
-------- -------
Company shall not be required to pay any tax or taxes that may be payable in
respect of any transfer involving the issue of any Warrant Certificate(s) or any
certificate(s) for Warrant Shares in a name other than that of the Warrantholder
of such exercised Warrant Certificate(s).
SECTION 1.1
<PAGE>
SECTION 9. Amendment.
---------
(a) The Company may modify this Agreement and the terms of the
Warrants only with the consent of the Warrantholders representing at least
sixty-six and two-thirds percent (66 2/3%) of the Warrant Shares for the purpose
of adding any provision to or changing in any manner or eliminating any of the
provisions of this Agreement or modifying in any manner the rights of the
holders of the outstanding Warrants; provided, however, that no such
-------- -------
modification that (i) materially and adversely affects the exercise rights of
the holders of the Warrants or (ii) reduces the percentage required for
modification, may be made without the consent of the holder of all outstanding
Warrants.
(b) Any such modification or amendment will be conclusive an
binding on all present and future holders of Warrant Certificates whether or not
they have consented to such modification or amendment or waiver and whether or
not notation of such modification or amendment is made upon such Warrant
Certificates. Any instrument given by or on behalf of any holder of a Warrant
Certificate in connection with any consent to any modification or amendment will
be conclusive and binding on all subsequent holders of such Warrant Certificate.
SECTION 9.4 Termination. This Agreement shall terminate on or upon
-----------
(a) the repurchase by the Company of all Warrants, (b) the fifteenth day
following the date on which all of the Warrant Shares have been issued upon the
exercise of all Warrants issued pursuant hereto, or (c) the Expiration Date.
SECTION 9.5 Reports to Warrantholders. The Company will cause to be
--------------------------
delivered, by first-class mail, postage prepaid, facsimile or overnight courier,
to each Warrantholder at such Warrantholder's address appearing on the Warrant
Register, a copy of any reports delivered by the Company to any of the holders
of Class A Preferred Stock or to holders of the Common Stock.
SECTION 9.6 GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL
--------------
GOVERN THIS AGREEMENT AND THE WARRANT CERTIFICATES WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
<PAGE>
SECTION 9.7 Benefits of this Agreement. Nothing in this Agreement
-----------------------------
shall be construed to give to any Person other than the Company, the
Warrantholders and the holders of Warrant Shares any legal or equitable right,
remedy or claim under this Agreement; this Agreement shall be for the sole and
exclusive benefit of the Company, the Warrantholders and the holders of Warrant
Shares.
SECTION 9.8 Counterparts. This Agreement may be executed in any
------------
number of counterparts, and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 9.9 Severability of Provisions. Any provision of this
----------------------------
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 9.10 Headings. The headings of the sections of this Agreement
--------
are inserted for convenience only and shall not constitute a part of this
Agreement.
SECTION 9.11 Access to Company Records. So long as Warrants remain
----------------------------
outstanding, the Investors shall be entitled to review the financial and
corporate books and records of the Company and to meet with the executive
officers and independent accountants of the Company for purposes reasonably
related to the Investors' ownership of the Warrants, which review and/or
meetings shall take place at reasonable times during the normal business hours
of the Company and in such a manner as to not unduly interfere with the conduct
of the Company's business.
SECTION 1.42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed, as of the date first above written.
POINTE COMMUNICATIONS CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.
General Partner
By: Sandler Capital Management, General Partner
MJDM Corp., a General Partner
By:_____________________________
Edward G. Grinacoff
President
SANDLER CAPITAL PARTNERS IV, FTE, L.P.
By: Sandler Investment Partners, L.P.
General Partner
By: Sandler Capital Management, General Partner
MJDM Corp., a General Partner
By:_____________________________
Edward G. Grinacoff
President
<PAGE>
OGER PENSAT HOLDINGS LTD.
By:_______________________________
Name:
Title:
CPP LLC
By:________________________________
Name:
Title:
<PAGE>
EXHIBIT A
---------
POINTE COMMUNICATIONS CORPORATION
Common Stock Purchase Warrant
Number ____
Warrant Certificate Evidencing Right to Purchase
[ ] Shares of Common Stock
This is to certify that [Investor], [a ________________], or assigns, is
entitled to purchase at any time or from time to time up to the above-referenced
number of shares of Common Stock ("Common Stock"), of Pointe Communications
Corporation, a Nevada corporation (the "Company"), for the Exercise Price for
the Warrants specified in the Warrant Agreement, dated as of May 13, 1999, among
the Company and Sandler Capital Partners IV, L.P., Sandler Capital Partners IV
FTE, L.P., CPP LLC and Oger Pensat Holdings Ltd. (the "Warrant Agreement"),
pursuant to which this Warrant Certificate is issued. All rights of the holder
of this Warrant Certificate are subject to the terms and provisions of the
Warrant Agreement, copies of which are available for inspection the Company's
office located at 2839 Paces Ferry Road, Suite 500, Atlanta, GA 30339 (the
"Office"). The Expiration Date (as defined in the Warrant Agreement) of the
right to purchase Common Stock pursuant to this Certificate is May 13, 2004.
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SHARES OF
COMMON STOCK THAT MAY BE PURCHASED UPON EXERCISE HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
APPLICABLE STATE LAW. SUCH WARRANTS AND SHARES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE ACT AND ANY
APPLICABLE STATE LAW, OR (2) THE AVAILABILITY OF AN EXEMPTION FROM SUCH
REGISTRATION.
Subject to the provisions of the Act, applicable state laws and such
Warrant Agreement, this Warrant Certificate and all rights hereunder are
transferable, in whole or in part, at the Office by the holder hereof in person
or by a duly authorized attorney, upon surrender of this Warrant Certificate,
together with the assignment hereof duly endorsed. Until transfer of this
Warrant Certificate on the books of the Company, the Company may treat the
registered holder hereof as the owner hereof for all purposes.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed on this 13th day of May, 1999 in Atlanta, Georgia by its proper
corporate officers thereunto duly authorized.
POINTE COMMUNICATIONS CORPORATION
a Nevada corporation
By:___________________________
Name:_________________________
Title:________________________
Attest:_______________________
Name:_________________________
Title:________________________
<PAGE>
EXHIBIT B
Election to Purchase
(To be executed by the registered holder if
such holder desires to exercise any Warrant Certificate)
The undersigned, the registered holder of the attached Warrant Certificate,
hereby irrevocably elects to exercise Warrants represented by such Warrant
Certificate and acquire an aggregate of ______________ shares of Common Stock of
Pointe Communications Corporation, a Nevada corporation, and herewith tenders
payment for such Common Stock in the amount of $__________ (by certified check
or official bank check) in accordance with the terms hereof. The undersigned
requests that the aforementioned Common Stock be registered in the name of
_______________, whose address is ________________________
_________________________.
Dated:___________________
Name of registered holder of Warrant Certificate:
________________________________________________________________________________
(please print)
Address of registered holder:________________________________________________
Signature:_____________________________
(Note: the signature to the foregoing Election must correspond to the name as
written upon the face of the Warrant Certificate in every particular, without
alteration or any change whatsoever.)
<PAGE>
EXHIBIT C
Election to Purchase
(To be executed by the registered holder
if such holder desires to effect cashless
exercise any Warrant Certificate)
The undersigned, the registered holder of the attached Warrant Certificate,
hereby irrevocably elects to exchange Warrants represented by such Warrant
Certificate and acquire an aggregate of ______________ shares of Common Stock of
Pointe Communications Corporation, a Nevada corporation on [DATE]. The
---------
undersigned requests that the aforementioned Common Stock be registered in the
name of _______________, whose address is ________________________
_________________________.
Dated:___________________
Name of registered holder of Warrant Certificate:
________________________________________________________________________________
(please print)
Address of registered holder:________________________________________________
Signature:_____________________________
(Note: the signature to the foregoing Election must correspond to the name as
written upon the face of the Warrant Certificate in every particular, without
alteration or any change whatsoever.)
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
----------
Aggregate
Purchase
Number of Price of
Purchaser Warrants Warrants
- ------------------------------------- --------- ----------
<S> <C> <C>
Sandler Capital Partners IV, L.P. . . 3,800,357 $ 29,518
Sandler Capital Partners IV FTE, L.P. 1,556,786 $ 20,482
Oger Pensat Holdings LTD. . . . . . . 5,357,143 $ 50,000
CPP LLC . . . . . . . . . . . . . . . 85,714 $ 800
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
by and among
POINTE COMMUNICATIONS CORPORATION,
SANDLER CAPITAL PARTNERS IV, L.P.,
SANDLER CAPITAL PARTNERS IV FTE, L.P.,
CPP LLC
and
OGER PENSAT HOLDINGS LTD.
Dated as of May 13, 1999
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
May 13, 1999, by and among POINTE COMMUNICATIONS CORPORATION, a Nevada
corporation (the "Company"), SANDLER CAPITAL PARTNERS IV, L.P., a Delaware
limited partnership ("SCP IV"), SANDLER CAPITAL PARTNERS IV FTE, L.P., a
Delaware limited partnership ("SCP IV FTE" and, collectively with SCP IV,
"Sandler"), CPP LLC, a Delaware limited liability company ("CPP") and OGER
PENSAT HOLDINGS LTD, a Bermuda corporation ("Pensat").
WITNESSETH:
----------
WHEREAS, the Company has entered into that certain Securities Purchase
Agreement (the "Securities Purchase Agreement"), dated as of the date hereof,
with Sandler and Pensat pursuant to which the Company has agreed to issue and
sell to Sandler and Pensat shares of the Company's Class A Convertible Senior
Preferred Stock, par value $0.01 per share (the "Class A Preferred"), and
Warrants to acquire shares of the Company's Common Stock (as defined herein);
and
WHEREAS, the Company has agreed to grant certain registration rights with
respect to the shares of the Company's Common Stock, par value $0.00001 per
share (the "Common Stock"), issuable upon conversion of the Class A Preferred
(including shares of Class A Preferred issued as dividends) and upon exercise of
the Warrants;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings:
<PAGE>
1.1 "Commission" shall mean the Securities and Exchange Commission, or
----------
any other successor federal agency at the time administering the Securities Act.
1.2 "Common Stock" shall mean the Company's common stock, par value
-------------
$0.00001 per share.
1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
-------------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.4 "Initiating Holders" shall mean any Holder or Holders who in the
-------------------
aggregate own not less than twenty percent (20%) of the Registrable Securities.
1.5 "Holders" shall mean and include each of Sandler, Pensat and any
-------
person or entity that shall have executed this Agreement and whose name appears
on the Schedule of Registration Rights Holders attached hereto as Exhibit A or
---------
who shall, pursuant to Article 8 hereof, become a party hereto, and any
permitted transferee under Article 9 hereof which holds Registrable Securities.
1.6 "Qualified Offering" shall mean the closing of a firm commitment
-------------------
underwritten public offering pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of Common Stock to the
public that raises net aggregate proceeds for the Company in excess of
$30,000,000 and at a purchase price per share in excess of $4.00 per share.
1.7 The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing with the Commission a registration
statement in compliance with the Securities Act, and the declaration or ordering
by the Commission of the effectiveness of such registration statement.
<PAGE>
1.8 "Registrable Securities" means any and all shares of (i) Common
-----------------------
Stock: (i) issued or issuable upon conversion of the Class A Preferred,
including shares of Class A Preferred issued as dividends; (2) issued or
issuable upon exercise of the Warrants; (3) issued or issuable with respect to
the securities referred to in clause (i) above by way of any stock split, stock
dividend, combination, recapitalization, reclassification, merger, consolidation
or other similar event; and (4) otherwise held or acquired by holders of
securities described in clause (i) above, excluding in all cases, however,
Registrable Securities sold by a Holder to the public or pursuant to Rule 144
promulgated under the Securities Act (or any similar or analogous rule
promulgated under the Securities Act) or shares of Common Stock acquired by a
Holder in an open market transaction. For purposes of this Agreement, a person
will be deemed to be a Holder of Registrable Securities whenever such person has
the right to acquire directly or indirectly such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
1.9 "Registration Expenses" shall mean all expenses incurred by the
----------------------
Company in complying with Articles 2, 3 and 4 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
messenger and delivery expenses, escrow fees, fees and disbursements of legal
counsel for the Company and all independent certified public accountants,
underwriters (excluding discounts and commissions) and persons retained by the
Company (but excluding the compensation of regular employees of the Company,
which shall be paid in any event by the Company), fees and disbursements of one
legal counsel for the selling Holders (not to exceed $50,000), blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration.
1.10 "Securities Act" shall mean the Securities Act of 1933, as
---------------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.11 "Selling Expenses" shall mean all underwriting fees, discounts,
-----------------
selling commissions and stock transfer taxes applicable to the Registrable
Securities registered by the Holders.
<PAGE>
ARTICLE 2
REQUIRED REGISTRATION
2.1 Required Registration.
----------------------
(a) Subject to the provisions set forth in Article 5, within 12
days after the Closing (as defined in the Securities Purchase Agreement) occurs
under the Securities Purchase Agreement, the Company shall file with the
Commission a registra-tion statement under the Securities Act on Form S-3 or any
appropriate form (or any successor form) pursuant to Rule 415 under the
Securities Act (the "Required Registration"). The Company shall use its best
efforts to cause the Required Registration to be declared effective under the
Securities Act as soon as practicable after filing, and once effective, the
Company shall cause such Required Registration to remain effective for a period
ending on the earlier of: (i) the third anniversary of the Closing under the
Securities Purchase Agreement; (ii) the date on which all Registrable Securities
have been sold pursuant to the Required Registration; and (iii) the date as of
which there are no longer any Registrable Securities in existence (the
"Effective Period"). The registration statement for the Required Registration
shall contain a broad-form plan of distribution.
2.2 Underwriting.
------------
(a) An underwriting may be selected as a method of distribution
of the Registrable Securities covered by the Required Registration by Holders
holding sixty-six and two-thirds percent (66 2/3%) (a "Supermajority") of the
Registrable Securities.
(b) If a distribution of the Registrable Securities is to be
effected by means of an underwriting, the Company (together with all Holders
proposing to distribute their securities through such underwriting (the
"Participating Holders")) shall use its best efforts to enter into an
underwriting agreement in customary form and reasonably acceptable to the
Company with a managing underwriter of nationally recognized standing selected
for such underwriting by the Company and approved by the Participating Holders
holding a Supermajority of the Registrable Securities proposed to be distributed
through such underwriting, which approval shall not be unreasonably withheld. In
no event shall the Company include any securities under the Required
<PAGE>
Registration which are not Registrable Securities without the prior written
consent of the Holders of a Supermajority of Registrable Securities, and any
such securities permitted to be sold under the Required Registration shall only
be sold in connection with a sale. Notwithstanding any other provision of this
Article 2, if the managing underwriter advises the Participating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the underwriters may exclude some or all of the shares
requested to be included in such underwriting, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Participating Holders thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Participating Holders. No Registrable Securities excluded from the underwriting
by reason of the managing underwriter's marketing limitation shall be included
in such underwriting.
(c) If a distribution of the Registrable Securities is effected
by means of an underwriting and if any Participating Holder of Registrable
Securities disapproves of the terms of the underwriting, such person may elect
to withdraw therefrom by written notice to the Company, the managing underwriter
and the other Participating Holders. The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from such underwriting;
provided, however, that if by the withdrawal of such Registrable Securities a
-------
greater number of Registrable Securities held by other Participating Holders may
be included in such underwriting (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Participating Holders who
have included Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 2.2.
2.3 Eligibility. The Company represents, warrants and covenants that
-----------
it currently is, and shall use its best efforts to remain at all times during
the Effective Period, eligible to use Form S-3 under the Securities Act.
2.4 Opinion of Counsel. Upon the request of the Holders of a
--------------------
Supermajority of the Registrable Securities, the Company shall furnish such
Holders with an opinion of counsel satisfactory to such Holders stating that the
registration statement filed in connection with the Required Registration is
effective and stating such other opinions as such Holders shall reasonably
request.
<PAGE>
ARTICLE 3
REQUESTED REGISTRATION
3.1 Request for Registration. Beginning on the date which is
--------------------------
immediately after the third anniversary of the date of this Agreement,
Initiating Holders may request registration in accordance with this Article 3;
provided, that such registration covers Registrable Securities representing 25%
of the then total amount of the Registrable Securities. In the event the
Company shall receive from any one or more of the Initiating Holders a written
request that the Company effect any such registration, qualification or
compliance with respect to Registrable Securities, the Company will:
(a) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
<PAGE>
(b) use its best efforts to effect such registration,
qualification or compliance as soon as practicable (including, without
limitation, undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with applicable regulations issued under the Securities
Act, and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 15 days after the receipt of the written notice from the
Company described in Section 3.1(a); provided, however, that the Company shall
-------- -------
not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Article 3:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) within one hundred and eighty (180) days immediately
following the effective date of any registration statement pertaining to a firm
commitment underwritten offering of securities of the Company for its own
account;
(iii) after the Company has effected three (3) such
requested registrations pursuant to this Article 3, each such registration has
been declared or ordered effective, and the Registrable Securities offered
pursuant to each such registration have been sold, or if the Company has
effected any requested registration pursuant to this Agreement during the
previous six-month period;
(iv) if the Company, within ten (10) days of the receipt of
the request of the Holder or Holders, gives notice of its bona fide intention to
---- ----
effect the filing of a registration statement with the Commission within
forty-five (45) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction or an offering solely
to employees).
<PAGE>
(c) Subject to the foregoing clauses (i) through (iv), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request of the Initiating Holders and provide notice to the other Holders as
required by Section 3.1(a); provided, however, that if the Company shall furnish
-------- -------
to such Holders a certificate signed by the Chairman or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be detrimental to the Company and its stockholders for
such registration statement to be filed, the Company shall have the right to
defer such filing for a period of not more than 180 days after receipt of the
request of the Initiating Holders; provided, further, that the Company shall not
-------- -------
be permitted to exercise such deferral right under this Section 3.1(c) more than
once in any 365-day period.
3.2 Underwriting.
------------
(a) The distribution of the Registrable Securities covered by
the request of the Holders shall be effected by means of the method of
distribution selected by the Holders holding a Supermajority of the Registrable
Securities covered by such registration. If such distribution is effected by
means of an underwriting, the right of any Holder to registration pursuant to
this Article 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein.
<PAGE>
(b) If such distribution is effected by means of an underwriting,
the Company (together with the Participating Holders in such Underwriting) shall
use its best efforts to enter into an underwriting agreement in customary form
and reasonably acceptable to the Company with a managing underwriter of
nationally recognized standing selected for such underwriting by the Company and
approved by a Supermajority in interest of the Participating Holders, which
approval shall not be unreasonably withheld. Notwithstanding any other provision
of this Article 3, if the managing underwriter advises the Participating Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the underwriters may exclude shares requested to be
included in such registration. The number of shares of Registrable Securities to
be included in the registration and underwriting shall be allocated amongst the
Participating Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Participating Holders at the time
of filing the registration statement. No Registrable Securities excluded from
the underwriting by reason of the managing underwriter's marketing limitation
shall be included in such registration.
(c) If any Participating Holder disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the other Participating Holders.
The Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration; provided, however, that if by the withdrawal of
-------- -------
such Registrable Securities a greater number of Registrable Securities held by
other Participating Holders may be included in such registration (up to the
<PAGE>
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all Participating Holders who have included Registrable Securities in
the registration the right to include additional Registrable Securities in the
same proportion used in determining the underwriter limitation in this Section
3.2.
3.3 Cancellation of Registration. A Supermajority in interest of the
-----------------------------
Participating Holders shall have the right to cancel a proposed registration of
Registrable Securities pursuant to Article 3 when, in their discretion, market
conditions are so unfavorable as to be seriously detrimental to an offering
pursuant to such registration. Such cancellation of a registration shall not be
counted as one of the three (3) such requested registrations pursuant to Section
3.1(b)(iii); provided, however, that the Holders canceling such registration
shall pay expenses attributable to such registration.
ARTICLE 4
COMPANY REGISTRATION
4.1 Notice of Registration to Holders. If at any time or from time to
---------------------------------
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans on Form S-8 (or any
successor form) or (ii) a registration relating solely to a Commission Rule 145
transaction on Form S-4 (or any successor form), the Company will:
1.1
(a) promptly give to each Holder written notice thereof, and
(b) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 30 days after receipt of such written notice from the
Company described in Section 4.1(a), by any Holder or Holders.
<PAGE>
4.2 Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 4.1(a). In such event, the right of any Holder to
registration pursuant to this Article 4 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company.
<PAGE>
(a) Notwithstanding any other provision of this Article 4, if
the managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the underwriter may exclude some or
all Registrable Securities from such registration and underwriting. The Company
shall so advise all Holders of Registrable Securities, and the number of shares
of Common Stock to be included in such registration shall be allocated as
follows: first, for the account of the Company, all shares of Common Stock
proposed to be sold by the Company, and second, for the account of any other
stockholders of the Company participating in such registration, the number of
shares of Common Stock requested to be included in the registration by such
other stockholders in proportion, as nearly as practicable, to the respective
amounts of securities that are proposed to be offered and sold by such other
stockholders of such securities at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriters' marketing limitation shall be included in such registration.
(b) The Company shall so advise all Holders and the other
holders distributing their securities through such underwriting of any such
limitation, and the number of shares of Registrable Securities held by Holders
that may be included in the registration. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, but
the Holder shall continue to be bound by Article 8 hereof.
(c) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Article 4 prior to the pricing of
such offering, whether or not a Holder has elected to include Registrable
Securities in such registration.
ARTICLE 5
HOLDBACK AGREEMENT
If any Participating Holder notifies the Company that they intend to effect
the sale of Registrable Securities pursuant to Articles 2 or 3 above (each, a
"Sale"), the Company shall not effect any public sale or distribution of its
equity securities, or any securities convertible into or exchangeable or
exercisable for its equity securities, during the 90-day period beginning on the
date such notice of a Sale is received; provided that such notice shall not be
given by any Holder or Holders more than one time during any 180-day period.
ARTICLE 6
EXPENSES OF REGISTRATION
<PAGE>
All Registration Expenses shall be borne by the Company. All Selling
Expenses relating to Registrable Securities registered by the Holders shall be
borne by the Holders of such Registrable Securities pro rata on the basis of the
--- ----
number of shares so registered.
ARTICLE 7
REGISTRATION PROCEDURES
(a) In the case of each registration effected by the Company
pursuant to this Agreement, the Company will keep each Holder advised in writing
as to the initiation of the registration effected by the Company pursuant to
this Agreement and as to the completion thereof. The Company agrees to use its
best efforts to effect or cause such registration to permit the sale of the
Registrable Securities covered thereby by the Holders thereof in accordance with
the intended method or methods of distribution thereof described in such
registration statement. In connection with any registration of any Registrable
Securities pursuant to Articles 2, 3 or 4 hereof, the Company shall, as soon as
reasonably practicable:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Securities within the time period
prescribed in Section 2.1(a) and use its best efforts to cause such registration
statement filed to become effective (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall comply with subparagraph (iii) of this paragraph (a)) as soon as
reasonably possible thereafter;
<PAGE>
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of such
registration statement as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to Form S-3 (or
any successor form), and furnish to the holders of the Registrable Securities
covered thereby copies of any such supplement or amendment prior to this being
used and/or filed with the Commission; and comply with the provisions of the
Securities Act with respect to the disposition of all the Registrable Securities
to be included in such registration statement during such period in accordance
with the intended methods of disposition by the sellers thereof set forth in
such registration statement;
(iii) provide (A) the Holders of the Registrable Securities
to be included in such registration statement, (B) the underwriters (which term,
for purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if any,
thereof, (C) the sales or placement agent, if any, therefor, (D) one counsel for
such underwriters or agent, and (E) not more than one counsel for all the
Holders of such Registrable Securities, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment or supplement thereto;
<PAGE>
(iv) for a reasonable period prior to the filing of such
registration statement, and throughout the period specified above, make
available for inspection by the parties referred to in Section 6(a)(iii) above
such financial and other information and books and records of the Company, and
cause the officers, directors, employees, counsel and independent certified
public accountants of the Company to respond to such inquiries, as shall be
reasonably necessary, in the judgment of the respective counsel referred to in
such Section 6(a)(iii), to conduct a reasonable investigation within the meaning
of the Securities Act; provided, however, that each such party shall be required
to maintain in confidence and not disclose to any other person or entity any of
such information or records reasonably designated by the Company in writing as
being confidential, until such time as (a) such information becomes a matter of
public record (whether by virtue of its inclusion in such registration statement
or otherwise but not as a result of the disclosure by such party), or (b) such
party shall be required so to disclose such information pursuant to the subpoena
or order of any court or other governmental agency or body having jurisdiction
over the matter (in which case such party will provide the Company notice of any
such requirement so that the Company may seek an appropriate protective order),
or (c) such information as is required to be set forth in such registration
statement or the prospectus included therein or in an amendment to such
registration statement or an amendment or supplement to such prospectus in order
that such registration statement, prospectus, amendment or supplement, as the
case may be, does not include an untrue statement of a material fact or omit to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and provided, further, that the Company
need not make such information available, nor need it cause any officer,
director or employee to respond to such inquiry, unless each such Holder of
Registrable Securities and such counsel, upon the Company's request, execute and
deliver to the Company an undertaking to substantially the same effect contained
in the second preceding proviso in form reasonably satisfactory to the Company;
(v) promptly notify the Holders of Registrable Securities, the
sales or placement agent, if any, therefor and the managing underwriter of the
securities being sold and confirm such advice in writing, (A) when such
registration statement or the prospectus included therein or any prospectus
amendment or supplement or post-effective amendment has been filed, and, with
respect to such registration statement or any post-effective amendment, when the
same has become effective, (B) of any comments by the Commission and by the blue
sky or securities commissioner or regulator of any state with respect thereto or
any request by the Commission for amendments or supplements to such registration
statement or the prospectus or for additional information, (C) of the issuance
by the Commission of any stop order suspending the effectiveness of such
registration statement or the initiation of any proceedings for that purpose,
(D) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, or (E) if it shall be the case, at any time when a prospectus is
required to be delivered under the Securities Act, that such registration
statement, prospectus, or any document incorporated by reference in any of the
foregoing contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
<PAGE>
(vi) use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of such registration statement or any
post-effective amendment thereto or of any order suspending or preventing the
use of any related prospectus or suspending the qualification of any Registrable
Securities included in such registration statement for sale in any jurisdiction
at the earliest practicable date;
(vii) if requested by any managing underwriter or
underwriter, any placement or sales agent or any Holder of Registrable
Securities, promptly incorporate in a prospectus, prospectus supplement or
post-effective amendment such information as is required by the applicable rules
and regulations of the Commission and as such managing underwriter or
underwriters, such agent or such Holder may reasonably specify should be
included therein relating to the terms of the sale of the Registrable Securities
included thereunder, including, without limitation, information with respect to
the number of Registrable Securities being sold by such Holder or agent or to
such underwriters, the name and description of such Holder, the offering price
of such Registrable Securities and any discount, commission or other
compensation payable in respect thereof, the purchase price being paid therefor
by such underwriters and with respect to any other terms of the offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such prospectus; prospectus supplement or post-effective amendment
promptly after notification of the matters to be incorporated in such
prospectus, prospectus supplement or post-effective amendment;
<PAGE>
(viii) furnish to each Holder of Registrable Securities, each
placement or sales agent, if any, therefor, each underwriter, if any, thereof
and the counsel referred to in Section 4(a)(iii) an executed copy of such
registration statement, each such amendment and supplement thereto (in each case
excluding all exhibits and documents incorporated by reference) and such number
of copies of the registration statement (excluding exhibits thereto and
documents incorporated by reference therein unless specifically so requested by
such holder, agent or underwriter, as the case may be) of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, as such Holder, agent, if any, and underwriter, if any, may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Holder sold by such agent or underwritten by such
underwriter and to permit such Holder, agent and underwriter to satisfy the
prospectus delivery requirements of the Securities Act; and the Company hereby
consents to the use of such prospectus and any amendment or supplement thereto
by each such Holder and by any such agent and underwriter, in each case in the
form most recently provided to such party by the Company, in connection with the
offering and sale of the Registrable Securities covered by the prospectus
(including such preliminary and summary prospectus) or any supplement or
amendment thereto;
(ix) use its best efforts to (A) register or qualify the
Registrable Securities under such other securities laws or blue sky laws of such
jurisdictions to be designated by the Holders of a Supermajority of such
Registrable Securities and each placement or sales agent, if any, therefor and
underwriter, if any, thereof, as any Holder and each underwriter, if any, of the
securities being sold shall reasonably request, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions for so
long as may be necessary to enable such Holder, agent or underwriter to complete
its distribution of the Registrable Securities pursuant to such registration
statement and (C) take any and all such actions as may be reasonably necessary
or advisable to enable such Holder, agent, if any, and underwriter to consummate
the disposition in such jurisdictions of such Registrable Securities; provided,
however, that the Company shall not be required for any such purpose to (1) take
any action to effect any such registration, qualification or compliance in any
particular jurisdiction in which it would not otherwise be required to execute a
general consent to service of process in effectuating such registration,
qualification or compliance, but for the requirements of this Section 7(a)(ix),
or (2) subject itself to taxation in any such jurisdiction;
<PAGE>
(x) cooperate with the Holders of the Registrable Securities
and the managing underwriters to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall be printed, lithographed or engraved, or produced by any
combination of such methods, on steel engraved borders and which shall not bear
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of the Registrable
Securities;
(xi) obtain a CUSIP number for all Registrable Securities,
not later than the effective date of the registration statement;
(xii) use its best efforts to enter into one or more
underwriting agreements, engagement letters, agency agreements, "best efforts"
underwriting agreements or similar agreements, as appropriate, and take such
other actions in connection therewith as the Holders of at least a Supermajority
of the Registrable Securities being sold shall reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
<PAGE>
(xiii) whether or not an agreement of the type referred
to in the preceding subsection is entered into and whether or not any portion of
the offering contemplated by such registration statement is an underwritten
offering or is made though a placement or sales agent or any other entity, (A)
make such representations and warranties to the Holders of such Registrable
Securities and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof in form, substance and scope as are customarily
made in connection with any offering of equity securities pursuant to any
appropriate agreement and/or to a registration statement filed on the form
applicable to such registration statement; (B) obtain an opinion of counsel to
the Company in customary form and covering such matters, of the type customarily
covered by such an opinion, as the managing underwriters, if any, and as the
Holders of at least a Supermajority of such Registrable Securities may
reasonably request, addressed to such Holders and the placement or sales agent,
if any, therefor and the underwriters, if any, thereof and dated the effective
date of such registration statement (and if such registration statement
contemplates an underwritten offering of a party or of all of the Registrable
Securities, dated the date of the closing under the underwriting agreement
relating thereto) (it being agreed that the matters to be covered by such
opinion shall include, without limitation, the due organization of the Company,
and its subsidiaries, if any; the qualification of the Company, and its
subsidiaries, if any, to transact business as foreign companies; the due
authorization, execution and delivery of this Agreement and of any agreement of
the typed referred to in Section 7(a)(xii) hereof; the due authorization, valid
issuance, and the fully paid status of the capital stock of the Company; the
absence of governmental approvals required to be obtained in connection with the
registration statement, the offering and sale of the Registrable Securities,
this Agreement or any agreement of the type referred to in Section 7(a)(xii)
hereof; the compliance as to form of such registration statement and any
documents incorporated by reference therein with the requirements of the
Securities Act; the effectiveness of such registration statement under the
Securities Act; and, as of the date of the opinion and of the registration
statement or most recent post-effective amendment thereto, as the case may be,
the absence, to the knowledge of such counsel, from such registration statement
and the prospectus included therein, as then amended or supplemented, and from
the documents incorporated by reference therein of an untrue statement of a
material fact or the omission to state therein a material fact necessary to make
the statements therein not misleading (in case of such documents, in the light
of the circumstances existing at the time that such documents were filed with
the Commission under the Exchange Act)); (C) obtain a "cold" comfort letter or
letters from the independent certified public accountants of the Company
addressed to the Holders and the placement or sales agent, if any, therefor and
the underwriters, if any, thereof, dated (I) the effective date of such
registration statement and (II) the effective date of any prospectus supplement
to the prospectus included in such registration statement or post-effective
amendment to such registration statement which includes unaudited or audited
financial statements as of a date or for a period subsequent to that of the
latest such statements included in such prospectus (and, if such registration
statement contemplates an underwritten offering pursuant to any prospectus
supplement to the prospectus included in such registration statement or
post-effective amendment to such registration statement which includes unaudited
or audited financial statements as of a date or for a period subsequent to that
of the latest such statements included in such prospectus, dated the date of the
closing under the underwriting agreement relating thereto), such letter or
letters to be in customary form and covering such matters of the type
customarily covered by letters of such type; (D) deliver such documents and
certificates, including officers' certificates, as may be reasonably requested
by Holders of at least a Supermajority of the Registrable Securities being sold
and the placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof to evidence the accuracy of the representations
and warranties made pursuant to clause (A) above and the compliance with or
satisfaction of any agreements or conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (E) undertake such
obligations relating to expense reimbursement, indemnification and contribution
as are provided in Article 6 and 8 hereof;
(xiv) notify in writing each Holder of Registrable
Securities of any proposal by the Company to amend or waive any provision of
this Agreement and of any amendment or waiver effected pursuant thereto, each of
which notices shall contain the text of the amendment or waiver proposed or
effected, as the case may be;
(xv) engage to act on behalf of the Company with respect
to the Registrable Securities to be so registered a registrar and transfer agent
having such duties and responsibilities (including, without limitation,
registration of transfers and maintenance of stock registers) as are customarily
discharged by such an agent, and to enter into such agreements and to offer such
indemnities as are customary in respect thereof;
<PAGE>
(xvi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
Holders, as soon as practicable, but in any event not later than 18 months after
the effective date of such registration statement, an earnings statement
covering a period of at least twelve months which shall satisfy the provisions
of Section 6(a) of the Securities Act (including, at the option of the Company,
pursuant to Rule 158 thereunder); and
(xvii) cause all such Registrable Securities to be listed
on each securities exchange, over-the-counter market or on the Nasdaq National
Market ("Nasdaq Market") on which similar securities issued by the Company are
then listed and, if not so listed, to be listed and, if listed on the Nasdaq
Market, use its best efforts to secure designation of all such Registrable
Securities covered by such registration statement as a Nasdaq "national market
system security" within the meaning of Rule 11Aa2-1 of the Commission or,
failing that, to secure Nasdaq Market authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register as such with respect to such Registrable
Securities with the National Association of Securities Dealers.
<PAGE>
(b) In the event that the Company would be required, pursuant
to Section 7(a)(v)(E) above, to notify the Holders of Registrable Securities
included in a registration statement hereunder, the sales or placement agent, if
any, and the managing underwriters, if any, of the securities being sold, the
Company shall prepare and furnish to each such Holder, to each such agent, if
any, and to each underwriter, if any, a reasonable number of copies of a
prospectus supplement or amendment so that, as thereafter delivered to the
purchasers of Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing. Each Holder agrees that upon receipt
of any notice from the Company pursuant to Section 7(a)(v)(E) hereof, such
Holder shall forthwith discontinue the distribution of Registrable Securities
until such Holder shall have received copies of such amended or supplemented
registration statement or prospectus, and if so directed by the Company, such
Holder shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies, then in such Holder's possession of the prospectus
covering such Registrable Securities at the time of receipt of such notice.
(c) The Company may require each Holder of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding such Holder and such Holder's method of distribution of
such Registrable Securities as the Company may from time to time reasonably
request in writing but only to the extent that such information is required in
order to comply with the Securities Act. Each such Holder agrees to notify the
Company as promptly as practicable of any inaccuracy or change in information
previously furnished by such Holder to the Company or of the occurrence of any
event in either case as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such Holder or the distribution of such Registrable Securities or
omits to state any material fact regarding such Holder or the distribution of
such Registrable Securities required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing, and promptly to furnish to the Company any additional information
required to correct and update any previously furnished information or required
so that such prospectus shall not contain, with respect to such Holder or the
distribution of such Registrable Securities, an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
ARTICLE 8
INDEMNIFICATION
<PAGE>
8.1 The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling any such persons within the
meaning of Section 15 of the Securities Act, with respect to which registration
of any of the Registrable Securities under the Securities Act has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereof, incident to any such registration of any of the
Registrable Securities under the Securities Act which has been effected pursuant
to this Agreement, or based on 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, or any violation by the Company of any rule
or regulation promulgated under the Securities Act or any state securities laws
applicable to the Company and relating to action or inaction by the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers and directors and partners, and
each person controlling any such persons, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by such
Holder or underwriter and expressly intended for use in such registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereof.
<PAGE>
8.2 Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration is being effected,
severally and not jointly, indemnify and hold harmless the Company, each of its
directors and officers, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers, directors, partners, and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), to which the Company or such officer, director,
underwriter or person who controls the Company or such underwriter, within the
meaning of Section 15 of the Securities Act, including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance or based on 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, and will reimburse the
Company, such Holders, such directors, officers, partners, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular,
other document or amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such Holder and expressly
intended for use in such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereof; provided, however,
-------- -------
that the obligations of each Holder hereunder shall be limited to an amount
equal to the proceeds to such Holder of Registrable Securities sold as
contemplated herein.
<PAGE>
8.3 Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). The Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party shall bear the
expense of such defense of the Indemnified Party if representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interest. The failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement, unless such failure is prejudicial to the ability of the
Indemnifying Party to defend the action. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party not to be unreasonably withheld, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
<PAGE>
8.4 If the indemnification provided for in Section 8.1 or 8.2 is
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of the expenses, claims, losses, damages or
liabilities (or actions or proceedings in respect thereof) referred to in
Section 8.1 or 8.2, in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the sellers of Registrable Securities
on the other hand in connection with statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) or expenses, as well as any other relevant equitable
considerations. The relative fault 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 the Company or the sellers of Registrable Securities and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Holders agree that it would not be just and equitable if contributions pursuant
to this Section 8.4 were to be determined by pro rata allocation (even if all
Sellers of Registrable Securities were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in the first sentence of this Section 8.4.
The amount paid by an Indemnified Party as a result of the expenses, claims,
losses, damages or liabilities (or actions or proceedings in respect thereof)
referred to in the first sentence of this Section 8.4 shall be deemed to include
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any claim, action or proceeding which
is the subject of this Section 8.4. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The obligations of sellers of Registrable
Securities to contribute pursuant to this Section 8.4 shall be several in
proportion to the respective amount of Registrable Securities sold by them
pursuant to a registration statement.
ARTICLE 9
RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration, the Company agrees
use its best efforts to:
9.1 Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act (or any similar or
analogous rule promulgated under the Securities Act); and
9.2 File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
and make available the benefits of Rule 144; and
<PAGE>
9.3 So long as any Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request a written statement by the Company as to its
compliance with the public information requirements of said Rule 144, the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as such Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing it to sell any such securities without
registration.
ARTICLE 10
TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register Registrable Securities granted
Holders under Articles 2, 3 and 4 hereof may be assigned in connection with any
permitted transfer or assignment of the Holder's Registrable Securities. All
transferees and assignees of the rights to cause the Company to register
Registrable Securities granted Holders under Articles 2, 3 and 4 hereof, as a
condition to the transfer of such rights, shall agree in writing to be bound by
the agreements set forth herein.
ARTICLE 11
LIMITATIONS ON REGISTRATION RIGHTS
GRANTED TO OTHER SECURITIES
The parties hereto agree that additional holders may, with the consent of
the Company and the Holders of a Supermajority of the Registrable Securities
then outstanding, be added as parties to this Agreement with respect to any or
all securities of the Company held by them; provided, however, that from and
-------- -------
after the date of this Agreement, the Company shall not without the prior
written consent of the Holders of a Supermajority of the Registrable Securities
then outstanding, enter into any agreement with any holder or prospective holder
of any securities of the Company providing for the grant to such holder of
registration rights superior to, or pari passu with, those granted herein. Any
---- -----
additional parties shall execute a counterpart of this Agreement, and upon
execution by such additional parties and by the Company, shall be considered
Holders for purposes of this Agreement, and shall be added to the Schedule of
Registration Rights Holders.
ARTICLE 12
MISCELLANEOUS
<PAGE>
12.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
12.2 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES,
--------------------
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR (II) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
TORT, EQUITY, OR OTHERWISE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES
AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
12.3 Successors and Assigns. Except as otherwise expressly provided
------------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
12.4 Entire Agreement. This Agreement constitutes the full and entire
-----------------
understanding and agreement between the parties with regard to the subject
matter hereof. Any provision of this Agreement may be amended, waived or
modified, and this Agreement may be terminated, if, but only if, such amendment,
waiver or modification or termination is in writing and is signed by the Company
and the holders of a Supermajority of the Registrable Securities; whenever any
provision of this Agreement requires action or approval by the holders of a
specified number of Registrable Securities, such action or approval may be
evidenced by a written consent executed by the requisite holders of Registrable
Securities, without any requirement of a meeting or prior notice to the other
holders of such shares.
<PAGE>
1.32 Notices. All notices, requests, consents, and other communications
-------
hereunder shall be in writing and shall be deemed effectively given and received
upon delivery in person, or two business days after delivery by national
overnight courier service or by telecopier transmission with acknowledgment of
transmission receipt, or five business days after deposit via certified or
registered mail, return receipt requested, in each case addressed as follows:
if to the Company:
Pointe Communications Corporation
2839 Paces Ferry Road
Suite 500
Atlanta, GA 30339
Attention: Stephen E. Raville
Facsimile: 707-319-2834
with a copy to (which shall not constitute notice):
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201-4761
Attention: W. Robert Dyer Jr.
Facsimile: (214) 999-3574
if to Sandler:
c/o Sandler Capital Management
767 Fifth Avenue - 45th Floor
New York, New York 10153
Attention: David C. Lee
Facsimile: (212) 826-0280
with copy to (which shall not constitute notice):
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, DC 20036
Attention: Edward J. O'Connell, Esq.
Facsimile: (202) 776-2222
<PAGE>
if to CPP:
Centre Partners
30 Rockefeller Plaza
50th Floor
New York, NY 10026
Attention: Paul Zepf
Facsimile: (212) 332-5801
with a copy to (which shall not constitute notice):
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Norman D. Chirite
Facsimile: (212) 310-8007
if to Pensat:
Oger Pensat Holdings Ltd.
c/o Saudi Oger Ltd.
P.O. Box 1449
Riyadh 11431
Saudi Arabia
Attention: Mr. Mohammed Hariri
Facsimile: 966 1477 8795
with copy to (which shall not constitute notice):
Roger & Wells LLP
607 14th Street, N.W.
Washington, D.C. 20005-2018
Attention: Anthony F. Essaye
Facsimile: (202) 434-0800
Roger & Wells LLP
200 Park Avenue
New York, NY 10166-1053
Attention: Ronald M. Sanders
Facsimile: (212) 878-8375
<PAGE>
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
12.6 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
12.7 Titles and Subtitles. The titles of the sections and subsections
---------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
12.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 13th
day of May, 1999.
POINTE COMMUNICATIONS CORPORATION
By:
Name:
Title:
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.
General Partner
By: Sandler Capital Management, General Partner
MJDM Corp., a General Partner
By: _______________________________
Edward G. Grinacoff
President
SANDLER CAPITAL PARTNERS IV, FTE, L.P.
By: Sandler Investment Partners, L.P.
General Partner
By: Sandler Capital Management, General Partner
MJDM Corp., a General Partner
By: _______________________________
Edward G. Grinacoff
President
<PAGE>
OGER PENSAT HOLDINGS LTD.
By:________________________________________
Name:
Title:
CPP LLC
By:________________________________________
Name:
Title:
<PAGE>
EXHIBIT A
SCHEDULE OF REGISTRATION RIGHTS HOLDERS
1. Sandler Capital Partners IV, L.P.
2. Sandler Capital Partners IV FTE, L.P.
3. Oger Pensat Holdings Ltd.
4. CPP LLC
<PAGE>
SECURED PROMISSORY NOTE
$3,000,000 February 5, 1999
FOR VALUE RECEIVED, the undersigned, POINTE COMMUNICATIONS CORPORATION
("Borrower"), hereby promises to pay to ASCEND COMMUNICATIONS, INC. ("Lender"),
------ ------
or order, the principal sum or so much of the principal sum of Three Million
Dollars ($3,000,000) as may from time to time have been advanced and be
outstanding, together with accrued interest as provided herein.
A. Principal.
---------
1. Advances. Borrower may from time to time request advances from
--------
Lender (individually an "Advance" and collectively the "Advances") by giving
------- --------
written notice to Lender in accordance with the terms hereof, which notice shall
indicate the amount of the Advance requested and the proposed use of the Advance
proceeds. Provided that no Event of Default is in existence and that the
requested Advance would not cause an Event of Default to occur, Lender shall
make the Advance to Borrower within five (5) days of receipt of Borrower's
notice. Lender shall not be obligated to make an Advance to the extent that
such Advance, when aggregated with all prior Advances, would exceed Three
Million Dollars ($3,000,000). No more than five Advances shall be made
hereunder. Borrower shall not have the right to re-borrow any Advance to the
extent that it has been repaid.
2. Use of Proceeds. The proceeds of Advances shall be used
-----------------
exclusively as follows: (i) to finance Borrower's acquisition of network
equipment, (ii) to satisfy Borrower's existing account payable owed to Lender,
and (iii) for working capital purposes.
B. Interest.
--------
1. Interest shall accrue with respect to the principal sum of the
Advances at the per annum rate equal to the "Prime Rate" as listed in The Wall
--------
Street Journal Money Rates report as of the date hereof (the "Prime Rate").
-------------- ----------
However, if an Event of Default, as defined herein, occurs, then during the
--
continuance of such Event or Default interest shall accrue at the rate per annum
--
equal to two percent (2%) plus the rate that would otherwise be in effect (the
"Default Rate"). Interest payable hereunder with respect to the Advances shall
-------------
be calculated on the basis of a three hundred sixty (360) day year for actual
days elapsed. Each change in the Prime Rate shall result in a change in the
interest rate with respect to the Advances as of the date of such Prime Rate
change, without any notice to Borrower.
2. After 9/30/99, Interest shall accrue with respect to the principal
sum of the Advances at the per annum rate equal to 9.75%. However, if an Event
of Default, as defined herein, occurs, then during the continuance of such Event
or Default interest shall accrue at the rate per annum equal to two percent (2%)
plus the rate that would otherwise be in effect (the "Default Rate"). Interest
------------
payable hereunder with respect to the Advances shall be calculated on the basis
of a three hundred sixty (360) day year for actual days elapsed. Each change
in the Prime Rate shall result in a change in the interest rate with respect to
the Advances as of the date of such Prime Rate change, without any notice to
Borrower.
C. Payment.
-------
1. Scheduled Payment. The principal indebtedness of each Advance
------------------
shall be repaid in twenty-four (24) equal monthly installments, beginning on
10/1/99 and continuing thereafter for twenty-four (24) months. Payments shall
be due on the first day of the calendar month.
2. Mandatory Prepayment. The principal indebtedness and all
---------------------
accrued but unpaid interest shall become immediately due and payable, without
demand or any notice by Lender, on the date of the first to occur of (i) the
effective date of the Offering or (ii) the date of a Change of Control.
3. Optional Prepayment. Borrower shall have the right at any time
-------------------
and from time to time to prepay, in whole or in part, the principal of this
Note, without payment of any premium or penalty. Any principal prepayment shall
be accompanied by a payment of all interest accrued on the amount prepaid
through the date of such prepayment.
4. Form of Payment. Principal and interest and all other amounts
----------------
due hereunder are to be paid in lawful money of the United States of America in
federal or other immediately available funds.
D. Covenants.
---------
1. Exclusivity. Borrower agrees, for itself and all of its
-----------
affiliates, that during the term of this Note, they will purchase and/or lease
or otherwise acquire all equipment that they need for their businesses from
Lender or Lender's designees, to the extent that Lender at the time of the
equipment acquisition offers equipment that performs the functions of the
equipment that Borrower and/or its affiliate desires to acquire in the manner
and at the performance levels reasonably deemed necessary by Borrower.
2. Insurance. Borrower, at its expense and with such companies as
---------
are reasonably acceptable to Lender, shall maintain business interruption and
liability insurance and fire, theft and other hazard insurance which covers the
Collateral, which insurance shall be in such amounts as are ordinarily carried
by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. All such liability
<PAGE>
insurance policies shall show Lender as an additional insured or loss payee, as
applicable, and shall specify that the insurer must give at least thirty (30)
days' notice to Lender before canceling its policy for any reason. Borrower,
upon Lender's request, shall deliver to Lender certified copies of such policies
of insurance and evidence of the payments of all premiums therefor.
3. Financial Information. Borrower shall deliver to Lender:
----------------------
(a) as soon as practicable after the end of each fiscal quarter,
and in any event within thirty (45) days thereafter, an unaudited balance sheet
of Borrower as of the end of such month, cash flow statements and an unaudited
statement of operations of Borrower for the portion of the Fiscal Year ended
with such quarter prepared and certified by the chief financial officer of
Borrower, subject, however, to the exclusion of footnotes and to normal year-end
audit adjustments, and a comparison of such statements to Borrower's operating
plan or budget then in effect;
(b) as soon as practicable after the end of each Fiscal Year, and
in any event within ninety (90) days thereafter, a copy of its audited financial
statements accompanied by a report thereon by a firm of independent certified
public accountants selected by Borrower, which report shall state that such
financial statements fairly present Borrower's financial position at the end of
such Fiscal Year;
(c) as soon as available, and in any event within sixty (60) days
prior to the commencement of each Fiscal Year, a budget and business plan for
Borrower for such Fiscal Year;
(d) promptly upon their becoming available, one copy of each
report, notice or proxy statement sent by Borrower to its shareholders generally
and of each regular or periodic report or registration statement, prospectus or
written communication (other than transmittal letters) filed by Borrower with
the Securities and Exchange Commission or any securities exchange on which
Borrower's securities are listed; and
(e) with reasonable promptness, such other information as from
time to time may be reasonably requested by Lender.
E. Security Interest.
------------------
1. Grant of Security Interest. Borrower grants to Lender a
-----------------------------
security interest in the Collateral, as defined herein, to secure the payment of
all of the indebtedness hereunder (the "Secured Obligations").
--------------------
2. Representations and Warranties Regarding Collateral. Borrower
----------------------------------------------------
represents and warrants to Lender that Borrower is the true and lawful owner of
the Collateral, having good and marketable title thereto, free and clear of any
and all Liens other than the Lien and security interest granted to Lender
hereunder and Permitted Liens as described in Schedule "A" hereto. Borrower
------------
shall not create or assume or permit to exist any such Lien on or against any of
<PAGE>
the Collateral except as created or permitted by this Note and Permitted Liens,
and Borrower shall promptly notify Lender of any such other Lien against the
Collateral and shall defend the Collateral against, and take all such action as
may be necessary to remove or discharge, any such Lien.
3. Perfection of Security Interest. Borrower agrees to take all
---------------------------------
actions requested by Lender and reasonably necessary to perfect, to continue the
perfection of, and to otherwise give notice of, the Lien granted hereunder,
including, but not limited to, execution of financing statements.
F. Events of Default.
-------------------
1. Definition of Event of Default. The occurrence of any one or
--------------------------------
more of the following events shall constitute an "Event of Default" hereunder:
----------------
(i) Borrower's breach of the obligation to pay any amount
payable hereunder on the date that it is due and payable;
(ii) Borrower's breach of the covenant with respect to the
use of the Advance proceeds or of the covenant with respect to acquisition of
equipment exclusively from Lender;
(iii) Borrower's failure to perform, keep or observe any of
its covenants, conditions, promises, agreements or obligations under any other
agreement with any person or entity if such failure may have a material adverse
effect on Borrower's assets, operations or condition, financial or otherwise;
(iv) Borrower's institution of proceedings against it, or
Borrower's filing of a petition or answer or consent seeking reorganization or
release, under the federal Bankruptcy Code, or any other applicable federal or
state law relating to creditor rights and remedies, or Borrower's consent to the
filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of Borrower or of any substantial
part of its property, or Borrower's making of an assignment for the benefit of
creditors, or the taking of corporate action in furtherance of such action;
(v) the loss, theft, damage or destruction of, or sale (other
than in the ordinary course of business), lease or furnishing under a contract
of service of, any of the Collateral to the extent that such Collateral is not
replaced by like Collateral as covered by insurance or otherwise;
<PAGE>
(vi) the creation (whether voluntary or involuntary) of, or
any attempt to create, any Lien upon any of the Collateral, other than the
Permitted Liens, or the making or any attempt to make any levy, seizure or
attachment thereof and such Lien, levy, seizure, or attachment has not been
removed, discharged or rescinded within ten (10) days;
(vii) the occurrence and continuance of any default under any
lease or agreement for borrowed money that gives the lessor or the creditor of
such indebtedness, as applicable, the right to accelerate the lease payments or
the indebtedness, as applicable, or the right to exercise any rights or
remedies with respect to any of the Collateral; or
(viii) the entry of any judgment or order against Borrower in
excess of $25,000 which remains unsatisfied or undischarged and in effect for
thirty (30) days after such entry without a stay of enforcement or execution.
2. Rights and Remedies on Event of Default.
---------------------------------------------
(a) During the continuance of an Event of Default, Lender shall
have the right, itself or through any of its agents, with or without notice to
Borrower (as provided below), as to any or all of the Collateral, by any
available judicial procedure, or without judicial process (provided, however,
that it is in compliance with the UCC), to exercise any and all rights afforded
to a secured party under the UCC or other applicable law. Without limiting the
generality of the foregoing, Lender shall have the right to sell or otherwise
dispose of all or any part of the Collateral, either at public or private sale,
in lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such terms and conditions, all as Lender, in its sole
discretion, may deem advisable, and it shall have the right to purchase at any
such sale. Borrower agrees that a notice sent at least fifteen (15) days before
the time of any intended public sale or of the time after which any private sale
or other disposition of the Collateral is to be made shall be reasonable notice
of such sale or other disposition. The proceeds of any such sale, or other
Collateral disposition shall be applied, first to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like, and
to Lender's reasonable attorneys' fees and legal expenses, and then to the
Secured Obligations and to the payment of any other amounts required by
applicable law, after which Lender shall account to Borrower for any surplus
proceeds. If, upon the sale or other disposition of the Collateral, the
proceeds thereof are insufficient to pay all amounts to which Lender is legally
entitled, Borrower shall be liable for the deficiency, together with interest
thereon at the Default Rate, and the reasonable fees of any attorneys Lender's
employs to collect such deficiency; provided, however, that the foregoing shall
-------- -------
not be deemed to require Lender to resort to or initiate proceedings against the
Collateral prior to the collection of any such deficiency from Borrower. To the
extent permitted by applicable law, Borrower waives all claims, damages and
demands against Lender arising out of the retention or sale or lease of the
Collateral or other exercise of Lender's rights and remedies with respect
thereto.
(b) To the extent permitted by law, Borrower covenants that it
will not at any time insist upon or plead, or in any manner whatever claim or
take any benefit or advantage of, any stay or extension law now or at any time
hereafter in force, nor claim, take or insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisal of the Collateral or any part thereof, prior to any sale or sales
thereof to be made pursuant to any provision herein contained, or the decree,
judgment or order of any court of competent jurisdiction; or, after such sale or
sales, claim or exercise any right under any statute now or hereafter made or
enacted by any state or otherwise to redeem the property so sold or any part
thereof, and, to the full extent legally permitted, hereby expressly waives all
benefit and advantage of any such law or laws, and covenants that it will not
invoke or utilize any such law or laws or otherwise hinder, delay or impede the
execution of any power herein granted and delegated to Lender, but will suffer
and permit the execution of every such power as though no such power, law or
laws had been made or enacted.
(c) Any sale, whether under any power of sale hereby given or by
virtue of judicial proceedings, shall operate to divest all Borrower's right,
title, interest, claim and demand whatsoever, either at law or in equity, in and
to the Collateral sold, and shall be a perpetual bar, both at law and in equity,
against Borrower, its successors and assigns, and against all persons and
entities claiming the Collateral sold or any part thereof under, by or through
Borrower, its successors or assigns.
(d) Borrower appoints Lender, and any officer, employee or agent
of Lender, with full power of substitution, as Borrower's true and lawful
attorney-in-fact, effective as of the date hereof, with power, in its own name
or in the name of Borrower, during the continuance of an Event of Default, to
endorse any notes, checks, drafts, money orders, or other instruments of payment
in respect of the Collateral that may come into Lender's possession, to sign and
endorse any drafts against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to Collateral; to pay or
discharge taxes or Liens at any time levied or placed on or threatened against
the Collateral; to demand, collect, issue receipt for, compromise, settle and
sue for monies due in respect of the Collateral; to notify persons and entities
obligated with respect to the Collateral to make payments directly to Lender;
and, generally, to do, at Lender's option and at Borrower's expense, at any
time, or from time to time, all acts and things which Lender deems necessary to
protect, preserve and realize upon the Collateral and Lender's security interest
therein to effect the intent of this Note, all as fully and effectually as
Borrower might or could do; and Borrower hereby ratifies all that said attorney
shall lawfully do or cause to be done by virtue hereof. This power of attorney
shall be irrevocable as long as any of the Secured Obligations are outstanding.
<PAGE>
(e) All of Lender's rights and remedies with respect to the
Collateral, whether established hereby or by any other agreements, instruments
or documents or by law shall be cumulative and may be exercised singly or
concurrently.
G. Other Provisions.
-----------------
1. Definitions. As used herein, the following terms shall have
-----------
the following meanings:
"Change of Control" means an event or series of events as a result of which
-----------------
(i) any person or group is or becomes the beneficial owner of shares
representing more than fifty percent (50%) of the combined voting power of the
then outstanding securities entitled to vote generally in elections of
Borrower's directors (the "Voting Stock"), (ii) Borrower consolidates with or
------------
merges into any other corporation, or conveys, transfers or leases all or
substantially all of its assets to any person, or any other corporation merges
into Borrower, and, in the case of any such transaction, Borrower's outstanding
common stock is changed or exchanged as a result, unless the Borrower's
shareholders immediately before such transaction own, directly or indirectly,
immediately following such transaction, at least fifty-one percent (51%) of the
combined voting power of the outstanding voting securities of the corporation
resulting from such transaction in substantially the same proportion as their
ownership of the Voting Stock immediately before such transaction, or (iii)
Continuing Directors do not constitute a majority of the Board of Directors of
Borrower (or, if applicable, Borrower's successor).
"Collateral" means all of Borrower's right, title and interest in each and
----------
all of the following, whether now existing or owned or hereafter created or
acquired by Borrower:
a. All goods and equipment, including, without limitation, all
machinery, fixtures, vehicles (including motor vehicles and trailers), and any
interest in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located;
b. All inventory, including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing and any documents of title representing any of the
above, and Borrower's books relating to any of the foregoing;
c. All contract rights and general intangibles, including, without
limitation, goodwill, trademarks, servicemarks, trade styles, trade names,
patents, patent applications, leases, license agreements, franchise agreements,
blueprints, drawings, purchase orders, customer lists, route lists,
<PAGE>
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind;
d. All accounts, contract rights, royalties, license rights and
all other forms of obligations owing to Borrower arising out of the sale or
lease of goods, the licensing of technology or the rendering of services by
Borrower, whether or not earned by performance, and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's books and records relating to any of the
foregoing;
e. All documents, cash, deposit accounts, securities, financial
assets, securities accounts, securities entitlements, letters of credit,
certificates of deposit, instruments and chattel paper and Borrower's books and
records relating to the foregoing; and
f. All claims, rights and interests in any of the above and, all
substitutions for, additions and accessions to and proceeds thereof.
"Continuing Directors" means at any date a member of Borrower's Board of
---------------------
Directors (i) who was a member of the Board as of the date hereof, or (ii) who
was nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election.
"Fiscal Year" means the fiscal year of Borrower.
------------
"Offering" means (i) a sale of Borrower's securities to the public pursuant
--------
to a registration statement under the Securities Act of 1933, as amended, or
(ii) a debt offering; in which the gross proceeds to Borrower, without reduction
for selling commissions or expenses of the sale equals or exceeds Twenty Five
Million Dollars ($25,000,000).
"Lien" means any lien (statutory or other), mortgage, pledge,
----
hypothecation, assignment, deposit arrangement, security interest, charge, claim
----
or other encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any agreement to give or refrain from giving a lien,
mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, charge, claim or other encumbrance of any kind.
"Permitted Liens" means: (i) Liens imposed by law, such as carriers',
----------------
warehousemen's, materialmen's and mechanics' liens, or Liens arising out of
judgments or awards against Borrower with respect to which Borrower at the time
shall currently be prosecuting an appeal or proceedings for review; (ii) Liens
for taxes not yet subject to penalties for non-payment and Liens for taxes the
payment of which is being contested in good faith and by appropriate proceedings
and for which, to the extent required by generally accepted accounting
principles then in effect, proper and adequate book reserves relating thereto
are established by Borrower; and (iii) Liens described in Attachment "A" hereto.
--------------
<PAGE>
"UCC" means the Uniform Commercial Code in effect from time to time in the
---
relevant jurisdiction.
2. Governing Law; Venue. This Note shall be governed by the laws
---------------------
of the State of California, without giving effect to conflicts of law
principles. Borrower and Lender agree that all actions or proceedings arising
in connection with this Note shall be tried and litigated only in the state and
federal courts located in the County of Alameda, State of California or, at
Lender's option, any court in which Lender determines it is necessary or
appropriate to initiate legal or equitable proceedings in order to exercise,
preserve, protect or defend any of its rights and remedies under this Note or
otherwise or to exercise, preserve, protect or defend its Lien, and the priority
thereof, against the Collateral, and which has subject matter jurisdiction over
the matter in controversy. Borrower waives any right it may have to assert the
doctrine of forum non conveniens or to object to such venue, and consents to any
court ordered relief. Borrower waives personal service of process and agrees
that a summons and complaint commencing an action or proceeding in any such
court shall be promptly served and shall confer personal jurisdiction if served
by registered or certified mail to Borrower. If Borrower fails to appear or
answer any summons, complaint, process or papers so served within thirty (30)
days after the mailing or other service thereof, it shall be deemed in default
and an order of judgment may be entered against it as demanded or prayed for in
such summons, complaint, process or papers. The choice of forum set forth
herein shall not be deemed to preclude the enforcement of any judgment obtained
in such forum, or the taking of any action under this Note to enforce the same,
in any appropriate jurisdiction.
<PAGE>
Notices. Any notice or communication required or desired to be served,
-------
given or delivered hereunder shall be in the form and manner specified below,
and shall be addressed to the party to be notified as follows:
If to Lender: Ascend Communications, Inc.
1701 Harbor Bay Parkway
Alameda, California 94502
Attention: David Sousa, Manager of Corporate Finance
Telecopier: (510) 747-2547
If to Borrower: Pointe Communications Corporation
17100 El Camino Real #150
Houston, TX 77058
Attention:
Telecopier: ( )
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iv) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; provided, however, that if any notice is tendered to an addressee and
-------- -------
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
4. Lender's Rights; Borrower Waivers. Lender's acceptance of
------------------------------------
partial or delinquent payment from Borrower hereunder, or Lender's failure to
exercise any right hereunder, shall not constitute a waiver of any obligation of
Borrower hereunder, or any right of Lender hereunder, and shall not affect in
any way the right to require full performance at any time thereafter. Except as
otherwise specifically provided herein, Borrower waives presentment, diligence,
demand of payment, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note. In any action on this Note, Lender need not produce or file the
original of this Note, but need only file a photocopy of this Note certified by
Lender be a true and correct copy of this Note in all material respects.
5. Enforcement Costs. Borrower shall pay all costs and expenses,
------------------
including, without limitation, reasonable attorneys' fees and expenses Lender
expends or incurs in connection with the enforcement of this Note, the
collection of any sums due hereunder, any actions for declaratory relief in any
way related to this Note, or the protection or preservation of any rights of the
holder hereunder.
6. Severability. Whenever possible each provision of this Note
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision is prohibited by or invalid under
applicable law, it shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of the provision or the remaining
provisions of this Note.
<PAGE>
7. Amendment Provisions. This Note may not be amended or
---------------------
modified, nor may any of its terms be waived, except by written instruments
signed by Borrower and Lender.
8. Binding Effect. This Note shall be binding upon, and shall
---------------
inure to the benefit of, Borrower and the holder hereof and their respective
successors and assigns; provided, however, that Borrower's rights and
-------- -------
obligations shall not be assigned or delegated without Lender's prior written
consent, given in its sole discretion, and any purported assignment or
delegation without such consent shall be void ab initio.
-- ------
9. Time of Essence. Time is of the essence of each and every
-----------------
provision of this Note.
10. Headings. Section headings used in this Note have been set
--------
forth herein for convenience of reference only. Unless the contrary is
compelled by the context, everything contained in each section hereof applies
equally to this entire Note.
ASCEND COMMUNICATIONS, INC. POINTE COMMUNICATIONS CORPORATION
By: ____________________________ By: _____________________________
Name: __________________________ Name: ____________________________
Title: _________________________ Title: ___________________________
Date: __________________________ Date: ____________________________
<PAGE>
ATTACHMENT "A"
TO
SECURED PROMISSORY NOTE
BY
POINTE COMMUNICTATIONS CORPORATION
PERMITTED LIENS
---------------
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE COMMON STOCK
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, ASCEND
COMMUNICATIONS, INC. ("Holder") is entitled to purchase [TBD] paid and
------
nonassessable shares of the Common Stock (the "Shares") of Pointe Communications
------
Corporation (the "Company") at the price of [TBD] per Share (the "Warrant
------- -------
Price"), as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1. Method of Exercise. Holder may exercise this Warrant by
--------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2. Conversion Right. In lieu of exercising this Warrant as specified
----------------
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate Fair
Market Value of the Shares issuable upon exercise of this Warrant minus the
aggregate Warrant Price of such Shares by (b) the Fair Market Value of one
Share. The Fair Market Value of the Shares shall be determined pursuant to
Section 1.3.
1.3. Fair Market Value. If the Shares are traded in a public market,
-------------------
the Fair Market Value of the Shares shall be the closing price of the Shares
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine Fair Market Value in its
reasonable good faith judgment.
1.4. Delivery of Certificate and New Warrant. Promptly after Holder
------------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5. Replacement of Warrants. On receipt of evidence reasonably
-------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company,
and, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
<PAGE>
1.6. Merger or Consolidation of the Company. Upon the closing of any
---------------------------------------
Acquisition, the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7. Automatic Exercise. If, as of the last day of the term hereof,
-------------------
this Warrant has not been fully exercised, then as of such date this Warrant
shall be automatically converted, in full, in accordance with Section 1.2,
without any action or notice by the Holder.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
----------------------------
2.1. Stock Dividends, Splits, Etc. If the Company declares or pays a
-----------------------------
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2. Reclassification, Exchange or Substitution. Upon any
---------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
section shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3. Adjustments for Combinations, Etc. If the outstanding Shares are
----------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased and the number
of Shares acquirable hereunder shall be proportionately decreased.
2.4. No Impairment. The Company shall not, by amendment of its
--------------
Articles of Incorporation or through a 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 under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
<PAGE>
to protect Holder's rights under this Article against impairment. If the
Company takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.5. Fractional Shares. No fractional Shares shall be issuable upon
------------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder an amount
computed by multiplying the fractional interest by the Fair Market Value of a
full Share.
2.6. Adjustment of Warrant Price and Shares Purchasable.
--------------------------------------------------------
(a) Adjustments for Dilutive Issuances.
-------------------------------------
(1) Adjustment Procedure. Upon each Issuance of Common
--------------------
Stock after the date hereof without consideration or for a consideration per
share less than the Measuring Price in effect immediately prior to such Issuance
of Common Stock (a "Dilutive Issuance"), the number of shares of Common Stock
----------------------
issuable upon
exercise of the Conversion Right shall be increased by the number of shares of
Common Stock determined under the following formula:
X = (B x A)-(B x C)
-------------------
C
Where: X = The increase in the number of shares of Common Stock
acquirable hereunder
B = The shares of Common Stock acquirable hereunder immediately
prior to the Issuance of Common Stock
A = The Measuring Price in effect immediately prior to the Issuance
of Common Stock
C = The Adjusted Share Value
For purposes hereof, the Adjusted Share Value, upon the closing of any Issuance
of Common Stock, shall be the amount equal to the sum of (i) the amount obtained
by multiplying the Common Stock Outstanding immediately prior to the Issuance of
Common Stock by the Measuring Price in effect immediately prior to the Issuance
of Common Stock, and (ii) the Aggregate Consideration that the Company receives
from the Issuance of Common Stock, and dividing the resulting sum by the Common
Stock Outstanding immediately after the Issuance of Common Stock. In addition,
the Measuring Price as of any date is the Original Measuring Price, as adjusted
from time to time in accordance with the terms hereof. The Original Measuring
Price is Dollars and Cents ($ ). Upon each Issuance of Common
Stock described in this section, the Measuring Price shall be adjusted to the
Adjusted Share Value resulting from such Issuance of Common Stock. The
<PAGE>
Measuring Price shall be adjusted in accordance with Sections 2.1 and 2.3,
concurrent with any adjustment of the Warrant Price, in the same proportion and
manner as the Warrant Price is adjusted thereunder. For example, if the Warrant
Price is doubled under Section 2.3 as a result of a combination of the Common
Stock, then the Measuring Price shall be concurrently doubled.
Concurrent with each adjustment in the number of Shares acquirable hereunder as
a result of a Dilutive Issuance, the Warrant Price shall be adjusted to the
amount equal to the price obtained by multiplying the Warrant Price in effect
immediately prior to the Dilutive Issuance by a fraction, the numerator of which
is the number of Shares acquirable hereunder immediately prior to the Dilutive
Issuance and the denominator of which is the number of Shares acquirable
hereunder immediately after the Dilutive Issuance.
Adjustments in the number of Shares under this section shall not occur with
respect to Issuances of Common Stock while the Company is a Reporting Company.
Under no circumstances shall the aggregate Warrant Price payable by Holder upon
exercise of this Warrant increase as a result of any adjustment arising from a
Dilutive Issuance.
(2) Special Provisions. Notwithstanding the provisions of subsection
-------------------
(1) of this section, the following provisions shall govern the adjustment
formula set forth in subsection (1):
(a) Deemed Issuances of Common Stock. Whenever an adjustment
----------------------------------
is made in the shares of Common Stock acquirable hereunder and the Warrant Price
pursuant to subsection (1) based upon a Deemed Issuance of Common Stock, except
as provided in paragraph (c) of this subsection, no further adjustment in the
shares of Common Stock acquirable hereunder and the Warrant Price shall be made
upon the subsequent actual issuance of the shares of Common Stock subject to the
applicable Convertible Securities or Options, nor shall the exercise of any
Convertible Security or Option included in such Deemed Issuance of Common Stock
constitute an issuance of securities for which an adjustment in the number of
shares of Common Stock and the Warrant Price may be made under this section.
(b) Change in Exercise Price or Conversion Rate. If, subsequent
-------------------------------------------
to any Deemed Issuance of Common Stock, there is a change (other than a change
required by anti-dilution provisions of any Convertible Security or Option
intended to serve the same purpose as the provisions of this section) in (i) the
purchase or exercise price provided for in any Option included in such Deemed
Issuance of Common Stock (an "Exercise Price") or (ii) the conversion price or
--------------------
exchange ratio (a "Conversion Rate") of any Convertible Security included in
----------------------
such Deemed Issuance of Common Stock, such that the changed Exercise Price or
Conversion Rate, as the case may be, had it been in effect at the time of such
Deemed Issuance of Common Stock, would have resulted in an increase in the
number of shares of Common Stock acquirable hereunder as a result of such Deemed
Issuance of Common Stock resulting in a lower Aggregate Consideration or greater
number of shares of Common Stock Outstanding, then (A) the Aggregate
Consideration and/or number of shares of Common Stock Outstanding shall be
recalculated and the shares of Common Stock acquirable hereunder then in effect
shall forthwith be readjusted to such number of shares of Common Stock
acquirable as would have been in effect at such time had all of such Options or
Convertible Securities that remain outstanding at the time of such change (or
<PAGE>
that may be issued upon the exercise of any Option or Convertible Securities
included in such Deemed Issuance of Common Stock and that then remain
outstanding) provided for such changed Exercise Price or Conversion Rate, as the
case may be, at the time of such Deemed Issuance of Common Stock and (B) each
other adjustment, if any, made to the shares of Common Stock acquirable
hereunder subsequent to such Deemed Issuance of Common Stock based on subsequent
Issuances of Common Stock shall be recalculated, utilizing for such purpose the
Common Stock Outstanding, Deemed Consideration and the shares of Common Stock
acquirable as recalculated or as readjusted pursuant to clause (A) of this
paragraph (b).
(c) Expiration of Option or Convertible Right. With
---------------------------------------------
respect to any Deemed Issuance of Common Stock, effective as of the close of
business on the first business day on which no share of Common Stock may
thereafter be issued upon an exercise of an Option or Convertible Security
included in such Deemed Issuance of Common Stock (whether by reason of (i) the
full exercise of all Options and/or Convertible Securities Included in such
Deemed Issuance of Common Stock or (ii) the expiration or termination of any
right to exercise any Options and/or Convertible Securities included in such
Deemed Issuance of Common Stock that have not theretofore been exercised and/or
(iii) the purchase by the Company and cancellation or retirement of some or all
Options and/or Convertible Securities included in such Deemed Issuance of Common
Stock that have not theretofore been exercised), the shares of Common Stock then
acquirable shall be adjusted by (A) recalculating pursuant hereto the adjustment
of the Warrant Price and the shares of Common Stock acquirable immediately prior
to such Deemed Issuance of Common Stock, basing such recalculation on each
issuance of shares of Common Stock upon an exercise of an Option or Convertible
Security included in such Deemed Issuance of Common Stock, rather than the
Common Stock Outstanding on which the original calculation was based and (B)
recalculating each other adjustment, if any, made to the Warrant Price and the
shares of Common Stock acquirable subsequent to such Deemed Issuance of Common
Stock based on subsequent Issuances of Common Stock, utilizing the Warrant Price
and the shares of Common Stock acquirable as adjusted pursuant to clause (A) of
this paragraph (c) and including in Common Stock Outstanding for such purpose
only the shares of Common Stock actually issued upon the exercise of Options
and/or Convertible Securities included in such Deemed Issuance of Common Stock
in place of the shares of Common Stock Outstanding in respect of such Deemed
Issuance of Common Stock as utilized in the original calculations of those
adjustments.
(d) Warrant Price Adjustment. Concurrent with each
--------------------------
adjustment in the number of shares of Common Stock acquirable hereunder pursuant
to paragraphs (b) and (c) of this subsection, the Warrant Price shall be
adjusted to the amount equal to the price obtained by multiplying the Warrant
Price in effect immediately prior to such adjustment by a fraction, the
numerator of which is the number of shares of Common Stock acquirable hereunder
immediately prior to the adjustment and the denominator of which is the number
of shares of Common Stock acquirable hereunder immediately after the adjustment.
2.7. Certificate as to Adjustments. Upon each adjustment of the
--------------------------------
Warrant Price and the number of Shares acquirable hereunder, the Company, at its
expense, shall promptly compute such adjustment and furnish Holder with a
certificate of its Chief Financial Officer setting forth such adjustment and the
facts upon which such adjustment is based. The Company shall, upon written
request, furnish Holder a certificate setting forth the Warrant Price in effect
on the date thereof and the number of Shares acquirable hereunder on such date
and the series of adjustments leading to such Warrant Price and Share number.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY
-------------------------------------------------
3.1. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
3.2. Notice of Certain Events. If the Company proposes at any time (a)
------------------------
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; or (d)
to merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up, then, in connection with each such event, the Company shall
give Holder (1) prompt prior written notice of the date on which a record will
be taken for such dividend, distribution, or subscription rights (and specifying
the date on which the holders of common stock will be entitled thereto) or for
determining rights to vote, if any, in respect of the matters referred to in (c)
and (d) above; and (2) in the case of the matters referred to in (c) and (d)
above, prompt prior written notice of the date when the same will take place
(and specifying the date on which the holders of common stock will be entitled
to exchange their common stock for securities or other property deliverable upon
the occurrence of such event).
3.3. Information Rights. So long as the Holder holds this Warrant
-------------------
and/or any of the Shares, the Company shall deliver to the Holder:
(a) as soon as practicable after the end of each calendar month,
and in any event within thirty (30) days thereafter, an unaudited balance sheet
of the Company as of the end of such month, cash flow statements and an
unaudited statement of operations of the Company for the portion of the Fiscal
Year ended with such month prepared and certified by the chief financial officer
of the Company, subject, however, to the exclusion of footnotes and to normal
year-end audit adjustments, and a comparison of such statements to the Company's
operating plan or budget then in effect;
(b) as soon as practicable after the end of each Fiscal Year,
and in any event within one hundred twenty (120) days thereafter, a copy of its
audited financial statements accompanied by a report thereon by a firm of
independent certified public accountants selected by the Company, which report
shall state that such financial statements fairly present the Company's
financial position at the end of such Fiscal Year;
(c) as soon as available, and in any event within sixty (60)
days prior to the commencement of each Fiscal Year, a budget and business plan
for the Company for such Fiscal Year;
<PAGE>
(d) promptly upon their becoming available, one copy of each
report, notice or proxy statement sent by the Company to its shareholders
generally and of each regular or periodic report or registration statement,
prospectus or written communication (other than transmittal letters) filed by
the Company with the Securities and Exchange Commission or any securities
exchange on which the Company's securities are listed; and
(e) with reasonable promptness, such other information as from
time to time may be reasonably requested by Holder.
3.4. The Company's delivery obligations under this section shall
terminate upon the Company becoming a Reporting Company.
ARTICLE 4. REGISTRATION RIGHTS.
--------------------
4.1. Piggyback Registration Rights.
--------------------------------
(a) If the Company determines to Register any of its securities either
for its own account or the account of a shareholder(s) exercising demand
Registration rights, other than a Registration relating solely to employee
benefit plans, or a Registration relating solely to a transaction pursuant to
Rule 145 promulgated under the Securities Act or a Registration on any
Registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
Registration statement covering the sale of the Shares, the Company shall
promptly give to Holder written notice thereof and include in such Registration
(and any related qualification under blue sky laws), and in any underwriting
involved therein, the number of Shares specified in a written request made by
Holder within ten (10) days after receipt of such written notice from the
Company.
(b) If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, Holder's right to
Registration shall be conditioned upon (i) Holder's participation in such
underwriting and (ii) the inclusion of Holder's Shares in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company; provided, however, that in the event of
-------- -------
any reduction in the securities to be included in the Registration, the
securities that may be included in the Registration and underwriting shall be
allocated (1) first, to the Company, and (2) second, among the Holder and the
other security holders distributing their securities through such underwriting,
in proportion (as nearly as practicable) to the number of shares owned by each
such party.
4.2. Form S-3 Registration Rights. If the Company receives from Holder
----------------------------
a written request or requests that it effect a Registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities of Holder, the Company shall:
(a) promptly give written notice of the proposed Registration, and any
related qualification or compliance, to all other holders; and
(b) as soon as practicable, effect such Registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other shareholder(s) joining in such
request as are specified in a written request given within twenty (20) days
after receipt of such written notice from the Company; provided, however, that
-------- -------
the Company shall not be obligated to effect any such Registration,
qualification or compliance, pursuant to this section:
(1) if Form S-3 is not available for such offering by Holder
and the other shareholder(s);
(2) if Holder, together with the holders of any other securities
of the Company entitled to inclusion in such Registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public (net of any underwriters' discounts or commissions) of less than
Five Hundred Thousand Dollars ($500,000);
(3) if the Company furnishes to Holder and the shareholder(s)
proposing to participate in such Registration, a certificate signed by the
Company's President stating that, in the good faith judgment of the Company's
Board of Directors, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
Registration statement for a period of not more than one hundred twenty (120)
days after receipt of Holder's request under this section; provided, however,
-------- -------
that the Company shall not utilize this right more than once in any twelve (12)
month period;
(4) if the Company has, within the twenty-four (24) month
period preceding the date of such request, already effected two (2)
Registrations on Form S-3 for Holder pursuant to this section; or
(5) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such Registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall use its best
efforts to file a registration statement covering the Registrable Securities and
other securities so requested to be Registered as soon as practicable after
receipt of Holder's request.
4.3. Expenses of Company Registrations. The Company shall bear all
------------------------------------
Registration Expenses incurred in connection with any Registration,
qualification or compliance pursuant to this Article 4 (exclusive of Selling
Expenses).
4.4. Registration Procedures. In the case of each Registration,
------------------------
qualification or compliance effected by the Company pursuant hereto, the Company
shall keep Holder advised in writing as to the initiation of each Registration,
qualification and compliance and as to the completion thereof. At its expense,
the Company shall:
(a) Keep such Registration, qualification or compliance effective
for a period of one hundred twenty (120) days or until Holder has completed the
distribution described in the registration statement relating thereto, whichever
first occurs;
<PAGE>
(b) Furnish such number of prospectuses and other documents
incident thereto as Holder from time to time may reasonably request;
(c) Prepare and file with the Securities and Exchange Commission
such amendments and supplements to such Registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;
(d) Use its best efforts to Register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as Holder reasonably requests; provided, however,
-------- --------
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Holder shall
also enter into and perform its obligations under such an agreement;
(f) Notify Holder at any time when a prospectus relating to
Shares is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
(g) Provide a transfer agent and registrar for all
Registrable Securities Registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such Registration; and
(h) Furnish, at Holder's request, on the datE that such
Registrable Securities are delivered to the underwriters for sale in connection
with such Registration, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such Registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, and (ii) a letter, dated such date,
from the Company's independent certified public accountants, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.
4.5. Indemnification.
---------------
(a) The Company shall indemnify Holder, each of Holder's directors,
officers, employees and agents, and each entity or person controlling Holder
within the meaning of Section 15 of the Securities Act, with respect to which
Registration, qualification or compliance has been effected pursuant to this
Article 4, and each underwriter, if any, and each entity or person who controls
any underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages and liabilities (or actions in respect
<PAGE>
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such Registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
action or inaction required of the Company in connection with any such
Registration, qualification or compliance, and shall reimburse Holder, each of
Holder's directors, officers, employees and agents, and each entity or person
controlling Holder, each such underwriter and each entity or person who controls
any such underwriter, for any legal and any other expenses reasonably incurred
in connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company shall not be liable to
Holder or an underwriter in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by Holder or an underwriter and stated to be
specifically for use therein.
(b) Holder shall, if Shares are included in the securities as to
which a Registration, qualification or compliance has been effected pursuant to
this Article 4, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such Registration,
qualification or compliance, each entity or person who controls the Company or
such underwriter within the meaning of Section 15 of the Securities Act, and
each of its directors, officers, employees and agents, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such Registration, qualification or
compliance or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such Registration, qualification, or compliance, and shall reimburse
the Company, such directors, officers, employees, agents, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by Holder and stated to be specifically for use therein; provided,
however, that Holder's obligations hereunder shall be limited to an amount equal
to the proceeds Holder received for Shares sold as contemplated herein.
<PAGE>
(c) Each party entitled to indemnification under this section (the
"Indemnified Party") shall give notice to the party required to provide
------------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
---- ------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at its own
expense, and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this section unless such failure resulted in actual detriment
to the Indemnifying Party. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party a release from all liability in respect of such claim
or litigation.
(d) If the indemnification provided for in this section is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
[4.6 "Market Stand-Off" Agreement. Holder agrees that, during the
------------------------------
period of duration (not to exceed one hundred eighty (180) days) specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the
Company filed for a Registration, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) this Warrant or any of the Shares acquirable or
acquired upon the exercise hereof except Shares included in such Registration;
provided, however, that all officers, directors and holders of one percent (1%)
------- -------
or more of the Company's securities and all other persons with registration
rights enter into similar agreements. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to this
Warrant and the Shares acquirable or acquired upon the exercise hereof (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period. This covenant shall survive the termination of
this Warrant.]
[4.7 Superseding Registration Rights. If (i) the Company closes an
---------------------------------
equity financing after the date hereof which raises Five Hundred Thousand
Dollars ($500,000) or more for the Company, (ii) the Company grants registration
rights to the purchasers of the equity securities in such financing (the "New
---
Registration Rights") and Holder is made a party to the New Registration Rights
------------------
on the same terms and conditions as such purchasers, and (iii) the New
<PAGE>
Registration Rights are no less favorable to Holder than the registration rights
granted under this Article 4, then, concurrent with the effectiveness of such
registration rights, the registration rights provisions set forth in this
Article 4 shall terminate without any action by the Company or Holder.]
ARTICLE 5. DEFINITIONS.
-----------
"Acquisition" means any sale, license, or other disposition of all or
-----------
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
"Actual Consideration" means the aggregate consideration that the
---------------------
Company receives with respect to an Actual Issuance of Common Stock.
"Actual Issuance of Common Stock" means any issuance by the Company of
-------------------------------
Common Stock other than pursuant to conversion of a Convertible Security or
exercise of an Option.
"Aggregate Consideration" means with respect to an Issuance of Common
------------------------
Stock, an amount equal to (i) the Actual Consideration received with respect to
Common Stock, if any, issued and (ii) the Deemed Consideration received with
respect to the Options and Convertible Securities, if any, issued.
"Common Stock Outstanding" means as of any date (i) all shares of
--------------------------
Common Stock that are outstanding as of such date, plus (ii) all shares of
----
Common Stock issuable upon conversion of Convertible Securities outstanding as
of such date, whether or not convertible as of such date, plus (iii) all shares
----
of Common Stock issuable upon exercise of Options outstanding as of such date,
whether or not such Options are exercisable as of such date (assuming for this
purpose that Convertible Securities acquirable upon exercise of any such Options
are converted into Common Stock as of such date).
"Convertible Securities" means evidence of indebtedness, shares of
-----------------------
stock or other securities which are convertible into or exchangeable for, with
or without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Deemed Consideration" means the aggregate consideration received or
---------------------
deemed received by the Company with respect to a Deemed Issuance of Common
Stock, determined by adding (i) the aggregate amount, if any, received or
receivable by the Company as consideration in respect of the issuance of Options
and/or Convertible Securities constituting such Deemed Issuance of Common Stock,
and (ii) the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the full exercise of the Options (and if Options to
acquire Convertible Securities, upon full exercise of the conversion rights with
respect to such Convertible Securities) and upon full conversion of the
Convertible Securities in order to acquire the underlying shares of Common
Stock.
<PAGE>
"Deemed Issuance of Common Stock" means an issuance by the Company of
--------------------------------
a Convertible Security or an Option.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-------------
"Fiscal Year" means the fiscal year of the Company.
------------
"Issuance of Common Stock" means (i) an Actual Issuance of Common
---------------------------
Stock or (ii) a Deemed Issuance of Common Stock.
"Option" means any right, warrant or option to subscribe or purchase
------
shares of Common Stock or Convertible Securities.
"Register," "Registered" and "Registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" means (i) the Shares, and (ii) shares of
-----------------------
Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the Shares; provided, however, that any shares
-------- -------
described in the foregoing clauses that have been resold to the public shall
cease to be Registrable Securities.
"Registration Expenses" means all expenses the Company incurs in
----------------------
complying with Article 4, including, without limitation, all Registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, Blue Sky fees and expenses, and the expenses of any special audits
incident to or required by any such Registration.
"Reporting Company" means that the Company is subject to the periodic
------------------
reporting requirements of Sections 12(g) or 15(d) of the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended.
---------------
"Selling Expenses" means (i) all underwriting discounts and selling
-----------------
commissions applicable to the sale of securities Registered and sold pursuant to
Article 4, (ii) any additional costs and disbursements of counsel for the
Company that result from inclusion of Registrable Securities in the
Registration, and (iii) the expenses of qualifying the securities covered by the
Registration in a jurisdiction to the extent that the jurisdiction requires such
qualification expenses to be borne by the selling security holders.
ARTICLE 6. MISCELLANEOUS.
-------------
6.1. Term. The term of this Warrant shall commence on the date hereof
----
and terminate on at 5:00 p.m., Pacific Time on February 5, 1999.
6.2. Legends. This Warrant and the Shares shall be imprinted with a
-------
legend in substantially the following form:
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
6.3. Compliance with Securities Laws on Transfer. This Warrant and the
-------------------------------------------
Shares issuable upon exercise of this Warrant may not be transferred or assigned
in whole or in part without compliance with applicable federal and state
securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, as reasonably requested by the Company).
The Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder or if there is no material question as to
the availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
6.4. Transfer Procedure. Subject to the provisions of Section 6.3,
-------------------
Holder may transfer this Warrant or the Shares issuable upon exercise of this
Warrant by giving the Company notice setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee. Unless the Company is a
Reporting Company, it shall have the right to refuse to transfer this Warrant or
the Shares to any person who directly competes with the Company and/or its
subsidiaries.
6.5. Notices. All notices and other communications from the Company to
-------
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished by the Company or the
Holder, as the case may be, in writing by the Company or the Holder from time to
time.
6.6. Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
6.7. Attorneys' Fees. In the event of any dispute between the parties
----------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
6.8. Remedies. Company stipulates that the remedies at law of Holder
--------
in the event of any default or threatened default by Company in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate to the fullest extent permitted by law, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
<PAGE>
6.9. No Original Issue Discount. The Company and the Holder hereby
-----------------------------
acknowledge and agree that this Warrant is part of an investment unit within the
meaning of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended,
which includes the term loan made by the Holder to the Company pursuant to the
Loan Agreement (the "Loan"). The Company and the Holder further agree as
----
between the Company and the Holder that the fair market value of this Warrant is
equal to Five Hundred Dollars ($500) and that, pursuant to Treas. Reg.
1.1273-2(h), Five Hundred Dollars ($500) of the issue price of the investment
unit shall be allocable to this Warrant and the balance shall be allocable to
the Loan. The Company and the Holder agree to prepare their federal income tax
returns in a manner consistent with the foregoing agreement and, pursuant to
Treas. Reg. 1.1273, the original issue discount on the Loan shall be
considered to be zero.
6.10. Governing Law. This Warrant shall be governed by and construed
--------------
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
Pointe Communications Corporation
---------------------------------------
By: __________________________________
Title: ________________________________
Date: ________________________________
<PAGE>
REVIEWED AND AGREED TO:
ASCEND COMMUNICATIONS, INC.
Title: ________________________________
Date: ________________________________
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase shares of the Common Stock
of _________ pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full.
2. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised
with respect to _____________________ of the Shares covered by the Warrant.
[Strike paragraph 1 that does not apply.]
3. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
_____________________________________
(Name)
_____________________________________
_____________________________________
(Address)
4. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_____________________________________
(Signature)
____________________
(Date)
<PAGE>
MASTER LEASE AGREEMENT
No. A
-
This Master Lease Agreement (the "MLA") is entered into by and between Ascend
Credit Corporation ("Lessor"), having its principal place of business at 1701
Harbor Bay Parkway, Alameda, CA 94502 and Pointe Communications Corporation
---------------------------------
("Lessee"), having its principal place of business at 17100 El Camino Real,
--------------------
#100, Houston, TX 77058.
- -----
1. LEASE AGREEMENT. Lessor agrees to lease to Lessee, and Lessee agrees to
lease from Lessor, the equipment (the "Equipment") referenced in each of the
Schedules (the "Schedule" or "Schedules") which incorporate this MLA therein
(the "Lease").
2. TERM. Each Lease shall be effective upon the execution of the MLA and
the related Schedule by the Lessor and the Lessee. The lease term (the "Lease
Term") of the Equipment referenced in each of the Schedules shall commence on
the rent commencement date specified in each Schedule (the "Rent Commencement
Date"). The Rent Commencement Date shall be the date 30 days from the date that
the Equipment is shipped by the supplier (the "Ship Date") as evidenced by a
shipping document provided by the supplier related to the Equipment (the
"Shipping Document"). Lessor will provide Lessee with a copy of the Shipping
Document evidencing the Ship Date.
3. RENT. The rent (the "Rent") for the Equipment referenced in any Schedule
shall be as stated in such Schedule and shall be payable according to the
provisions of such Schedule. If any amount payable under a Schedule is not
received by Lessor within 10 days of the due date, Lessee agrees to pay an
Overdue Charge, as defined herein, with respect to such amount.
4. SELECTION AND ASSIGNMENT. Lessee will select the type, quantity and
Supplier of each item of Equipment designated in a Schedule, and Lessee hereby
assigns to Lessor all of its right, title and interest in and to the related
equipment purchase agreement, a copy of which has been provided to Lessor by
Lessee (the "Agreement"). The Agreement may be amended with the consent of
Lessor. Any such assignment with respect to Equipment shall become binding upon
Lessor when Lessor and Lessee have entered into a Lease with respect to such
Equipment and as of the Rent Commencement Date referenced in such Lease. Upon
such an assignment becoming effective, Lessor shall be obligated to purchase the
Equipment from the Supplier in accordance with the provisions of the Agreement.
It is expressly agreed that Lessee shall at all times remain liable to Supplier
under the Agreement to perform all duties and obligations of Lessee thereunder,
except for the obligation to purchase the Equipment to the extent expressly
assumed by the Lessor hereunder, and that the Lessee shall be entitled to the
same rights of the purchaser of the Equipment under the Agreement, except such
right, title and interest in the Equipment retained exclusively by the Lessor as
owner of the Equipment. Lessor shall have no liability for a Supplier's failure
to meet the terms and conditions of the Agreement.
5. DELIVERY AND INSTALLATION. Lessee shall be responsible for payment of
all transportation, packing, installation, testing and other charges associated
with the delivery, installation or use of any Equipment which are not included
in the Agreement with respect to such Equipment.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS MERCHANTABILITY,
OR ITS FITNESS FOR A PARTICULAR PURPOSE. LESSOR SHALL NOT BE LIABLE TO LESSEE
OR ANY OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES ARISING FROM LESSEE'S USE OF THE EQUIPMENT, OR FOR DAMAGES BASED ON
STRICT OR ABSOLUTE TORT LIABILITY OR LESSOR'S PASSIVE NEGLIGENCE. LESSEE HEREBY
ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO
THE EQUIPMENT ARE FOR THE BENEFIT OF BOTH LESSOR AND LESSEE. NOTWITHSTANDING
THE FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH RENT PAYMENT DUE, OR OTHERWISE
PERFORM ITS OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL.
7. TITLE TO AND LOCATION OF EQUIPMENT. Lessor shall retain title to each
item of Equipment. Lessee, at its expense, shall protect Lessor's title and
keep the Equipment free from all claims, liens, encumbrances and legal
processes. The Equipment is personal property and is not to be regarded as part
of the real estate on which it may be situated. If requested by Lessor, Lessee
will, at Lessee's expense, furnish a landlord or mortgagee waiver with respect
to the Equipment. The Equipment shall not be removed from the location
specified in the Schedule without the written consent of Lessor. Lessee shall,
upon Lessor's request, affix and maintain plates, tags or other identifying
labels, showing Lessor's ownership of the Equipment in a prominent position on
the Equipment.
8. USE OF EQUIPMENT, INSPECTION AND REPORTS. The use of the Equipment by
Lessee shall conform with all applicable laws, insurance policies, and
warranties of the manufacturer or Supplier of the Equipment. Lessor shall have
the right to inspect the Equipment at the premises where the Equipment is
located. Lessee shall notify Lessor promptly of any claims, liens, encumbrances
or legal processes with respect to the Equipment.
9. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor such
instruments as Lessor deems necessary for the confirmation of this Lease and
Lessor's rights hereunder. Lessor is authorized to file financing statements
signed only by the Lessor in accordance with the Uniform Commercial Code, or
financing statements signed by Lessor as Lessee's attorney-in-fact. Any such
filing with respect to the Equipment leased pursuant to a true lease shall not
be deemed evidence of any intent to create a security interest under the Uniform
Commercial Code.
10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense, maintain each
item of Equipment in good condition, normal wear and tear excepted. Lessee
shall not make any addition, alteration, or attachment to the Equipment without
Lessor's prior written consent. Lessee shall make no repair, addition,
alteration or attachment to the Equipment which interferes with the normal
operation or maintenance thereof, creates a safety hazard, or might result in
the creation of a mechanic's or materialman's lien.
11. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to
perform any of its obligations under a Lease, Lessor may perform any act or make
any payment which Lessor deems necessary for the maintenance and preservation of
the Equipment subject thereto and Lessor's title thereto. All sums so paid by
Lessor (together with all related Overdue Charges), and reasonable attorneys'
fees incurred by Lessor in connection therewith, shall be additional rent
payable to Lessor on demand. The performance of any such act or the making of
any such payment by Lessor shall not be deemed a waiver or release of any
obligation or default on the part of Lessee.
12. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to
indemnify, protect and hold harmless, Lessor, and its agents, employees,
officers, directors, partners and successors and assigns, from and against, all
liabilities, obligations, losses, damages, injuries, claims, demands, penalties,
actions, costs and expenses, including, without limitation, reasonable
attorneys' fees, of whatever kind and nature, in contract or in tort, arising
out of the use, condition, operation, ownership, selection, delivery, leasing or
return of any item of Equipment, regardless of when, how and by whom operated,
or any failure on the part of Lessee to perform or comply with any of its
obligations under a Lease, excluding, however, any of the foregoing which result
from the gross negligence or willful misconduct of Lessor. Such indemnities and
assumptions of liabilities and obligations shall continue in full force and
effect, notwithstanding the expiration or other termination of such Lease.
Nothing contained in any Lease shall authorize Lessee to operate the Equipment
subject thereto so as to incur or impose any liability on, or obligation for or
on behalf of, Lessor.
13. NO OFF-SET. All Rents shall be paid by Lessee irrespective of any
off-set, counterclaim, recoupment, defense or other right which Lessee may have
against Lessor, the manufacturer or Supplier of the Equipment or any other
party.
14. ASSIGNMENT BY LESSEE. Lessee shall not, without Lessor's prior written
consent, (a) sell, assign, transfer, pledge, hypothecate, or otherwise dispose
of, encumber or suffer to exist a lien upon or against, any of the Equipment or
any Lease or any interest therein, by operation of law or otherwise, or (b)
sublease or lend any of the Equipment or permit any of the Equipment to be used
by anyone other than Lessee.
15. ASSIGNMENT BY LESSOR. Lessor may assign, sell or encumber its interest
in any of the Equipment and any Lease. Upon Lessor's written consent, Lessee
shall pay directly to the assignee of any such interest all Rent and other sums
due under an assigned Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE
SUBJECT TO ANY ABATEMENT, DEDUCTION, OFF-SET, COUNTERCLAIM, RECOUPMENT, DEFENSE
OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST LESSOR OR ANY OTHER PERSON OR
ENTITY. Notwithstanding the foregoing, any such assignment (a) shall be subject
to Lessee's right to possess and use the Equipment subject to a Lease so long as
Lessee is not in default thereunder, and (b) shall not release any of Lessor's
obligations hereunder.
16. RETURN OF EQUIPMENT. Unless Lessee has exercised its option, if any, to
renew a lease or purchase the Equipment subject thereto, upon expiration of the
then current Lease Term of such Lease, Lessee shall, at its expense, cause such
Equipment to be removed, disassembled, and placed in the same condition as when
delivered to Lessee (reasonable wear and tear excepted) and properly crate such
Equipment for shipment and deliver it to a common carrier designated by Lessor.
Lessee will ship such Equipment, F.O.B. destination, to any address specified in
writing by Lessor within the continental United States. All additions,
attachments, alterations and repairs made or placed upon any of the Equipment
shall become part of such Equipment and shall be the property of Lessor.
<PAGE>
17. EVENTS OF DEFAULT. The occurrence of any of the following shall be
deemed to constitute an Event of Default hereunder: (a) Lessee fails to pay
Rent, any other amount it is obligated to pay under a Lease or any other amount
it is obligated to pay to Lessor and does not cure such failure within 10 days
of such amount becoming due; (b) Lessee fails to perform or observe any
obligation or covenant to be performed or observed by Lessee hereunder or under
any Schedule, including, without limitation, supplying all requested
documentation, and does not cure such failure within 10 days of receiving
written notice thereof from Lessor; (c) any warranty, representation or
statement made or furnished to Lessor by or on behalf of Lessee is proven to
have been false in any material respect when made or furnished; (d) the
attempted sale or encumbrance by Lessee of the Equipment, or the making of any
levy, seizure or attachment thereof or thereon; or (e) the dissolution,
termination of existence, discontinuance of business, insolvency, or appointment
of a receiver of any part of the property of Lessee, assignment by Lessee for
the benefit of creditors, the commencement of proceedings under any bankruptcy,
reorganization or arrangement laws by or against Lessee, or any other act of
bankruptcy on the part of Lessee.
18. REMEDIES OF LESSOR. At any time after the occurrence of any Event of
Default, Lessor may exercise one or more of the following remedies: (a) Lessor
may terminate any or all of the Leases with respect to any or all items of
Equipment subject thereto; (b) Lessor may recover from Lessee all Rent and other
amounts then due and to become due under any or all of the Leases; (c) Lessor
may take possession of any or all items of Equipment, wherever the same may be
located, without demand or notice, without any court order or other process of
law and without liability to Lessee for any damages occasioned by such taking of
possession, and any such taking of possession shall not constitute a termination
of any Lease; (d) Lessor may demand that Lessee return any or all items of
Equipment to Lessor in accordance with Paragraph 16; and (e) Lessor may pursue
any other remedy available at law or in equity, including, without limitation,
seeking damages, specific performance or an injunction.
Upon repossession or return of any item of the Equipment, Lessor shall
sell, lease or otherwise dispose of such item in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the net
proceeds thereof (after deducting the estimated fair market value of such item
at the expiration of the term of the applicable Lease, in the case of a sale, or
the rents due for any period beyond the scheduled expiration of such Lease, in
the case of any subsequent lease of such item, and all expenses, including,
without limitation, reasonable attorneys' fees, incurred in connection
therewith) towards the Rent and other amounts due under such Lease, with any
excess net proceeds to be retained by Lessor.
Each of the remedies under this Lease shall be cumulative, and not
exclusive, and in addition to any other remedy referred to herein or otherwise
available to Lessor in law or in equity. Any repossession or subsequent sale or
lease by Lessor of any item of Equipment shall not bar an action for a
deficiency as herein provided, and the bringing of an action or the entry of
judgment against Lessee shall not bar Lessor's right to repossess any or all
items of Equipment.
19. CREDIT AND FINANCIAL INFORMATION. Within 90 days of the close of each
of Lessee's fiscal years, Lessee shall deliver to Lessor a copy of Lessee's
annual report, if any, and an audited balance sheet and profit and loss
statement with respect to such year. If audited financial statements of Lessee
for such year are not prepared, Lessee may provide financial statements
certified by an officer of Lessee. At Lessor's request, Lessee shall deliver to
Lessor a balance sheet and profit and loss statement for any of its fiscal
quarters, certified by an officer of Lessee.
20. INSURANCE. As of the date that risk of loss for the Equipment passes
from the Supplier to the Lessee under the terms of the Agreement, Lessee shall
obtain and maintain through the end of the Lease Term of each Lease (and any
renewal or extension thereof), at its own expense, property damage and personal
liability insurance and insurance against loss or damage to the Equipment,
including, without limitation, loss by fire (with extended coverage), theft and
such other risks of loss as are customarily insured against with respect to the
types of Equipment leased hereunder and by the types of businesses in which such
Equipment will be used by Lessee. Such insurance shall be in such amounts, with
such deductibles, in such form and with such insurers as shall be satisfactory
to Lessor; provided, however, that the amount of the insurance against loss or
damage to the Equipment shall not be less than the greater of the replacement
value of the Equipment, from time to time, or the original purchase price of the
Equipment. Each insurance policy shall name Lessee as an insured and Lessor as
an additional insured or loss payee, and shall contain a clause requiring the
insurer to give Lessor at least 30 days prior written notice of any alteration
in the terms of such policy or of the cancellation thereof. Lessee shall
furnish to Lessor a certificate of insurance or other evidence satisfactory to
Lessor that such insurance coverage is in effect; provided, however, that Lessor
shall be under no duty either to ascertain the existence of or to examine such
insurance policy or to advise Lessee in the event such insurance coverage shall
not comply with the requirements hereof. Lessee shall give Lessor prompt notice
of any damage to, or loss of, any of the Equipment, or any part thereof, or any
personal injury or property damage occasioned by the use of any of the
Equipment.
21. TAXES. Lessee hereby assumes liability for, and shall pay when due,
and, on a net after-tax basis, shall indemnify, protect and hold harmless Lessor
against all fees, taxes and governmental charges (including, without limitation,
interest and penalties) of any nature imposed on or in any way relating to
Lessor, Lessee, any item of Equipment or any Lease, except state and local taxes
on or measured by Lessor's net income (other than any such tax which is in
substitution for or relieves Lessee from the payment of taxes it would otherwise
be obligated to pay or reimburse to Lessor as herein provided) and federal taxes
on Lessor's net income. Lessee shall, at its expense, file when due with the
appropriate authorities any and all tax and similar returns, and reports
required to be filed with respect thereto, for which it has indemnified Lessor
hereunder or, if requested by Lessor, notify Lessor of all such requirements and
furnish Lessor with all information required for Lessor to effect such filings.
Any fees, taxes or other charges paid by Lessor upon failure of Lessee to make
such payments shall, at Lessor's option, become immediately due from Lessee to
Lessor and shall be subject to the Overdue Charge from the date paid by Lessor
until the date reimbursed by Lessee.
22. SEVERABILITY. If any provision of any Lease is held to be invalid by a
court of competent jurisdiction, such invalidity shall not affect the other
provisions of such Lease or any provision of any other Lease.
23. NOTICES. All notices hereunder shall be in writing and shall be deemed
given when sent by certified mail, postage prepaid, return receipt requested,
addressed to the party to which it is being sent at its address set forth herein
or to such other address as such party may designate in writing to the other
party.
24. AMENDMENTS, WAIVERS AND EXTENSIONS. This MLA and each Schedule
constitute the entire agreement between Lessor and Lessee with respect to the
lease of the Equipment subject to such Schedule, and supersede all previous
communications, understandings, and agreements, whether oral or written, between
the parties with respect to such subject matter. No provision of any Lease may
be changed, waived, amended or terminated except by a written agreement,
specifying such change, waiver, amendment or termination, signed by both Lessee
and Lessor, except that Lessor may insert, on the appropriate schedule, the
serial number of Equipment, after delivery of such Equipment, and the Rent
Commencement Date for the Equipment. No waiver by Lessor of any Event of
Default shall be construed as a waiver of any future Event of Default or any
other Event of Default. At the expiration of the Lease Term with respect to a
Lease, upon notice given by Lessee at least ninety (90) days prior thereto, (a)
such Lease shall be renewed or the Equipment subject thereto shall be purchased
under the terms and conditions set forth herein for a term and rent amount or
purchase price, as the case may be, to be agreed upon, or (b) if no such
agreement is reached prior to the expiration of such Lease Term or such notice
specifies that Lessee intends to return the Equipment, then Lessee shall return
the Equipment to Lessor in the manner prescribed in Paragraph 16 of this MLA.
In the absence of Lessor's timely receipt of the notice contemplated by the
preceding sentence, the Lease shall be automatically extended, on a
month-to-month basis, until terminated (upon notice by either party given at
least ninety (90) days prior to the end of the month on which the termination is
to be effective) or until renewed or the Equipment subject thereto is purchased
by agreement of the parties. Unless otherwise agreed, Lessee shall continue to
pay Rent for each month following such Lease Term until the Equipment subject to
such Lease is returned pursuant to Paragraph 16 of this MLA.
25. CONSTRUCTION. This MLA shall be governed by and construed in accordance
with the internal laws, but not the choice of laws provisions, of the State of
California. The titles of the sections of this MLA are for convenience only and
shall not define or limit any of the terms or provisions hereof. Time is of the
essence in each of the provisions hereof.
26. PARTIES. This MLA shall be binding upon, and inure to the benefit of,
the permitted assigns, representatives and successors of the Lessor and Lessee.
If there is more than one Lessee named in this MLA, the liability of each shall
be joint and several.
27. COUNTERPARTS. Each Lease may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute but one and the same instrument.
28. OVERDUE CHARGE. Overdue Charge shall mean an amount equal to 2% per
month of any payment under a Lease which is past due, including, without
limitation, any amounts not included in any payment of Rent hereunder, or the
highest charge permitted by law, whichever is lower.
The person executing this MLA on behalf of Lessee hereby certifies that he or
she has read, and is duly authorized to execute, this MLA.
Accepted by:
Ascend Credit Corporation LESSEE: Pointe Communications Corporation
-----------------------------------
BY: BY:
NAME: NAME:
--------------------------- -------------------------------------
Print
TITLE:
--------------------------- -------------------------------------
TITLE:
--------------------------- -------------------------------------
DATE: DATE:
--------------------------- -------------------------------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2872865
<SECURITIES> 0
<RECEIVABLES> 4374279
<ALLOWANCES> 958894
<INVENTORY> 1243525
<CURRENT-ASSETS> 8496371
<PP&E> 20579479
<DEPRECIATION> 4634167
<TOTAL-ASSETS> 45903210
<CURRENT-LIABILITIES> 25163044
<BONDS> 9310325
<COMMON> 454
0
0
<OTHER-SE> 9447429
<TOTAL-LIABILITY-AND-EQUITY> 45903210
<SALES> 108614
<TOTAL-REVENUES> 11553526
<CGS> 66752
<TOTAL-COSTS> 10247028
<OTHER-EXPENSES> 3879099
<LOSS-PROVISION> 58894
<INTEREST-EXPENSE> 1086438
<INCOME-PRETAX> (3659039)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3659039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3659039)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
