UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to
Commission file number: 0-17973
I-LINK INCORPORATED
(Exact name of registrant as specified in its charter)
FLORIDA 59-2291344
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13751 S. WADSWORTH PARK DRIVE, SUITE 200, DRAPER, UTAH 84020
(Address of principal executive offices)
(801) 576-5000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter time 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 the latest practicable date.
______________
As of August 4, 1998, the registrant had outstanding 18,510,400 shares of
$0.007 par value common stock.
<PAGE>
PART I
Item 1 Financial Statements
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30,
1998 December 31,
(Unaudited) 1997
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 930,176 $ 1,643,805
Accounts receivable, less allowance for
doubtful accounts of $883,000 and
$1,385,000 as of June 30, 1998 and
December 31, 1997, respectively 4,083,391 3,233,207
Certificates of deposit restricted 1,136,661 1,628,500
Other current assets 201,689 321,488
Net assets of discontinued operations 487,371 -
---------- ----------
Total current assets 6,839,288 6,827,000
Furniture, fixtures and equipment, net 4,855,601 3,551,917
Other assets:
Intangible assets, net 10,867,230 12,314,080
Certificates of deposit restricted 217,624 259,000
Other assets 1,035,484 705,502
Net assets of discontinued operations - 595,377
---------- ----------
Total assets $ 23,815,227 $ 24,252,876
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,044,381 $ 4,833,452
Accrued liabilities 3,859,395 2,770,997
Current portion of long-term debt 10,921,141 2,008,416
Current portion of obligations under
capital leases 137,742 169,315
---------- ----------
Total current liabilities 20,962,659 9,782,180
Long-term debt - 1,854,341
Obligations under capital leases - 67,159
---------- ----------
Total liabilities 20,962,659 11,703,680
---------- ----------
Commitments and contingencies (notes 6, 7 and 8)
Stockholders' equity:
Preferred stock, $10 par value, authorized
10,000,000 shares, issued and outstanding
83,215 and 119,926 at June 30, 1998 and
December 31, 1997, respectively,
liquidation preference of $19,357,000
at June 30, 1998 832,150 1,199,260
Common stock, $.007 par value, authorized
75,000,000 shares, issued and outstanding
17,918,016 and 16,036,085 at June 30, 1998
and December 31, 1997, respectively 125,425 112,251
Additional paid-in capital 78,550,981 70,511,697
Deferred compensation ( 1,492,143) ( 2,289,765)
Accumulated deficit (75,163,845) (56,984,247)
---------- ----------
Total stockholders' equity 2,852,568 12,549,196
---------- ----------
Total liabilities and stockholders'
equity $ 23,815,227 $ 24,252,876
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 1
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Ended June 30, Six Months Ended June 30,
----------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Telecommunication services $ 4,134,967 $ 2,267,609 $ 8,915,944 $ 4,414,825
Marketing services, net 963,962 720,490 2,305,209 720,490
Technology licensing and development 374,660 - 580,610 -
---------- ---------- ---------- ----------
Total revenues 5,473,589 2,988,099 11,801,763 5,135,315
---------- ---------- ---------- ----------
Operating costs and expenses:
Telecommunication network expense 4,612,334 4,014,708 9,510,550 7,065,790
Marketing services 1,343,072 640,739 3,210,957 640,739
Selling, general and administrative 2,520,506 2,239,431 4,932,092 4,351,917
Provision for doubtful accounts 675,000 270,000 1,448,662 345,000
Depreciation and amortization 1,039,099 515,050 2,049,826 813,151
Research and development 576,060 74,246 1,144,155 345,334
---------- ---------- ---------- ----------
Total operating costs and expenses 10,766,071 7,754,174 22,296,242 13,561,931
---------- ---------- ---------- ----------
Operating loss ( 5,292,482) ( 4,766,075) (10,494,479) ( 8,426,616)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense ( 5,459,535) ( 37,679) ( 7,640,577) ( 373,271)
Interest and other income 18,172 56,416 63,464 140,724
---------- ---------- ---------- ----------
Total other income (expense) ( 5,441,363) 18,737 ( 7,577,113) ( 232,547)
---------- ---------- ---------- ----------
Loss from continuing operations (10,733,845) ( 4,747,338) (18,071,592) ( 8,659,163)
Loss from discontinued operations
(less applicable income tax provision
of $0 for the three and six month
periods ended June 30, 1998 and 1997) ( 100,564) ( 95,561) ( 108,006) ( 90,477)
---------- ---------- ---------- ----------
Net loss $(10,834,409) $( 4,842,899) $(18,179,598) $( 8,749,640)
========== ========== ========== ==========
Net loss per common share - basic and
diluted:
Loss from continuing operations $( 0.66) $( 0.47) $( 1.14) $( 0.87)
Loss from discontinued operations ( 0.01) ( 0.01) ( 0.01) ( 0.01)
---------- ---------- ---------- ----------
Net loss per common share $( 0.67) $( 0.48) $( 1.15) $( 0.88)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 2
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ ------------------------
Additional
Deferred Paid-in Accumulated
Shares Amount Shares Amount Compensation Capital Deficit
--------- -------------- ------------ ----------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 119,926 $ 1,199,260 16,036,085 $ 112,251 $( 2,289,765) $ 70,511,697 $(56,984,247)
Conversion of preferred
stock into common stock (36,711) ( 367,110) 1,482,391 10,377 - 356,733 -
Amortization of deferred
compensation on stock
options issued for services - - - - 524,027 - -
Forfeiture of stock options
issued for services - - - - 273,595 ( 273,595) -
Exercise of stock options - - 399,540 2,797 - 682,146 -
Warrants issued in
connection with certain
convertible notes payable - - - - - 7,274,000 -
Net loss - - - - - - (18,179,598)
------- ---------- ---------- ------- ---------- ---------- ----------
Balance at June 30, 1998 83,215 $ 832,150 17,918,016 $ 125,425 $( 1,492,143) $ 78,550,981 $(75,163,845)
======= ========== ========== ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 3
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(18,179,598) $( 8,749,640)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,049,826 813,431
Provision for doubtful accounts 1,448,662 345,000
Provision for asset valuation - 213,944
Amortization of discount on notes
payable 7,274,000 -
Amortization of deferred compensation
on stock options issued for services 524,027 200,000
Interest expense associated with
issuance of convertible notes - 320,000
Increase (decrease) from changes in
operating assets and liabilities,
net of effects of acquisitions and
dispositions:
Accounts receivable ( 2,298,846) ( 2,249,589)
Other assets ( 210,184) ( 214,747)
Accounts payable and accrued
liabilities 2,299,326 4,142,186
Discontinued operations ( 16,847) 138,687
---------- ----------
Net cash used in operating
activities ( 7,109,634) ( 5,040,728)
---------- ----------
Cash flows from investing activities:
Purchases of furniture, fixtures and
equipment ( 1,906,659) ( 483,992)
Cash received from the purchase of
I-Link Communications, Inc. - 435,312
Maturity of restricted certificates
of deposit 533,215 -
Investing activities of discontinued
operations 310,000 -
---------- ----------
Net cash used in investing
activities ( 1,063,444) ( 48,680)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable
and warrants 7,768,000 2,000,000
Payment of long-term debt ( 709,616) ( 96,293)
Payment of capital lease obligations ( 98,732) ( 89,431)
Proceeds from exercise of common stock
warrants and options 684,943 22,499
Financing activities of discontinued
operations ( 170,465) ( 71,208)
---------- ----------
Net cash provided by financing
activities 7,474,130 1,765,567
---------- ----------
Decrease in cash and cash equivalents ( 698,948) ( 3,323,841)
Cash and cash equivalents at beginning
of period 1,727,855 4,500,227
---------- ----------
Total cash and cash equivalents
at end of period $ 1,028,907 $ 1,176,386
========== ==========
Cash and cash equivalents at end of period:
Continuing operations $ 930,176 $ 1,106,622
Discontinued operations 98,731 69,764
---------- ----------
Total cash and cash equivalents at
end of period $ 1,028,907 $ 1,176,386
========== ==========
Supplemental schedule of non-cash
investing and financing activities:
Common stock issued in connection
with the acquisition of I-Link
Communications, Inc. $ - $ 2,414,583
Common stock issued in connection
with the acquisition of I-Link
Worldwide, Inc. - 8,875,000
Stock warrants issued in connection
with litigation settlement - 821,000
Stock options issued for services - 4,400,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 4
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
NOTE 1 - DESCRIPTION OF BUSINESS, PRINCIPLES OF CONSOLIDATION AND LIQUIDITY
The consolidated financial statements include the accounts of I-Link
Incorporated and its subsidiaries (the "Company"). The Company's principal
operation is the development, sale and delivery of enhanced communications
products and services utilizing its own private intranet and both owned and
leased network switching and transmission facilities. The Company
provides unique communications solutions through its use of proprietary
technology developed by its wholly-owned subsidiaries I-Link Systems, Inc.
(formerly I-Link Worldwide, Inc.), MiBridge, Inc. and Vianet Technologices,
Inc. Telecommunications services are marketed primarily through independent
representatives to subscribers throughout the United States.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
On March 23, 1998, the Company's Board of Directors approved a plan to dispose
of the Company's medical services businesses in order to focus its efforts on
the sale of telecommunication services and technology licensing. The Company
intends to sell all of the assets of the medical services subsidiaries, with
the proceeds being used to satisfy outstanding obligations of the medical
services subsidiaries. The Company recognized a $1,007,453 loss on disposal
of these subsidiaries during the quarter ended December 31, 1997. The results
of the medical services operations have been classified as discontinued
operations for all periods presented in the Consolidated Statements of
Operations. The assets and liabilities of the discontinued operations have
been classified in the Consolidated Balance Sheets as "Net assets - discontinued
operations". Discontinued operations have also been segregated for all periods
presented in the Consolidated Statements of Cash Flows.
The interim
financial data are unaudited; however, in the opinion of the management of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of (a) the results of
operations for the three-month and six-month periods ended June 30, 1998 and
1997, (b) the financial position at June 30, 1998, and (c) cash flows for the
six-month periods ended June 30, 1998 and 1997. The year-end balance sheet
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The financial
statements should be read in conjunction with the Company's annual report on
Form 10-K for the year ended December 31, 1997 and its quarterly report on Form
10-Q for the three months ended March 31, 1998.
The results of operations for the three-month and six-month periods ended June
30, 1998 are not necessarily indicative of those to be expected for the entire
year.
The Company incurred a net loss from continuing operations of $18,071,592 and
$10,733,845 for the six and three-month periods ended June 30, 1998, and as of
June 30, 1998 had an accumulated deficit of $75,163,845 and negative working
capital of $14,123,371. The Company anticipates that revenues generated from
its continuing operations will not be sufficient during 1998 to fund its ongoing
operations, the continued expansion of its private telecommunications network
facilities, and anticipated growth in subscriber base. To provide a portion of
the required capital, the Company has entered into two financing arrangements
(see Note 4). In January 1998, the Company signed a term loan agreement with
Winter Harbor providing aggregate borrowings of $5.768 million. During the
second quarter of 1998, Winter Harbor increased its loan to the Company
by an additional $2.0 million. On July 9, 1998 the Company obtained a $10
million equity investment from JNC Opportunity Fund Ltd. ("JNC"). The Company
anticipates that additional funds will be necessary from public or private
financing markets to fund continued operations and to successfully integrate and
finance the planned expansion of the business communications services and to
discharge the financial obligations of the Company.
NOTE 2 - NET LOSS PER SHARE
The Company has adopted SFAS No. 128, "Earnings per Share" for 1998 and 1997.
The standard requires presentation of basic and diluted earnings per share.
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Options, warrants, convertible
preferred stock and convertible debt are included in the calculation of diluted
earnings per share, except when their effect would be anti-dilutive. As the
Company had a net loss from continuing operations for the six-month and three-
month periods ended June 30, 1998 and 1997, basic and diluted loss per share
are the same.
<PAGE> 5
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basic and diluted loss per common share were calculated as follows:
<TABLE>
<CAPTION>
Three months Ended June 30, Six Months Ended June 30,
----------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Loss from continuing operations $(10,733,845) $( 4,747,338) $(18,071,592) $( 8,659,163)
Cumulative preferred stock dividends
not paid in the current period ( 540,460) ( 288,776) ( 902,224) ( 577,923)
---------- ---------- ---------- ----------
Loss from continuing operations
applicable to common stock $(11,274,305) $( 5,036,114) $(18,973,816) $( 9,237,086)
========== ========== ========== ==========
Loss from discontinued operations $( 100,564) $( 95,561) $( 108,006) $( 90,477)
========== ========== ========== ==========
Weighted average shares outstanding 17,102,887 10,627,597 16,616,545 10,617,597
========== ========== ========== ==========
Loss from continuing operations $( 0.66) $( 0.47) $( 1.14) $( 0.87)
Loss from discontinued operations ( 0.01) ( 0.01) ( 0.01) ( 0.01)
---------- ---------- ---------- ----------
Net loss per common share $( 0.67) $( 0.48) $( 1.15) $( 0.88)
========== ========== ========== ==========
</TABLE>
Recently issued financial accounting standards
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
requires the prominent display of comprehensive income and its components.
There were no items of other comprehensive income during the periods being
reported on and accordingly, no additional disclosures are required. Also
effective for the year ended December 31, 1998 the Company will adopt Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Interim disclosures are not required in the year of adoption.
The Company does not expect that the effect on year-end disclosures, if any,
that SFAS No. 131 will have on its financial statements will be significant.
In addition, the Accounting Standards Executive Committee issued Statement of
Position No. 98-1 (SOP 98-1), "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use". The SOP was issued to address the
diversity in practice regarding whether and under what conditions the costs
of internal-use software should be capitalized. SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. The Company
has not determined the effect which SOP 98-1 will have on its consolidated
financial position or results of operations.
RECLASSIFICATIONS
Certain balances in the June 30, 1997 financial statements have been
reclassified to conform to the current year presentation. These changes had no
effect on previously reported net loss, total assets, liabilities or
stockholders' equity.
<PAGE> 6
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
NOTE 3 - DISCONTINUED OPERATIONS
Net assets of the Company's discontinued operations (excluding intercompany
balances which have been eliminated against the net equity of the discontinued
operations) are as follows as of June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
(Unaudited) 1997
--------------- ---------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 98,731 $ 84,050
Accounts receivable 1,126,786 1,033,376
Inventory 555,291 555,939
Other 26,882 24,951
---------- ----------
Total current assets 1,807,690 1,698,316
---------- ----------
Furniture, fixtures and equipment, net 415,496 958,153
Intangible assets 391,757 391,757
Other non-current assets 7,996 8,706
---------- ----------
Total assets 2,622,939 3,056,932
---------- ----------
Liabilities:
Current liabilities:
Accounts payable and accrued
liabilities 1,681,886 1,781,541
Notes payable 241,661 412,126
---------- ----------
Total current liabilities 1,923,547 2,193,667
Other liabilities 212,021 267,888
---------- ----------
Total liabilities 2,135,568 2,461,555
---------- ----------
Net assets $ 487,371 $ 595,377
========== ==========
</TABLE>
Revenues of the discontinued operations were $375,063 and $962,928 and $582,298
and $1,179,555 for the three-month and six-month periods ending June 30, 1998
and 1997, respectively.
NOTE 4 - CAPITAL FINANCING
During the first and second quarters of 1998 the company obtained an aggregate
Of $7.768 million in new interim debt financing from Winter Harbor, L.L.C. As
consideration for Winter Harbor's Commitment to make the loan, the Company
agreed to issue 6,740,000 warrants to purchase common stock of the Company at
exercise prices ranging from $5.50 to $7.22 based upon 110% of the closing price
of the common stock on the day loan funds were advanced. The warrants have
exercise periods of 7.5 years from issuance. The Company also agreed to extend
the exercise period on all warrants previously issued to Winter Harbor
(10,800,000) to seven and one-half years. Pursuant to the terms of the loan
agreement with Winter Harbor, the initial borrowings of $5,768,000 were payable
upon demand by Winter Harbor no earlier than May 15, 1998, and were
collateralized by essentially all of the assets of the Company's subsidiaries.
Because the loan was not repaid by May 15, 1998, the total loan, including
additional borrowings of $2,000,000 obtained in the second quarter, continues on
a demand basis with interest accruing at prime plus four percent. Additionally,
Winter Harbor has the right to elect at any time until the loan is repaid to
convert the unpaid balance of the loan into additional shares of the Company's
Series M Preferred Stock, reduce the exercise price of the 6,740,000 Loan
Warrants to $2.50 per share, and receive an additional 5,000,000 warrants to
purchase common stock of the Company at an exercise price of $2.50 per share.
<PAGE> 7
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
NOTE 4 - CAPITAL FINANCING, CONTINUED
During the six-month period ended June 30, 1998, the Company recorded $7,274,000
as a discount against the new debt representing the relative fair value
attributed to the new warrants, the change of the exercise period on prior
warrants and the equity instruments associated with the assumed conversion of
the debt into equity. The debt discount was amortized over the original terms
of the respective borrowings. Amortization of debt discount was $7,274,000 and
$5,213,000 for the six-month and three-month periods ended June 30, 1998.
In March 1998 the Company entered into a written agreement with a private
investor under which the investor agreed to provide to the Company a credit
facility of $10 million to $20 million. Subsequently, the investor defaulted on
its obligations to make the loans to the Company in the time-frames provided for
in the agreement. Despite continued representations from the investor that it
intends to provide the funding to the Company, the investor remains in default.
The Company has declared the investor in breach of the written agreement.
On July 9, 1998 the Company obtained a $10 million equity investment, net of
$530,000 in closing costs, from JNC Opportunity Fund Ltd. ("JNC"). The terms of
the equity investment were amended on July 28, 1998. Under the original terms
of the equity investment, JNC purchased shares of the Company's newly created 5%
Series E Convertible Preferred Stock (the "Series E Preferred Stock"), which
were convertible into the Company's common shares at a conversion price of the
lesser of 110% of the market price of the Company's publicly traded common
shares as of the date of closing, and 90% of the market price at the time of
conversion. In addition, JNC obtained a warrant to purchase 275,000 shares of
the Company's common stock at an exercise price equal to 120% of the market
price of the Company's publicly traded common shares as of the date of closing.
On July 28, 1998, the terms of the equity investment were amended to provide a
floor to the conversion price, and to effect the amendment the Company created a
5% Series F Convertible Preferred Stock (the "Series F Preferred Stock") with
which the Series E Preferred Shares originally issued to JNC were exchanged.
Pursuant to the amendment, the Series F Preferred Shares are convertible into
common shares at a conversion price of the lesser of $4.00 per common share or
87% of the market price of the Company's common shares at the time of
conversion, subject to a $2.50 floor. In the event the market price remains
below $2.50 for five consecutive trading days, the floor will be re-set to the
lower rate, provided, however, that the floor shall not be less than $1.25. JNC
also received an additional warrant to purchase 100,000 shares of the Company's
common stock at an exercise price of $4.00 per common share. The Series F
Preferred shares may be converted at any time, are automatically converted at
the end of three years, and are subject to specific provisions that would
prevent any issuance of I-Link common stock at a discount if and to the extent
that such shares would equal or exceed in the aggregate 20% percent of the
number of common shares outstanding prior to the July 9, 1998 $10 million
placement absent shareholder approval as contemplated by the Nasdaq Stock Market
Non-Quantitative Designation Criteria.
In addition, the Company issued warrants to purchase 75,000 shares of the
Company's common stock at a price of $4.89 per share to two individuals as a
brokerage fee in connection with the JNC equity investment.
NOTE 5 - INCOME TAXES
The Company recognized no income tax benefit from the losses generated in the
first quarter of 1998 and 1997 because of the uncertainty of the realization of
the related deferred tax asset.
<PAGE> 8
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
NOTE 6 - LEGAL PROCEEDINGS
On May 12, 1998, I-Link and MCI Telecommunications, a unit of MCI Communications
Corp., agreed to a settlement of the arbitration action filed in November 1997
by I-Link against MCI and a related counterclaim by MCI against I-Link.
Pursuant to the terms of the settlement all claims and counterclaims shall be
dismissed, I-Link shall pay to MCI over a six-month period the sum of $2,083,425
representing agreed actual long-distance usage by I-Link prior to the
termination of its relationship with MCI, and payment on the Company's existing
note payable to MCI (outstanding principal balance as of June 30, 1998 of
approximately $2.39 million) will be restructured to provide for a fixed monthly
payment of $250,436 over the term of the note, in place of the original
escalating monthly payment schedule.
NOTE 7 - COMMITMENTS
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into employment and consulting agreements with two
consultants and eleven of its employees, primarily executive officers and
management personnel. These agreements generally continue over the entire term
unless terminated by the employee or consultant of the company, and provide for
salary continuation for a specified number of months. Certain of the agreements
provide additional rights, including the vesting of unvested stock options in
the event a change of control of the Company occurs or termination of the
contract without cause. The agreements contain non-competition and
confidentiality provisions. As of June 30, 1998, if the contracts were to be
terminated by the Company, the Company's liability for salary continuation would
be approximately $1,700,000.
PURCHASE COMMITMENTS
The Company has commitments to purchase long-distance telecommunications
capacity on lines from a national provider in order to provide long-distance
telecommunications services to the Company's customers who reside in areas not
yet serviced by the Company's dedicated telecommunications network. The
Company's escalating minimum monthly commitments range from between $750,000 and
$1,200,000 over the term of the agreement which expires in December 1999. If
the agreement were terminated prior to December 1999, the Company would be
obligated to pay 50% of the remaining monthly minimum usage amounts.
NOTE 8 - TERMINATION OF MARKETING AGREEMENT
During the second quarter of 1998, the Company terminated its telecommunications
marketing agreement with its principal reseller account as the Company decided
to concentrate its resources on lines of business which produce higher profit
margins. Revenues from subscribers signed up by this reseller account
represented approximately 21 percent of total telecommunication services
revenues for the quarter ended March 31, 1998. While revenues (and related
expenses) from this reseller account ended in the second quarter of 1998, it is
anticipated that future growth in the Network Marketing Channel will exceed the
lost revenues such that total revenues will continue to grow.
<PAGE> 9
_ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the financial statements of the Company and the notes thereto
appearing elsewhere herein and in conjunction with the information contained in
the Company's Form 10-K for the year ended December 31, 1997 and Form 10-Q for
the quarter ended March 31, 1998.
FORWARD LOOKING INFORMATION
This report contains certain forward-looking statements and information relating
to the Company that is based on the beliefs of management as well as assumptions
made by and information currently available to management. When used in this
document, the words "anticipate", "believe", "estimate", "expect", and
"intended" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such
statements reflect the current view of the Company respecting future events and
are subject to certain risks and uncertainties as noted. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended.
Among many factors that could cause actual results to differ materially are the
following: the Company's ability to finance and manage expected rapid growth;
the Company's ability to attract support and motivate a rapidly growing number
of independent representatives; competition in the long distance
telecommunications and ancillary industries; the Company's ongoing relationship
with its long distance carriers and vendors; dependence upon key personnel;
subscriber attrition; the adoption of new, or changes in, accounting policies,
litigation, federal and state governmental regulation of the long distance
telecommunications and internet industries; the Company's ability to maintain,
operate and upgrade its information systems and network; the Company's success
in deploying it's Communication Engine network in internet telephony and the
Company's success in the offering of other enhanced service products.
Actual events, transactions and results may materially differ from the
anticipated events, transactions or results described in such statements. The
Company's ability to consummate such transactions and achieve such results is
subject to certain risks and uncertainties. Such risks and uncertainties
include, but are not limited to, the existence of demand for and acceptance of
the Company's products and services, regulatory approvals and developments,
economic conditions, the impact of competition and pricing, results of the
Company's financing efforts and other factors affecting the Company's business
that may be beyond the Company's control. The Company undertakes no obligation
and does not intend to update, revise or otherwise publicly release the result
of any revisions to these forward-looking statements that may be made to reflect
future events or circumstances.
OPERATIONS
In January 1997 the Company acquired I-Link Communications (formerly Family
Telecommunications, Inc. and referred to herein as "ILC") and in August 1997 the
Company acquired MiBridge, Inc. In 1997, the Company launched operations of a
network marketing program through I-Link Worldwide, L.L.C., to market its
products. In December 1997, the Company made the decision to dispose of the
operations of the subsidiaries of the Company operating in the medical services
industry in order to concentrate on its telecommunications and technology
sectors. Accordingly, medical services operations during the six and
<PAGE> 10
three-month periods ending June 30, 1998 and 1997 have been reported as
discontinued operations.
In the first quarter of 1998, the Company formed ViaNet Technologies, Ltd.
("ViaNet"). ViaNet, headquartered in Ramat Hasharon, Israel, operates as a
wholly owned subsidiary of I-Link. The subsidiary will focus on research and
development of new communications access devices. ViaNet is I-Link's third
research and development group.
The technology that distinguishes I-Link from other telecommunications companies
is the capability to carry high volumes of long-distance traffic at
significantly reduced cost and provide enhanced services through its proprietary
combination of IP and compression technologies, while maintaining the ease of
use, high quality, and reliability of traditional phone systems. During the
first and second quarters of 1998, the Company benefited from the commercial
deployment of its technology through its Communication Engines established at
its facilities in Los Angeles, Dallas/Ft. Worth, Phoenix and Salt Lake City,
and steadily increased the commercial telecommunications traffic carried over
its Communications Engines. This permitted the Company
to announce a new 4.9-cent-per-minute long-distance calling rate to customers
whose long-distance calls both originate and terminate in the more than 25
calling areas located in these metropolitan markets. The Company intends to
continue to expand the geographic areas covered by its Communications Engines.
During the second quarter of 1998, the Company announced the development of a
communications product that would increase the telephone line capacity in any
household or business. Initially dubbed "C4" (Customer Communications Control
Center), the product will provide home and small business customers the capacity
of up to 24 phone lines using the existing telephone lines and wires that are
connected to their homes or offices today. In addition, C4 will provide
around-the-clock Internet access and access to the enhanced services I-Link
currently offers, including voice mail, fax, paging, e-mail, conference calling
and follow-me-anywhere one-number service. C4 uses existing telecommunications
networks, including the standard copper-wire lines currently installed in nearly
every home and business, as well as high-speed data lines and infrastructure
that have been announced or are being installed by local and long-distance
telecommunications companies. The C4 should undergo early field trials in the
fourth quarter of 1998 and will ship in 1999.
Continuing the Company's efforts to provide state of the art quality services to
its customers, the Company furthered the development of its enhanced services
billing (ESB) platform during the second quarter of 1998. The ESB system is an
integrated software solution providing order entry, provisioning, fulfillment,
billing, collections and customer service capabilities for both retail and
wholesale telecommunication markets. ESB will provide among other things the
following specific features: (1) easy product definition for products and
services, (2) quick access to on-line customer information, (3) tracking of
provisioning and fulfillment status, (4) convergent billing of products and
services, (5) seamless integration with third party credit card, collections
and telecommunication tax providers, (6) facilitation of import/export files and
(6) designs for future selling of packet and byte billing increments. These
automated features will enhance our customer service and handling procedures.
In early 1998 the Company determined that it would refocus the resources of the
Company to concentrate on those channels of distribution of its products which
had higher profit margins (primarily the Network Marketing Channel) and
accordingly terminated certain relationships, including its single largest
reseller account, which accounted for 21% of the Company's telecommunication
<PAGE> 11
services revenues during the first quarter of 1998. The loss of these revenues
was the primary cause of the decrease in telecommunications service revenue in
the second quarter of 1998. Telecommunications service revenue from other
channels, including Network Marketing, continued to increase during the second
quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of June 30, 1998 were $930,176, restricted
certificates of deposits were $1,136,661 and the working capital deficit was
$14,123,371. Cash used by operating activities during the six-month period ended
June 30, 1998 was $7,109,634 as compared to $5,040,728 during the same period
ended June 30, 1997. The increase in cash used by operating activities in 1998
was primarily due to an increase in accounts receivable and the increased
operating loss as the Company continued to developed its infrastructure and
product base.
Net cash used by investing activities in the six-month period ended June 30,
1998 was $1,063,444 as compared to net cash used of $48,680 in the same period
ended June 30, 1997. Cash used by investing activities in 1998 was attributable
to the purchase of furniture, fixtures and equipment of $1,906,659 which was
offset by $310,000 received from sale of certain assets from discontinued
operations and $533,215 from matured restricted certificates of deposit. In the
first six months of 1997 cash used by investing activities was primarily due to
purchase of furniture, fixtures and equipment of $483,992 which was offset by
cash received of $435,312 in the acquisition of ILC.
Financing activities provided net cash of $7,474,130 in the first six months of
1998 as compared to cash provided of $1,765,567 in the same period of 1997. Cash
provided in 1998 included proceeds of $7,768,000 from notes payable and warrants
and $684,943 in proceeds from exercises of common stock warrants and options.
Payments on long-term debt and capital lease obligations of $808,348 from
continuing operations and $170,465 from discontinued operations offset these
proceeds. During the same six months in 1997, financing activities provided
cash of $1,765,567 including $2,000,000 in proceeds from issuance of notes
payable and warrants and $22,499 from the exercise of common stock warrants and
options which sources were offset by repayments of $185,724 on long-term debt
and capital lease obligations from continuing operations and $71,208 from
discontinued operations.
The Company incurred a net loss from continuing operations of $18,071,592 for
the first six months 1998, and as of June 30, 1998 had an accumulated deficit of
$75,163,845. The Company anticipates that revenues generated from its
continuing operations will not be sufficient during 1998 to fund its operations,
continued expansion of its private telecommunications network facilities and
anticipated growth in subscriber base. To provide a portions of its capital
needs, the Company has entered into two financing arrangements as described
below. The Company anticipates that additional funds will be necessary from
public or private financing markets to fund continued operations and to
successfully integrate and finance the planned expansion of the business
communications services and to discharge the financial obligations of the
Company.
CURRENT POSITION/FUTURE REQUIREMENTS
During 1998, the Company plans to use available cash to fund the development and
marketing of I-Link products and services. During the second quarter of 1998
<PAGE> 12
revenues from continuing operations decreased $854,585 from the first quarter
of 1998 primarily due to decreases of $646,010 in telecommunication services and
$377,285 in marketing services, both of which were offset by an increase of
$168,710 in technology licensing and development. The decrease in
telecommunication services resulted from the Company's decision in early 1998 to
refocus the resources of the Company to concentrate on the those channels of
distribution of its products which produce higher profit margins (primarily the
Network Marketing Channel). The effect of this decision was the Company's
termination of several reseller accounts during the second quarter of 1998
including the Company's single largest reseller account. Terminating these
relationships resulted in decreased revenues of $852,000 in the second quarter
as compared to the first quarter of 1998. However, this decrease in revenue was
offset by an increase in telecommunication services revenue in the Network
Marketing Channel of $360,000 which represents growth of telecommunication
services revenue from this channel in the second quarter as compared to the
first quarter of 1998. The decrease from marketing services revenue was
primarily due to the Company's decision to discontinue sale of the V-Phone and
Net Link 1+ products ($179,340) during the second quarter and a cyclical
decrease in revenues from national conventions and training, promotional and
presentation materials ($197,945) (the Company's national conventions are held
in the first and third quarters). The Company anticipates that revenue from all
sources of continuing operations will continue to grow in 1998 and will
increasingly contribute to the cash requirements of the Company. The Company
released several new products in late 1997 and early 1998 such as V-Link and has
deployed several of its Communication Engines, all of which continue to increase
revenues and profit margins. The Company also believes that revenue and cash
flows from software sales and development will continue to increase in 1998 due
to maturation of its products and royalty and licensing agreements.
The Company anticipates that cash requirements for operations and the continued
market penetration and deployment of I-Link products and services will be at
increasingly higher levels than those experienced in 1997. The Company also
expects that expenditures for research and development will continue at
approximately the same level as the first six months for the remainder of 1998
as it continues development of new technology. In March 1998, the Company
committed approximately $2.2 million (of which $529,000 had been paid as of June
30, 1998) to development of a new internal information system that will
encompass nearly all computer systems.
In order to provide for capital expenditure and working capital needs, during
the second quarter of 1998 the Company obtained a total of $2 million (in
addition to $5.768 million in the first quarter) in new interim debt financing
from Winter Harbor, L.L.C. Pursuant to the terms of the loan agreement with
Winter Harbor, (which bears interest at prime plus four), the Company agreed to
issue 1,740,000 warrants to purchase common stock of the Company at exercise
prices ranging from $6.12 to $6.67 based upon 110% of the closing price of the
common stock on the day loan funds were advanced. The warrants expire seven and
one-half years from the grant date. The loan is due upon demand and
collateralized by essentially all of the assets of the Company's subsidiaries.
Additionally, Winter Harbor has the right to elect at any time until the loan
(including the $5.768 loan in the first quarter of 1998) is repaid to convert
the unpaid balance of the loan into additional shares of the Company's Series M
Preferred Stock, reduce the exercise price of the 6,740,000 Loan Warrants
(including 5,000,000 warrants issued in connection with the $5.768 million loan
in the first quarter of 1998) to $2.50 per share, and receive an additional
5,000,000 warrants to purchase common stock of the Company at an exercise price
of $2.50 per share.
<PAGE> 13
On July 9, 1998, the Company obtained a $10 million equity investment which
resulted in net proceeds to the Company of $9.470 million. The terms of the
equity investment were amended on July 28, 1998. Under the original terms of
the equity investment, JNC Opportunity Fund Ltd. ("JNC") purchased shares of the
Company's newly created 5% Series E Convertible Preferred Stock (the "Series E
Preferred Stock"), which were convertible into the Company's common shares at a
conversion price of the lesser of 110% of the market price of the Company's
publicly traded common shares as of the date of closing, and 90% of the market
price at the time of conversion. In addition, JNC obtained a warrant to
purchase 275,000 shares of the Company's common stock at an exercise price equal
to 120% of the market price of the Company's publicly traded common shares as of
the date of closing. On July 28, 1998, the terms of the equity investment were
amended to provide a floor to the conversion price, and to effect the amendment
the Company created a 5% Series F Convertible Preferred Stock (the "Series F
Preferred Stock") with which the Series E Preferred Shares originally issued to
JNC were exchanged. Pursuant to the amendment, the Series F Preferred Shares
are convertible into common shares at a conversion price of the lesser of $4.00
per common share or 87% of the market price of the Company's common shares at
the time of conversion, subject to a $2.50 floor. In the event the market price
remains below $2.50 for five consecutive trading days, the floor will be re-set
to the lower rate, provided, however, that the floor shall not be less than
$1.25. JNC also received an additional warrant to purchase 100,000 shares of
the Company's common stock at an exercise price of $4.00 per common share. The
Series F Preferred shares may be converted at any time, are automatically
converted at the end of three years, and are subject to specific provisions that
would prevent any issuance of I-Link common stock at a discount if and to the
extent that such shares would equal or exceed in the aggregate 20% percent of
the number of common shares outstanding prior to the recent $10 million
placement absent shareholder approval as contemplated by the Nasdaq Stock Market
Non-Quantitative Designation Criteria.
In March 1998, the Company entered into a written agreement with a private
investor under the terms of which the investor agreed to provide to the Company
a credit facility of from $10 million to $20 million. Subsequently, the
investor defaulted in its obligations to make the loans to the Company in the
time frames provided for in the agreement. Despite continued representations
from the investor that it intends to provide the funding to the Company, the
investor remains in default. The Company has declared the investor in breach of
the written agreement.
The Company anticipates that additional funds will be necessary from public or
private financing markets to fund continued operations and to successfully
integrate and finance the planned expansion of the business communications
services and to discharge the financial obligations of the Company. The
availability of such capital sources will depend on prevailing market
conditions, interest rates, and financial position and results of operations of
the Company. There can be no assurance that such financing will be available,
that the Company will receive any proceeds from the exercise of outstanding
options and warrants or that the Company will not be required to arrange for
additional debt, equity or other type of financing.
THREE-MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO THE THREE-MONTH PERIOD
ENDED JUNE 30, 1997
In December 1997, the Company made the decision to dispose of the operations of
the subsidiaries of the Company operating in the medical services industry in
order to concentrate on its telecommunications and technology sectors.
<PAGE> 14
Accordingly, medical services operations during the three-month periods ending
March 31, 1998 and 1997 have been reported as discontinued operations.
REVENUES
Telecommunication services revenue increased $1,867,358 to $4,134,967 in the
second quarter of 1998 as compared to $2,267,609 in the second quarter of 1997.
The increase is due primarily to the new customers obtained through the Network
Marketing channel which began generating revenue in the third quarter of 1997.
Marketing services revenue, which includes revenue recognized from independent
representatives for training, promotional and presentation materials, V-Phone
and Netlink 1+ product sales, and ongoing administrative support was $963,962 in
the second quarter of 1998 as compared to $720,490 in the same quarter of 1997.
The network marketing channel and its related product offerings began late in
the second quarter of 1997.
Technology licensing and development revenue was $374,660 in the second quarter
of 1998. These revenues are from the licensing and development of technology
through MiBridge, Inc., which was acquired in September 1997. Accordingly there
was no such revenue in the second quarter of 1997.
OPERATING COSTS AND EXPENSES
Telecommunication network expense increased $597,626 in the second quarter of
1998 to $4,612,334 as compared to $4,014,708 for the same quarter of 1997.
These expenses include the costs related to the continuing development and
deployment of the Company's communication network and expenses related to the
telecommunication services revenue. The increase in expense was primarily due to
the increase in telecommunication services revenue. The Company expects that
telecommunications network expense will increase as telecommunication services
revenue increases but at a lesser rate of growth as the Company benefits from
economies of scale and increased traffic on the Company's enhanced IP (Internet
protocol) telephony network.
Marketing service costs were $1,343,072 in the second quarter of 1998 as
compared to $640,739 for the same quarter of 1997. The expenses relate directly
to the Company's marketing services revenue that began late in the second
quarter of 1997. Marketing services expense includes commissions and the costs
of providing training, promotional and presentation materials and ongoing
administrative support to independent representatives.
Selling, general and administrative expense increased $281,075 to $2,520,506 in
the second quarter of 1998 as compared to $2,239,431 in the second quarter of
1997. The increase was primarily due to increased overhead and personnel costs
associated with growing the Company's telecommunication business.
The provision for doubtful accounts increased $405,000 to $675,000 in the second
quarter of 1998 as compared to $270,000 in the same quarter of 1997. This
increase is primarily due to the following: (1) growth in the Company's
telecommunication services revenue and (2) an increase in uncollectible accounts
receivable associated with the Company's decision in early 1998 to concentrate
its resources on those channels of distribution of its products with higher
profit margins (primarily Network Marketing), the effect of which was to
terminate relationships with several reseller accounts in the second quarter of
1998, including the Company's single largest reseller account.
<PAGE> 15
Depreciation and amortization increased $524,049 to $1,039,099 in the second
quarter of 1998 as compared to $515,050 in the second quarter of 1997. The
increase is primarily due to increased amortization associated with intangible
assets recorded in the third quarter of 1997 with the release from escrow of the
final 1,000,000 shares of common stock in connection with the 1996 acquisition
of I-Link Worldwide Inc. and the third quarter 1997 acquisition of MiBridge.
This resulted in $12,336,410 of additional intangible assets. Depreciation
expense also increased due to continued acquisition of telecommunication
equipment.
Research and development increased $501,814 to $576,060 in the second quarter of
1998 as compared to $74,246 in the same period of 1997. The increase is
associated with the Company's acquisition of MiBridge, Inc in the third quarter
of 1997 and the formation of a wholly-owned Israeli subsidiary, ViaNet, in early
1998 to increase the Company's research and development efforts.
Interest expense increased $5,421,856 to $5,459,535 in the second quarter of
1998 as compared to $37,679 in the same quarter of 1997. The net increase is
primarily due to $5,213,000 (non-cash) in amortization of debt discount related
to certain warrants granted in connection with $7,768,000 in loans to the
Company from Winter Harbor L.L.C. and interest on the same loans of $235,909.
Interest and other income decreased $38,244 to $18,172 in the second quarter of
1998 as compared to $56,416 in the same quarter of 1997. The decrease was
primarily due to a decrease in the average balance of cash on hand in the second
quarter of 1998 as compared to the same quarter of 1997.
SIX-MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO THE SIX-MONTH PERIOD ENDED
JUNE 30, 1997
In December 1997, the Company made the decision to dispose of the operations of
the subsidiaries of the Company
operating in the medical services industry in order to concentrate on its
telecommunications and technology sectors. Accordingly, medical services
operations during the six-month periods ending June 30, 1998 and 1997 have been
reported as discontinued operations.
REVENUES
Telecommunications service revenue increased $4,501,119 to $8,915,944 in the
first six months of 1998 as compared to $4,414,825 in the first six months of
1997. The increase is due primarily to the new customers obtained through the
Network Marketing channel which began generating revenues in the third quarter
of 1997.
Marketing services revenue, which includes revenues recognized from independent
representatives for training, promotional and presentation materials, V-Phone
and Netlink 1+ product sales, and ongoing administrative support was $2,305,209
in the first six months of 1998 as compared to $720,490 in the same period of
1997. The network marketing channel and its related product offerings began
late in the second quarter of 1997.
Technology licensing and development revenue was $580,610 in the first six
months of 1998. These revenues are from the licensing and development of
technology through MiBridge, Inc., which was acquired in September 1997.
Accordingly there was no such revenue in the first quarter of 1997.
<PAGE> 16
OPERATING COSTS AND EXPENSES
Telecommunication network expenses increased $2,444,760 in the first six months
of 1998 to $9,510,550 as compared to $7,065,790 for the same period in 1997.
These expenses include the costs related to the continuing development and
deployment of the Company's communication network and expenses related to the
telecommunication services revenue. The increase in expense was primarily due to
the increase in telecommunications services revenue. The Company expects that
telecommunications network expense will increase as telecommunication services
revenue increases but at a lesser rate of growth as the Company benefits from
economies of scale and increased traffic on the Company's enhanced IP (Internet
protocol) telephony network.
Marketing service costs were $3,210,957 in the first six months of 1998 as
compared to $640,739 for the same period in 1997. The expenses relate directly
to the Company's marketing service revenue that began late in the second quarter
of 1997 and accordingly expenses incurred in the first six months of 1998 and
1997 are not directly comparable. Marketing service expenses include
commissions and the costs of providing training, promotional and presentation
materials and ongoing administrative support to independent representatives.
Selling, general and administrative expense increased $580,175 to $4,932,092 in
the first six months of 1998 as compared to $4,351,917 in the first six months
in 1997. The increase was primarily due to increased administrative expense
associated with the launch of the Network Marketing channel late in the second
quarter of 1997 and general increases in overhead and personnel expenses
associated with growing the Company's telecommunication business.
The provision for doubtful accounts increased $1,103,662 to $1,448,662 in the
six months of 1998 as compared to $345,000 in the same period in 1997. This
increase is primarily due to the following: (1) growth in the Company's
telecommunication services revenue and (2) an increase in uncollectible accounts
receivable associated with the Company's decision in early 1998 to concentrate
its resources on those channels of distribution of its products with higher
profit margins (primarily Network Marketing), the effect of which was to
terminate relationships with several reseller accounts in the second quarter of
1998, including the Company's single largest reseller account.
Depreciation and amortization increased $1,236,675 to $2,049,826 in the first
quarter of 1998 as compared to $813,151 in the first six months of 1997. The
increase is primarily due to increased amortization associated with intangible
assets recorded in the third quarter of 1997 with the release from escrow of the
final 1,000,000 shares of common stock in connection with the 1996 acquisition
of I-Link Worldwide Inc. and the third quarter 1997 acquisition of MiBridge.
This resulted in $12,336,410 of additional intangible assets. Depreciation
expense also increased due to continued acquisition of telecommunication
equipment.
Research and development increased $798,821 to $1,144,155 in the first six
months of 1998 as compared to $345,334 in the same period in 1997. The increase
is associated with the Company's acquisition of MiBridge, Inc in the third
quarter of 1997 and the formation of a wholly-owned Israeli subsidiary, ViaNet,
in early 1998 to increase the Company's research and development efforts.
Interest expense increased $7,267,306 to $7,640,577 in the first six months of
1998 as compared to $373,271 in the same period in 1997. The net increase is
primarily due to $7,274,000 (non-cash) in amortization of debt discount related
to certain warrants granted in connection with $7,768,000 in loans to the
<PAGE> 17
Company in the first six months of 1998 as compared to $320,000 (non-cash) on
certain convertible notes in the same period of 1997.
Interest and other income decreased $77,260 to $63,464 in the first six months
of 1998 as compared to $140,724 in the same period of 1996. The decrease was
primarily due to a decrease in the average balance of cash on hand in the first
six months of 1998.
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On May 12, 1998, I-Link and MCI Telecommunications, a unit of MCI
Communications Corp., agreed to a settlement of the arbitration action filed in
November 1997 by I-Link against MCI and a related counterclaim by MCI against
I-Link. Pursuant to the terms of the settlement all claims and counterclaims
shall be dismissed, I-Link shall pay to MCI over a six-month period the sum of
$2,083,425 representing agreed actual long-distance usage by I-Link prior to the
termination of its relationship with MCI, and payment on the Company's existing
note payable to MCI (outstanding principal balance as of June 30, 1998 of
approximately $2.39 million) will be restructured to provide for a fixed monthly
payment of $250,436 over the term of the note, in place of the original
escalating monthly payment schedule.
The Company is also involved in litigation relating to claims arising out of its
operations in the normal course of business, none of which are expected,
individually or in the aggregate, to have a material adverse affect on the
Company.
ITEM 6(A) - EXHIBITS
Exhibit
Number Item
3.7 Articles of Amendment to the Company's Amended and Restated Articles
of Incorporation, establishing the terms of Series F Preferred
Stock.
10.28 Agreement dated April 14, 1998, by and between the Company and Winter
Harbor, L.L.C. ("Winter Harbor").
10.29 Pledge Agreement dated April 14, 1998, by and between the Company and
Winter Harbor.
10.30 Security Agreement dated April 14, 1998, by and among certain of the
Company's subsidiaries and Winter Harbor.
10.31 Form of Promissory Notes issued to Winter Harbor.
10.32 Convertible Preferred Stock Purchase Agreement dated June 30, 1998 by
and between the Company and JNC Opportunity Fund Ltd. ("JNC").
10.33 Registration Rights Agreement dated June 30, 1998 by and between the
Company and JNC.
10.34 Warrant to purchase 250,000 shares of Common Stock of the Company,
dated June 30, 1998, issued to JNC.
10.35 Exchange Agreement dated July 28, 1998 by and between the Company and
JNC.
10.36 Warrant to purchase 100,000 shares of Common Stock of the Company,
dated July 28, 1998, issued to JNC
ITEM 6(B) - REPORTS ON FORM 8-K
None
<PAGE> 16
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 thereunder duly authorized.
I-Link Incorporated
(Registrant)
Date: August 13, 1998 By: /s/ John W. Edwards
John W. Edwards
President, Chief Executive Officer
By: /s/ Karl S. Ryser, Jr.
Karl S. Ryser, Jr.
Chief Financial Officer, Chief
Accounting Officer, and Treasurer
<PAGE>
<
ARTICLES OF AMENDMENT TO THE AMENDED
AND RESTATED ARTICLES OF INCORPORATION
OF
I-LINK INCORPORATED
Pursuant to Article III of the Amended and Restated Articles of
Incorporation of the Corporation (the "Articles of Incorporation"), and the
provisions of Section 607.0602 of the Florida Business Corporation Act, the
board of directors of the Corporation (the "Board of Directors") has resolved
to amend Article III of the Articles of Incorporation.
1. The name of the corporation is I-Link Incorporated.
2. Article III is hereby amended by adding Section III(j), which shall read
in its entirety as follows:
"(j) Of the 10,000,000 shares of Preferred Stock authorized
hereunder, 1,000 shares of Preferred Stock shall be designated as 5% Series
F Convertible Preferred Stock (the "Series F Preferred Stock").
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as 5% Series F Convertible Preferred
Stock (the "Preferred Stock") and the number of shares so designated shall be
1,000 (which shall not be subject to increase without the consent of the
holders of the Preferred Stock (each, a "Holder" and collectively, the
"Holders")); Each share of Preferred Stock shall have a par value of $10 and
a stated value of $10,000 (the "Stated Value").
Section 2. Dividends.
(a) Holders shall be entitled to receive, when and as declared by
the Board of Directors out of funds legally available therefor, and the
Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 5% per annum, payable on
a quarterly basis on March 31, June 30, September 30 and December 31 of each
year during the term hereof (each a "Dividend Payment Date"), commencing on
September 30, 1998, in cash or shares of Common Stock (as defined in Section
8) at, subject to the terms and conditions set forth herein, the option of
the Company. Dividends on the Preferred Stock shall be calculated on the
basis of a 360-day year, shall accrue daily commencing on the Original Issue
Date (as defined in Section 8), and shall be deemed to accrue from such date
whether or not earned or declared and whether or not there are profits,
surplus or other funds of the Company legally available for the payment of
dividends. Any dividends not paid on any Dividend Payment Date shall
continue to accrue and shall be due and payable upon conversion of the
Preferred Stock. A party that holds shares of Preferred Stock on a Dividend
Payment Date will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such Dividend Payment
Date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date. All overdue accrued and unpaid
dividends and other amounts due herewith shall entail a late fee at the
rate of 15% per annum (to accrue daily, from the date such dividend is due
hereunder through and including the date of payment). Except as otherwise
provided herein, if at any time the Company pays less than the total amount
<PAGE>
of dividends then accrued on account of the Preferred Stock, such payment
shall be distributed ratably among the Holders based upon the number of
shares held by each Holder. Payment of dividends on the Preferred Stock is
further subject to the provisions of Section 5(c)(i). The Company shall
provide the Holders notice of its intention to pay dividends in cash or
shares of Common Stock not less than 10 Trading Days prior to any Dividend
Payment Date for so long as shares of Preferred Stock are outstanding. If
dividends are paid in shares of Common Stock, the number of shares of Common
Stock issuable on account of such dividend shall equal the cash amount of
such dividend on such Dividend Payment Date divided by the Conversion Price
(as defined below) on such date.
(b) Subject to Section 5(a)(iii)(B) and notwithstanding anything to
the contrary contained herein, the Company may not issue shares of Common
Stock in payment of dividends on the Preferred Stock (and must deliver cash
in respect thereof) if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay
such dividends in shares of Common Stock;
(ii) such shares of Common Stock are not registered for
resale pursuant to an effective registration statement that names the
recipient of such dividend as a selling stockholder thereunder and may not be
sold without volume restrictions pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holders
and such transfer agent;
(iii) the Common Stock is not then listed or quoted on the
Nasdaq SmallCap Market ("NASDAQ") or on the New York Stock Exchange, American
Stock Exchange or the Nasdaq National Market (each, a "Subsequent Market");
(iv) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(v) the issuance of such shares of Common Stock would result
in the recipient thereof beneficially owning, as determined in accordance
with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the 'Exchange Act"), more than 4.999% of the then issued and
outstanding shares of Common Stock.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect
of, any Junior Securities (as defined in Section 8), nor shall any monies be
set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities or shares pari passu with the
Preferred Stock, except for repurchases effected by the Company on the open
market, pursuant to a direct stock purchase plan.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding,
the Company shall not and shall cause its subsidiaries not to, without the
<PAGE>
affirmative vote of the Holders of all of the shares of the Preferred Stock
then outstanding, (a) alter or change adversely the powers, preferences or
rights given to the Preferred Stock, (b) alter or amend this Certificate of
Designation, (c) authorize or create any class of stock ranking as to
dividends or distribution of assets upon a Liquidation (as defined in Section
4) senior to or otherwise pari passu with or senior to the Preferred Stock,
(d) amend its Certificate of Incorporation, bylaws or other charter documents
so as to affect adversely any rights of any Holders, (e) increase the
authorized number of shares of Preferred Stock, or (f) enter into any
agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value plus all due but unpaid
dividends per share, whether declared or not, before any distribution or
payment shall be made to the holders of any Junior Securities, and if the
assets of the Company shall be insufficient to pay in full such amounts, then
the entire assets to be distributed to the Holders shall be distributed among
the Holders ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. A
sale, conveyance or disposition of all or substantially all of the assets of
the Company or the effectuation by the Company of a transaction or series of
related transactions in which more than 33% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or
into any other company or companies shall not be treated as a Liquidation,
but instead shall be subject to the provisions of Section 5. The Company
shall mail written notice of any such Liquidation, not less than 45 days
prior to the payment date stated therein, to each record Holder.
Section 5. Conversion.
(a)(i) Conversions at Option of Holder. Each share of Preferred
Stock shall be convertible into shares of Common Stock (subject to the
limitations set forth in Section 5(a)(iii) hereof) at the Conversion Ratio
(as defined in Section 8) at the option of the Holder, at any time and from
time to time, from and after the Original Issue Date. Holders shall effect
conversions by surrendering the certificate or certificates representing the
shares of Preferred Stock to be converted to the Company, together with the
form of conversion notice attached hereto as Exhibit A (a "Conversion
Notice"). Each Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the Holder delivers such
Conversion Notice by facsimile (the "Conversion Date"). If no Conversion
Date is specified in a Conversion Notice, the Conversion Date shall be the
date that the Conversion Notice is deemed delivered hereunder. If the Holder
is converting less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Conversion
Notice, or if a conversion hereunder cannot be effected in full for any
reason, the Company shall promptly deliver to such Holder (in the manner and
within the time set forth in Section 5(b)) a certificate for such number of
shares as have not been converted.
(ii) Automatic Conversion. Subject to the provisions in this
paragraph and Section 5(a)(iii)(B), all outstanding shares of Preferred Stock
for which conversion notices have not previously been received or for which
redemption has not been made or required hereunder shall be automatically
<PAGE>
converted on the third anniversary of the Original Issue Date at the
Conversion Price on such date. The conversion contemplated by this paragraph
shall not occur at such time as (a) (1) an Underlying Securities Registration
Statement (as defined in Section 8) is not then effective or (2) the Holder
is not permitted to resell Underlying Shares pursuant to Rule 144(k)
promulgated under the Securities Act, without volume restrictions, as
evidenced by an opinion letter of counsel acceptable to the Holder and the
transfer agent for the Common Stock; (b) there are not sufficient shares of
Common Stock authorized and reserved for issuance upon such conversion; or
(c) the Company shall have defaulted on its covenants and obligations
hereunder or under the Purchase Agreement or Registration Rights Agreement.
Notwithstanding the foregoing, the three-year period for conversion under
this Section shall be extended (on a day-for-day basis) for any Trading Days
that the Purchaser is unable to resell Underlying Shares under an Underlying
Securities Registration Statement due to (a) the Common Stock not being
listed for trading on the NASDAQ or any Subsequent Market, (b) the failure of
an Underlying Securities Registration Statement to be declared effective by
the Securities and Exchange Commission (the "Commission") by the Filing Date
(as defined in the Registration Rights Agreement), or (c) if an Underlying
Securities Registration Statement shall have been declared effective by the
Commission, (x) the failure of such Underlying Securities Registration
Statement to remain effective during the Effectiveness Period (as defined in
the Registration Rights Agreement) as to all Underlying Shares, or (y) the
suspension of the Holder's ability to resell Underlying Shares thereunder.
(iii) Certain Conversion Restrictions.
(A) The Holder agrees not to convert shares of Preferred
Stock to the extent such conversion would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act
and the rules thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of the shares of Preferred Stock held by such Holder after application of
this Section. To the extent that the limitation contained in this Section
applies, the determination of whether shares of Preferred Stock are
convertible (in relation to other securities owned by a Holder) and of which
shares of Preferred Stock are convertible shall be in the sole discretion of
the Holder, and the submission of shares of Preferred Stock for conversion
shall be deemed to be the Holder's determination of whether such shares of
Preferred Stock are convertible (in relation to other securities owned by the
Holder) and of which portion of such shares of Preferred Stock are
convertible, in each case subject to such aggregate percentage limitation,
and the Company shall have no obligation to verify or confirm the accuracy of
such determination. Nothing contained herein shall be deemed to restrict
the right of the Holder to convert shares of Preferred Stock at such time as
such conversion will not violate the provisions of this Section. The
provisions of this Section will not apply to any conversion pursuant to
Section 4(a)(ii) hereof, and may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than 75 days prior notice to the
Company (in which case, the Holder shall make such filings with the
Commission, including under Rule 13D or 13G, as are required by applicable
law), and the provisions of this Section shall continue to apply until such
75th day (or later, if stated in the notice of waiver). Other Holders shall
be unaffected by any such waiver.
(B) If on any Conversion Date (A) the Common Stock is listed
for trading on the NASDAQ or the Nasdaq National Market, (B) the Conversion
Price then in effect is such that the aggregate number of shares of Common
<PAGE>
Stock that would then be issuable upon (i) conversion in full of all then
outstanding shares of Preferred Stock, as payment of dividends thereon in
shares of Common Stock, and (ii) exercise of the Additional Warrant (as
defined in the Exchange Agreement), if the exercise price of the Additional
Warrant is less than the closing sales price of the Common Stock on the
Original Issue Date, together with any shares of the Common Stock previously
issued upon conversion of shares of Preferred Stock, as payment of dividends
thereon and exercise of the Additional Warrant, if the exercise price of the
Additional Warrant is less than the closing sales price of the Common Stock
on the Original Issue Date, would equal or exceed 20% of the number of shares
of the Common Stock outstanding on the Original Issue Date (such number of
shares as would not equal or exceed such 20% limit, the "Issuable Maximum"),
and (C) the Company shall not have previously obtained the vote of
shareholders (the "Shareholder Approval"), if any, as may be required by the
applicable rules and regulations of The Nasdaq Stock Market (or any success
entity) applicable to approve the issuance of shares of Common Stock in
excess of the Issuable Maximum in a private placement whereby shares of
Common Stock are deemed to have been issued at a price that is less than the
greater of book or fair market value of the Common Stock, then the Company
shall issue to the Holder so requesting a conversion a number of shares of
Common Stock equal to the Issuable Maximum and, with respect to the remainder
of the aggregate Stated Value of the shares of Preferred Stock then held by
such Holder for which a conversion in accordance with the Conversion Price
would result in an issuance of Common Stock in excess of the Issuable Maximum
(the "Excess Stated Value"), the converting Holder shall have the option to
require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but
in any event not later than the 60th day after such request, or (2)(i) issue
and deliver to such Holder a number of shares of Common Stock as equals (x)
the Excess Stated Value, plus accrued dividends on all shares of Preferred
Stock being converted, divided by (y) the closing sale price of the Common
Stock on the Original Issue Date, and (ii) cash in an amount equal to the
product of (x) the Per Share Market Value on the Conversion Date and (y) the
number of shares of Common Stock in excess of such Holder's pro rata portion
of the Issuable Maximum that would have otherwise been issuable to the Holder
in respect of such conversion but for the provisions of this Section (such
amount of cash being hereinafter referred to as the "Discount Equivalent"),
or (3) pay cash to the converting Holder in an amount equal to the Mandatory
Redemption Amount (as defined in Section 8) for the Excess Stated Value. If
the Company fails to pay the Discount Equivalent or the Mandatory Redemption
Amount, as the case may be, in full pursuant to this Section within seven (7)
days after the date payable, the Company will pay interest thereon at a rate
of 18% per annum to the converting Holder, accruing daily from the Conversion
Date until such amount, plus all such interest thereon, is paid in full.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement) representing the number of shares of Common Stock being acquired
upon the conversion
of shares of Preferred Stock (subject to the limitations
set forth in Section 5(a)(iii) hereof), (ii) one or more certificates
representing the number of shares of Preferred Stock not converted, (iii) a
bank check in the amount of accrued and unpaid dividends (if the Company has
elected to pay accrued dividends in cash), and (iv) if the Company has
elected and is permitted hereunder to pay accrued dividends in shares of
Common Stock, certificates, which shall be free of restrictive legends and
<PAGE>
trading restrictions (other than those required by Section 3.1 (b) of the
Purchase Agreement), representing such shares of Common Stock; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares
of Preferred Stock until certificates evidencing such shares of Preferred
Stock are either delivered for conversion to the Company or any transfer
agent for the Preferred Stock or Common Stock, or the Holder of such
Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of
the Holder, if available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion
Date on account of accrued but unpaid dividends hereunder, are not delivered
to or as directed by the applicable Holder by the third (3rd) Trading Day
after the Conversion Date, the Holder shall be entitled by written notice to
the Company at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing the shares of
Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion
Date on account of accrued but unpaid dividends hereunder, by the third (3rd)
Trading Day after the Conversion Date, the Company shall pay to such Holder,
in cash, as liquidated damages and not as a penalty, $5,000 for each day
after such third (3rd) Trading Day until such certificates are delivered.
Nothing herein shall limit a Holder's right to pursue actual damages for the
Company's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the
Holders from seeking to enforce damages pursuant to any other Section hereof
or under applicable law. Further, if the Company shall not have delivered
any cash due in respect of conversions of Preferred Stock or as payment of
dividends thereon by the third (3rd) Trading Day after the Conversion Date,
the Holder may, by notice to the Company, require the Company to issue
Underlying Shares pursuant to Section 5(c), except that for such purpose the
Conversion Price applicable thereto shall be the lesser of the Conversion
Price on the Conversion Date and the Conversion Price on the date of such
Holder demand. Any such Underlying Shares will be subject to the provision
of this Section.
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of
accrued but unpaid dividends hereunder, by the third (3rd) Trading Day after
the Conversion Date, and if after such third (3rd) Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock
to deliver in satisfaction of a sale by such Holder of the Underlying Shares
which the Holder anticipated receiving upon such conversion (a "Buy-In"),
<PAGE>
then the Company shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the aggregate stated value of the
shares of Preferred Stock for which such conversion was not timely honored.
For example, if the Holder purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 aggregate stated value of the shares of Preferred
Stock, the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to
the Holder in respect of the Buy-In.
(c)(i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of
(a) $4.00 (the "Initial Conversion Price") and (b) 87% (the "Discount Rate")
multiplied by the average of the three (3) lowest Per Share Market Values
during the twenty two (22) Trading Day period immediately preceding the
applicable Conversion Date, provided, that such twenty two (22) Trading Day
period shall be extended for the number of Trading Days, if any, during such
period in which (A) trading in the Common Stock was suspended from the NASDAQ
or a Subsequent Market, or (B) after the date declared effective by the
Commission, the Underlying Securities Registration Statement is not
effective, or (C) after the date declared effective by the Commission, the
Prospectus included in the Underlying Securities Registration Statement may
not be used by the Holder for the resale of Underlying Shares, provided,
however, that the Conversion Price shall not be less than the Floor (as
defined in Section 8). The Floor (x) shall be decreased by 2% as of any
Event Date (as defined below) and on each monthly anniversary thereof in
accordance with this Section, (y) shall simultaneously be adjusted by the
same ratio as the adjustments to the Conversion Price as a result of the
provisions of Section 5(c)(ii)-(v), and (z) shall not apply in the event that
the Common Stock is no longer listed on the NASDAQ or on a Subsequent Market.
If: (a) an Underlying Securities Registration Statement is not filed on or
prior to the Filing Date (if the Company files such Underlying Securities
Registration Statement without affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the Registration
Rights Agreement, the Company shall not be deemed to have satisfied this
clause (a)), or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days of the date
that the Company is notified (orally or in writing, whichever is earlier) by
the Commission that an Underlying Securities Registration Statement will not
be "reviewed," or not subject to further review, or (c) the Underlying
Securities Registration Statement is not declared effective by the Commission
on or prior to the Effectiveness Date (as defined in the Registration Rights
Agreement), or (d) such Underlying Securities Registration Statement is filed
with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as defined in the Registration
Rights Agreement) at any time prior to the expiration of the "Effectiveness
Period" (as defined in the Registration Rights Agreement), without being
succeeded within ten (10) days by a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission,
or (e) trading in the Common Stock
shall be suspended from the NASDAQ or a
Subsequent Market for more than three (3) Business Days (which need not be
consecutive days), (f) the conversion rights of the Holders are suspended for
any reason or (g) an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10)
<PAGE>
days of the Commission's notifying the Company that such amendment is
required in order for the Underlying Securities Registration Statement to be
declared effective (any such failure or breach being referred to as an
"Event," and for purposes of clauses (a), (c), (f) the date on which such
Event occurs, or for purposes of clause (b) the date on which such five (5)
day period is exceeded, or for purposes of clauses (d) and (g) the date which
such 10 day-period is exceeded, or for purposes of clause (e) the date on
which such three (3) Business Day-period is exceeded, being referred to as
"Event Date"), then each of the Initial Conversion Price and the Discount
Rate shall be decreased by 2% on the Event Date and each monthly anniversary
thereof until the earlier to occur of the second month anniversary after the
Event Date and such time as the applicable Event is cured (i.e., the Discount
Rate would decrease to 85% as of the Event Date and 83% as of the one month
anniversary of such Event Date). Commencing on the second month anniversary
after the Event Date, the Holder shall have the option to either (x) require
further cumulative 2% discounts to continue or (y) require the Company to pay
to the Holder 2% of the aggregate Stated Values of the shares of Preferred
Stock then held by such Holder, in cash, as liquidated damages and not as a
penalty, on the first day of each monthly anniversary of the Event Date,
until such time as the applicable Event is cured. Any decrease in the
Initial Conversion Price and the Discount Rate pursuant to this Section shall
remain in effect notwithstanding the fact that the Event causing such
decrease has been subsequently cured and further monthly decreases have
ceased. The provisions of this Section are not exclusive and shall in no way
limit the Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or
pari passu securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c)
combine outstanding shares of Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding before such event and of which the denominator
shall be the number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(c)(ii) shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to
all holders of Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Per Share Market
Value at the record date mentioned below, then the Initial Conversion Price
shall be multiplied by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to the issuance of
such rights, warrants or options, plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares so offered
would purchase at such Per Share Market Value, and the denominator of which
shall be the sum of the
number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
offered for subscription or purchase. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
<PAGE>
after the record date for the determination of stockholders entitled to
receive such rights or warrants. However, upon the expiration of any right,
warrant or option to purchase shares of Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this Section
5(c)(iii), if any such right, warrant or option shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such
expiration shall be recomputed and effective immediately upon such expiration
shall be increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the provisions of
this Section 5 upon the issuance of other rights or warrants) had the
adjustment of the Conversion Price made upon the issuance of such rights,
warrants, or options been made on the basis of offering for subscription or
purchase only that number of shares of Common Stock actually purchased upon
the exercise of such rights, warrants or options actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable
with respect to Common Stock Equivalents (as defined below), at any time
while any shares of Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents") entitling any Person to acquire shares of Common Stock at a
price per share less than the Conversion Price, then the Conversion Price
shall be multiplied by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to the issuance of
shares of Common Stock or such Common Stock Equivalents plus the number of
shares of Common Stock which the offering price for such shares of Common
Stock or Common Stock Equivalents would purchase at the Conversion Price, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock so issued or issuable, provided, that for purposes
hereof, all shares of Common Stock that are issuable upon exercise or
exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall
be made whenever such shares of Common Stock or Common Stock Equivalents are
issued.
(v) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 5(c)(ii)-(iv) above), then in each such case the Initial Conversion
Price at which each share of Preferred Stock shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith; provided,
however, that in the event of a distribution exceeding ten percent (10%) of
the net assets of the Company, if the Holders of a majority in interest of
the Preferred Stock dispute such valuation, such fair market value shall be
determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the
<PAGE>
Holders of a majority in interest of the shares of Preferred Stock then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal
to the average of the determinations by each such Appraiser. In either case
the adjustments shall be described in a statement provided to the Holders of
the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted pursuant
to Section 5(c)(i),(ii),(iii),(iv), or (v) the Company shall promptly mail to
each Holder, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(viii) In case of any reclassification of the Common Stock,
or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property (other than compulsory
share exchanges which constitute Change of Control Transactions), the Holders
of the Preferred Stock then outstanding shall have the right thereafter to
convert such shares only into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such reclassification or share exchange, and the Holders of the
Preferred Stock shall be entitled upon such event to receive such amount of
securities, cash or property as a holder of the number of shares of the
Common Stock of the Company into which such shares of Preferred Stock could
have been converted immediately prior to such reclassification or share
exchange would have been entitled. This provision shall similarly apply to
successive reclassifications or share exchanges.
(ix) If (a) the Company shall declare a dividend (or any
other distribution) on its Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of its Common Stock,
(c) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (d) the approval of any stockholders of
the Company shall be required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the assets of
the Company, of any compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property, or (e) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up
of the affairs of the Company; then the Company shall cause to be filed at
each office or agency maintained for the purpose of conversion of Preferred
Stock, and shall cause to be mailed to the Holders at their last addresses as
they shall appear upon the stock books of the Company, at least 20 calendar
days prior to the applicable record or effective date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, 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, distributions, redemption, rights
or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
<PAGE>
expected to become effective or close, 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, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer
or share exchange; provided, however, that the failure to mail such notice or
any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. Holders are
entitled to convert shares of Preferred Stock during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
(x) If the Company (i) makes a public announcement that it
intends to enter into a Change of Control Transaction (as defined in Section
8) or (ii) any person, group or entity (including the Company, but excluding
a Holder or any affiliate of a Holder) publicly announces a bona fide tender
offer, exchange offer or other transaction to purchase 33% or more of the
Common Stock (such announcement being referred to herein as a "Major
Announcement" and the date on which a Major Announcement is made, the
"Announcement Date"), then, in the event that a Holder seeks to convert
shares of Preferred Stock on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the earlier to occur of the consummation of the proposed transaction
or tender offer, exchange offer or other transaction and the Abandonment Date
(as defined below), be equal to the lower of (x) the average Per Share Market
Value on the five Trading Days immediately preceding (but not including) the
Announcement Date and (y) the Conversion Price that would otherwise have been
in effect on the Conversion Date for such Preferred Stock but for the
application of this section. "Abandonment Date" means with respect to any
proposed transaction or tender offer, exchange offer or other transaction for
which a public announcement as contemplated by this paragraph has been made,
the date upon which the Company (in the case of clause (i) above) or the
person, group or entity (in the case of clause (ii) above) publicly announces
the termination or abandonment of the proposed transaction or tender offer,
exchange offer or another transaction which caused this paragraph to become
operative.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Preferred Stock and payment of
dividends on Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than
the Holders, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of
such shares set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5(a) and Section 5(c))
upon the conversion of all outstanding shares of Preferred Stock and payment
of dividends hereunder. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and freely tradeable,
subject to the legend requirements of Section 3.1 (b) of the Purchase
Agreement.
(e) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the Holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
<PAGE>
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the Holder of such shares of
Preferred Stock so converted and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
(g) Shares of Preferred Stock converted into Common Stock shall be
canceled. The Company may not reissue any shares of Preferred Stock.
(h) Any and all notices or other communications or deliveries to
be provided by the Holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Financial Officer of the
Company at the facsimile telephone number or address of the principal place
of business of the Company as set forth in the Purchase Agreement. Any and
all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile
or sent by a nationally recognized overnight courier service, addressed to
each Holder at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 8:00 p.m. (Eastern Standard Time),
(ii) the date after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in
this Section later than 8:00 p.m. (Eastern Standard Time) on any date and
earlier than 11:59 p.m. (Eastern Standard Time) on such date, (iii) upon
receipt, if sent by a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given.
Section 6. Optional Redemption.
(a) The Company shall have the right, exercisable at any time upon
20 Trading Days' notice (an "Optional Redemption Notice") to the Holders of
the Preferred Stock given at any time after the Original Issue Date to redeem
all or any portion of the shares of Preferred Stock which have not previously
been converted or redeemed, at a price equal to the Optional Redemption
Price (as defined below), provided, that the Company shall not be entitled
to deliver an Optional Redemption Notice to the Holders if: (i) the number
of shares of Common Stock at the time authorized, unissued and unreserved for
all purposes is insufficient to satisfy the Company's conversion obligations
of all shares of Preferred Stock then outstanding, or (ii) the Underlying
Shares then outstanding are not registered for resale pursuant to an
effective Underlying Securities Registration Statement and may not be sold
without volume restrictions pursuant to Rule 144 promulgated under the
<PAGE>
Securities Act, as determined by counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent in the form and
substance acceptable to the Holders and such transfer agent, or (iii) the
Common Stock is not then listed for trading on the NASDAQ or a Subsequent
Market. The entire Optional Redemption Price shall be paid in cash. Holders
may convert (and the Company shall honor such conversions in accordance with
the terms hereof) any shares of Preferred Stock, including shares subject to
an Optional Redemption Notice, during the period from the date thereof
through the 20th Trading Day after the receipt of an Optional Redemption
Notice.
(b) If any portion of the Optional Redemption Price shall not be
paid by the Company by the 20th Trading Day after the delivery of an Optional
Redemption Notice, interest shall accrue thereon at the rate of 15% per annum
until the Optional Redemption Price plus all such interest is paid in full.
In addition, if any portion of the Optional Redemption Price remains unpaid
after the date due, the Holder of the Preferred Stock subject to such
redemption may elect, by written notice to the Company given at any time
thereafter, to either (i) demand conversion of all or any portion of the
shares of Preferred Stock for which such Optional Redemption Price, plus
interest thereof, has not been paid in full (the "Unpaid Redemption Shares"),
in which event the Per Share Market Value for such shares shall be the lower
of the Per Share Market Value calculated on the date the Optional Redemption
Price was originally due and the Per Share Market Value as of the Holder's
written demand for conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the Holder
elects option (i) above, the Company shall within three (3) Trading Days of
its receipt of such election deliver to the Holder the shares of Common Stock
issuable upon conversion of the Unpaid Redemption Shares subject to such
Holder conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if the Holder elects option (ii) above, the Company
shall promptly, and in any event not later than three (3) Trading Days from
receipt of Holder's notice of such election, return to the Holder all of the
Unpaid Redemption Shares.
(c) The "Optional Redemption Price" shall equal the sum of (i) the
product of (A) the number of shares of Preferred Stock to be redeemed and (B)
the product of (1) the average Per Share Market Value for the five (5)
Trading Days immediately preceding (x) the date of the Optional Redemption
Notice or (y) the date of payment in full by the Company of the Optional
Redemption Price, whichever is greater, and (2) the Conversion Ratio
calculated on the date of the Optional Redemption Notice, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such shares
of Preferred Stock.
Section 7. Redemption Upon Triggering Events.
(a) Upon the occurrence of a Triggering Event, each Holder shall (in
addition to all other rights it may have hereunder or under applicable law),
has the right, exercisable at the sole option of such Holder, to require the
Company to redeem all or a portion of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying
Shares issued in respect of conversions or as payment of dividends hereunder
and then held by the Holder and (B) the Per Share Market Value on the date
such redemption is demanded or the date the redemption price hereunder is
paid in full, whichever is greater. If the Company fails to pay the
redemption price hereunder in full pursuant to this Section within seven (7)
<PAGE>
days after the date of a demand therefor, the Company will pay interest
thereon at a rate of 15% per annum, accruing daily from such seventh day
until the redemption price, plus all such interest thereon, is paid in full.
For purposes of this Section, a share of Preferred Stock is outstanding until
such date as the Holder shall have received Underlying Shares upon a
conversion (or attempted conversion) thereof.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgement, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of an Underlying Securities Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the effectiveness of
the Underlying Securities Registration Statement lapses for any reason, or
the Holder shall not be permitted to resell Registrable Securities under the
Underlying Securities Registration Statement;
(iii) the failure of the Common Stock to be listed for
trading on the NASDAQ or on a Subsequent Market or the suspension of the
Common Stock from trading on the NASDAQ or on a Subsequent Market, in either
case, for more than three (3) days (which need not be consecutive days);
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion
hereunder that comply with the provisions hereof prior to the 10th day after
the Conversion Date or the Company shall provide notice to any Holder,
including by way of public announcement, at any time, of its intention not to
comply with requests for conversion of any Preferred Stock in accordance with
the terms hereof;
(v) the Company shall be a party to any Change of Control
Transaction, shall agree to sell (in one or a series of related transactions)
all or substantially all of its assets (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem more than a de
minimis number of shares of Common Stock or other Junior Securities (other
than redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the satisfaction of
the Holders prior to the expiration of thirty (30) days from the Event Date
relating thereto;
(vii) the Company shall fail for any reason to deliver the
certificate or certificates required pursuant to Section 5(b)(iii) or the
cash pursuant to a Buy-In within seven (7) days after notice is deemed
delivered hereunder; or
(viii) the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to issue to such
Holder upon a conversion hereunder.
Section 8. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
<PAGE>
"Change of Control Transaction" means the occurrence of any of (i)
an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of in excess of 33% of the voting securities of the Company, (ii) a
replacement of more than one-half of the members of the Company's board of
directors which is not approved by those individuals who are members of the
board of directors on the date hereof in one or a series of related
transactions, (iii) the merger of the Company with or into another entity,
consolidation or sale of all or substantially all of the assets of the
Company in one or a series of related transactions, unless following such
transaction, the holders of the Company's securities continue to hold at
least 33% of such securities following such transaction or (iv) the execution
by the Company of an agreement to which the Company is a party or by which it
is bound, providing for any of the events set forth above in (i), (ii) or
(iii).
"Common Stock" means the Company's common stock, par value $.007
per share, and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the numerator
of which is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid late fees thereon) but only to the extent not paid in
shares of Common Stock in accordance with the terms hereof, and the
denominator of which is the Conversion Price at such time.
"Exchange Agreement" means the Exchange Agreement, dated as of July
28, 1998, between the Company and the original Holder of the Preferred Stock.
"Floor" shall initially mean $2.50 (the "Initial Floor"), provided,
that, if at any time after the Original Issue Date, the average Per Share
Market Value for any five (5) consecutive Trading Days (such five Trading Day
average, the "Reset Price") is lower than the Initial Floor, the Floor shall
be reset to the Reset Price. After such initial reset, if any, subsequent
resets of the Floor may occur and shall be based upon the then most recent
Reset Price. Notwithstanding the foregoing, subject to the adjustments
contemplated in Sections 5(c)(i)-(v), the Floor shall not be less than
$1.25.
"Junior Securities" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation
preference to the Preferred Stock.
"Mandatory Redemption Amount" for each share of Preferred Stock
means the sum of (i) the greater of (A) 130% of the Stated Value and all
accrued dividends with respect to such share, and (B) the product of (a) the
Per Share Market Value on the Trading Day immediately preceding (x) the date
of the Triggering Event or the Conversion Date, as the case may be, or (y)
the date of payment in full by the Company of the applicable redemption
price, whichever is greater, and (b) the Conversion Ratio calculated on the
date of the Triggering Event, or the Conversion Date, as the case may be, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect
of such shares of Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of
any shares of the Preferred Stock regardless of the number of transfers of
any particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
<PAGE>
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or
on such Subsequent Market on which the Common Stock is then listed or quoted,
or if there is no such price on such date, then the closing bid price on the
NASDAQ or on such Subsequent Market on which the Common Stock is then listed
or quoted on the date nearest preceding such date, or (b) if the Common Stock
is not then listed or quoted on the NASDAQ or on a Subsequent Market, the
closing bid price for a share of Common Stock in the over-the-counter market,
as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at
the close of business on such date, or (c) if the Common Stock is not then
reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the Holder, or (d) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a
majority of the shares of the Preferred Stock.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
Agreement, dated as of June 30, 1998, between the Company and the original
Holder of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of June 30, 1998, between the Company and the original
Holder of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded
on the NASDAQ or on such Subsequent Market on which the Common Stock is then
listed or quoted, as the case may be, or (b) if the Common Stock is not
listed on the NASDAQ or on a Subsequent Market, a day on which the Common
Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding its functions of reporting prices);
provided, however, that in the event that the Common Stock is not listed or
quoted as set forth in (a), (b) and (c) hereof, then Trading Day shall mean
any day except Saturday, Sunday and any day which shall be a legal holiday or
a day on which banking institutions in the State of New York are authorized
or required by law or other government action to close.
"Underlying Securities Registration Statement" means a registration
statement that meets the requirement of the Registration Rights Agreement
and registers the resale of all Underlying Shares by the recipient thereof,
who shall be named as a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of Common Stock
into which the Shares are convertible and the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 5% Series F
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.007 per share (the "Common Stock"), of I-Link Incorporated (the
"Company") according to the conditions hereof, as of the date written below.
If shares are to be issued in the name of a person other than undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably requested
by the Company in accordance therewith. No fee will be charged to the Holder
for any conversion, except for such transfer taxes, if any.
Conversion calculations:
________________________________________________
Date to Effect Conversion
________________________________________________
Number of shares of Preferred Stock to be Converted
________________________________________________
Number of shares of Common Stock to be Issued
________________________________________________
Applicable Conversion Price
________________________________________________
Signature
________________________________________________
Name
________________________________________________
Address
3. The foregoing amendment was duly adopted by the Board of Directors
without the requirement of shareholder action by meeting held on July 21,
1998, pursuant to the provisions of the Florida Business Corporation Act.
<PAGE>
IN WITNESS WHEREOF, I-Link Incorporated has caused these Articles of
Amendment to the Amended and Restated Articles of Incorporation to be
executed by its President and attested to by its Secretary this 28th day of
July, 1998.
I-LINK INCORPORATED
By:_________________________
John W. Edwards, President
ATTEST:
________________________
David E. Hardy, Secretary
<PAGE> 19
AGREEMENT
THIS AGREEMENT is made and entered into as of April 14, 1998, by and
between I-LINK, INCORPORATED, a Florida corporation (the "Borrower"), and
WINTER HARBOR, L.L.C., a Delaware limited liability company (the "Lender").
Recitals
1. The Lender has lent to the Borrower $5,768,000 in four
installments on a demand loan basis (three of which are evidenced by demand
promissory notes (the "Notes")), which installments were made on January
26, 1998, February 23, 1998, March 3, 1998, and March 24, 1998
(collectively, the "Loans"). In connection with the Loans, the Lender was
granted warrants to acquire, in the aggregate, 5,000,000 shares of common
stock of the Borrower at an exercise price of 110% of the closing price of
such stock on the day each installment was made (the "1998 Warrants").
2. The Borrower has requested that the Lender not demand payment on
the Loans before the earlier of May 15, 1998, and the date on which the
Borrower consummates a loan transaction with another lender or consummates
the sale of any debt or equity securities, in either case in an amount
yielding net cash proceeds to the Borrower of not less than $6,000,000 (the
earlier of such dates being referred to hereinafter as the "Demand Date".)
Subject to the terms and conditions of this Agreement, the Lender has
agreed to such request.
Agreements
IN CONSIDERATION of the foregoing recitals, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
A. Demand. The Lender agrees that it will not make demand on the
Loans prior to the Demand Date. However, the Lender shall be deemed to
have made demand on the Demand Date, so that the outstanding principal
amount due under the Loans, together with all interest accrued through the
date of payment (the "Amount Outstanding") shall be automatically due and
payable on the Demand Date without further notice, demand or action by the
Lender.
B. Security. As security for the Borrowers obligations under the
Loans, the Borrower shall execute and deliver to the Lender, promptly
following the execution hereof, a pledge agreement in form and substance
satisfactory to the Lender pursuant to which the Borrower shall pledge to
the Lender all of the issued and outstanding equity interests in each of
its subsidiaries. In addition, the Borrower shall cause each such
subsidiary to execute and deliver, promptly following the execution hereof,
(a) a guaranty in form and substance satisfactory to the Lender, pursuant
to which such subsidiaries guaranty the obligations of the Borrower under
the Loans, and (b) a security agreement in form and substance satisfactory
to the Lender, pursuant to which such subsidiaries grant security interests
to the Lender in substantially all of their assets to secure their
obligations under such guaranty and the obligations of the Borrower under
the Loans.
<PAGE>
C. Amendment of Existing Warrants. The Lender and the Borrower have
entered into (a) a Warrant Agreement dated as of June 6, 1997, pursuant to
which the Borrower issued to the Lender warrants to acquire 500,000 shares
of common stock of the Borrower, (b) a First Amendment Warrant Agreement
dated as of August 18, 1997, pursuant to which the Borrower issued to the
Lender warrants to acquire 300,000 shares of common stock of the Borrower,
and (c) a Warrant Agreement dated as of October 10, 1997, pursuant to which
the Borrower issued to the Lender warrants to acquire 10,000,000 shares of
common stock of the Borrower (collectively, the "Existing Warrants".) The
Existing Warrants all have exercise periods which expire on or prior to
September 30, 2002. In consideration of the Lender's agreement not to make
demand on the Loans prior to the Demand Date, the Borrower agrees that each
of the Existing Warrants is hereby amended to provide that the exercise
period thereunder shall extend to October 15, 2005.
D. Timely Payment of Amount Outstanding. If the Borrower pays the
Amount Outstanding in full in cash on the Demand Date, then the Lender
shall have the following rights and the Borrower shall take the following
actions:
1. the Borrower shall issue to the Lender the 1998 Warrants,
which warrants shall give the Lender the right to acquire 5,000,000 shares
of the Borrower's common stock, for an exercise period extending until
October 15, 2005, pursuant to a warrant agreement in substantially the form
of the Existing Warrant described in Clause 3(c); the exercise price for
1,734,000 of such shares shall be $5.50 per share; the exercise price for
953,500 of such shares shall be $5.95 per share; the exercise price for
1,229,000 of such shares shall be $5.98 per share; and the exercise price
for the remaining 1,083,500 of such shares shall be $7.22 per share; and
2. the Borrower shall pay to the Lender on the Demand Date an
amount equal to the lesser of $300,000 and the Lender's legal, due
diligence and transaction costs in connection with the transactions
contemplated by this Agreement and all prior transactions between the
Borrower and the Lender.
E. Non-Payment by Demand Date. If the Borrower fails to pay the
Amount Outstanding in full in cash on the Demand Date, then the Lender
shall have available to it the following rights and remedies:
1. at the Lender's option:
a) the interest rate payable on the Loans shall increase
to a rate equal to the prime rate as set forth in the Wall Street Journal
(Western Edition) plus four (4) percentage points; or
b) the Borrower shall issue to the Lender: (a) that
number of shares of the Borrower's Series M Preferred Stock equal to the
quotient of the Amount Outstanding divided by $2,500.00 as payment in
full of the Loans, and upon such issuance the Notes shall be cancelled; and
(b) warrants to acquire 10,000,000 shares of the Borrower's common stock,
at an exercise price of $2.50 per share, for an exercise period extending
until October 15, 2005, pursuant to a warrant agreement in substantially
the form of the Existing Warrant described in Clause 3(c); and
2. the Borrower shall issue to the Lender a promissory note in
form and substance satisfactory to the Lender in an amount equal to the
lesser of $300,000 and the Lender's legal, due diligence and transaction
<PAGE>
costs in connection with the transactions contemplated by this Agreement
and all prior transactions between the Borrower and the Lender, which note
shall be convertible, at the option of the Lender, into shares of common
stock of the Borrower at a conversion rate equal to 110% of the market
price of such stock on the date of the issuance of the note.
F. Representations and Warranties. The Borrower hereby represents
and warrants to the Lender as follows:
1. Organization, Qualifications and Corporate Power .
a) The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Florida. The
Borrower has the requisite corporate power and authority to own and hold
its properties, to carry on its business as conducted or presently proposed
to be conducted, to execute, deliver and perform this Agreement, to issue
and deliver to the Lender the warrants required to be issued pursuant
hereto (the "New Warrants"), and to issue and deliver to the Lender the
shares of capital stock issuable pursuant to this Agreement and the shares
of capital stock upon exercise of the New Warrants (collectively, the
"Underlying Shares", and, together with the New Warrants, the
"Securities"). The Borrower is duly qualified to conduct business as a
foreign corporation in good standing under the laws of the State of Utah
and each other jurisdiction where the failure to so qualify could have a
material adverse effect on the financial condition, results of operations,
properties, assets, prospects or business of the Borrower or any of its
subsidiaries (a "Material Adverse Effect").
b) The Borrower 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, partnership, company, trust or other entity, or any option,
warrant or other security convertible into or exchangeable for any of the
foregoing, other than (a) the shares of capital stock of I-Link Systems,
Inc., a Utah corporation ("I-Link Systems"), (b) the shares of capital
stock of I-Link Communications, Inc., a Utah corporation ("I-Link
Communications"), (c) the shares of capital stock of MiBridge, Inc., a Utah
corporation ("MiBridge"), and (d) the membership interests of I-Link
Worldwide, L.L.C., a Delaware limited liability company ("Worldwide").
Each of I-Link Systems, I-Link Communications and MiBridge is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Utah, and Worldwide is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Delaware. Each of I-Link Systems, I-Link Communications, MiBridge
and Worldwide has the requisite corporate or limited liability company (as
appropriate) power and authority to own and hold its properties and to
carry on its business as conducted or presently proposed to be conducted.
Each of I-Link Systems, I-Link Communications, MiBridge and Worldwide is
duly qualified to conduct business as a foreign corporation or limited
liability company (as appropriate) in good standing under the laws of each
jurisdiction where the failure to so qualify could have a Material Adverse
Effect.
2. Authorization of Agreements .
a) The execution, delivery and performance by the Borrower
and its subsidiaries of this Agreement and the agreements, documents and
instruments to be executed and delivered pursuant hereto (collectively, the
<PAGE>
"Transaction Documents") and the issuance, sale and delivery of the
Securities to the Lender have been duly authorized by all requisite
corporate or limited liability company action of the Borrower and its
subsidiaries, including, but not limited to, the requisite action by the
Board of Directors of the Borrower and the requisite approval or consent of
the Borrower's shareholders, and will not (with due notice or lapse of time
or both) violate, be in conflict with or constitute a default under any
provision of law, rule or regulation, any order of any court or other
governmental agency, the Articles of Incorporation or Bylaws or other
organizational documents of the Borrower or any of its subsidiaries, or any
provision of any indenture, mortgage, note, deed of trust, agreement or
other instrument to which the Borrower, any of its subsidiaries or any of
their respective properties or assets is bound, or conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, mortgage, note, deed of trust, agreement
or other instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon any
of the properties or assets of the Borrower or any of its subsidiaries.
b) The Underlying Shares have been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of
the Borrower's Articles of Incorporation, as amended, this Agreement and
the New Warrants, will be duly and validly issued, fully paid and non-
assessable, and will be free of restrictions on transfer other than
restrictions on transfer under applicable state and federal securities
laws. The issuance, sale and delivery of the Securities are not subject to
any preemptive right of any shareholder of the Borrower or to any right of
first refusal or other right in favor of any person.
3. Validity . This Agreement has been duly executed and
delivered by the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, 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 the availability of equitable remedies may be limited by general
principles of equity. The other Transaction Documents, when executed in
accordance with the terms of this Agreement, will be duly executed
and delivered by the Borrower and its subsidiaries and will constitute the
legal, valid and binding obligation of the Borrower and its subsidiaries,
enforceable in accordance with their respective terms, subject to the
effect of bankruptcy, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and except as the
availability of equitable remedies may be limited by general principles of
equity.
4. Litigation; Claims; Investigations . Except as set forth on
Schedule I attached hereto, there is no action, suit, proceeding or
investigation pending or threatened against the Borrower or any of its
subsidiaries and there are no suits, actions or claims, or any
investigations or inquiries by any administrative agency or governmental
body, or legal, administrative or arbitration proceedings pending against
or threatened against the Borrower or any of its subsidiaries or affecting
any of the Borrower's or any of its subsidiaries' properties, rights,
assets or business, or to which the Borrower or any of its subsidiaries is
a party or, in the case of threatened proceedings, is reasonably likely to
become a party. There is no outstanding order, writ, judgment, injunction
or decree of any court, administrative agency, governmental body or
arbitration tribunal against or affecting the Borrower, any of its
<PAGE>
subsidiaries or any of the properties, rights, assets or business of the
Borrower or any of its subsidiaries.
5. Compliance . Neither the Borrower nor any of its
subsidiaries is in violation of or default under any provision of its
Articles of Incorporation or Bylaws or other organizational document.
Neither the Borrower nor any of its subsidiaries is in material violation
of or default under (i) any provision of any instrument, mortgage, deed of
trust, loan, contract, commitment, judgment, decree, order or obligation to
which it is a party or by which it or any of its properties or assets are
bound or (ii) any provision of any federal, state or local law, statute,
rule, order or governmental regulation.
6. Governmental Consents . No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any federal or state governmental authority on the part of
the Borrower or any of its subsidiaries is required in connection with the
execution, delivery and performance of this Agreement and the offer, sale
or issuance of the Securities.
7. Disclosure . No representation or warranty made by the
Borrower contained in this Agreement or in any other Transaction Document
or in any certificate or instrument furnished or to be furnished pursuant
hereto contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact known to the Borrower
required to make the statements herein or therein contained not misleading.
The Borrower is not aware of any impending or contemplated event or
occurrence that would cause any of the foregoing representations not to be
true and complete on the date of such event or occurrence as if made on
that date.
G. Arbitration . To the fullest extent not prohibited by law, any
controversy, claim or dispute arising out of or relating to this
Agreement, including the determination of the scope or applicability of
this agreement to arbitrate, shall be settled by final and binding
arbitration in accordance with the terms and conditions of the arbitration
provisions of the Shareholders Agreement by and among the Borrower, the
Lender and certain other shareholders of the Borrower, dated as of October
10, 1997.
H. Expenses . The Borrower shall pay all expenses of the Lender,
including but not limited to travel, legal and accounting fees and
expenses, incurred in connection with the transactions contemplated under
this Agreement.
I. Survival of Agreements . All covenants, agreements,
representations, and warranties made herein shall survive the execution and
delivery hereof and remain in full force and effect, notwithstanding any
investigation made at any time by or on behalf of either party hereto.
J. Parties in Interest . All representations, covenants, and
agreements contained in this Agreement by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the respective
successors and permitted assigns of the parties hereto, whether so
expressed or not.
K. Notices . All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed
<PAGE>
effectively given and received upon delivery in person, or one business day
after delivery by national overnight courier service, or by telecopier
transmission with acknowledgment of transmission receipt, or three business
days after deposit via certified or registered mail, return receipt
requested, in each case addressed as follows:
(a) if to the Company, at
I-LINK INCORPORATED
13751 South Wadsworth Park Drive
Suite 200
Draper, Utah 84020
Attention: John W. Edwards, President
Telecopier: 801-576-5075
with copy to:
David E. Hardy, Esq.
60 E. South Temple
Suite 2200
Salt Lake City, Utah 84111
Telecopier: (801) 364-6664
(b) if to the Lender, at
Winter Harbor, L.L.C.
c/o First Media, L.P.
11400 Skipwith Lane
Potomac, Maryland 20854
Attention: Ralph W. Hardy, Jr.
Telecopier: (301) 983-2425
with copies to:
Ralph W. Hardy, Jr., Esq. and
Timothy J. Kelley, Esq.
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Telecopier: (202) 776-2222
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other.
L. Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF DELAWARE
WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
1. Entire Agreement . This Agreement constitutes the sole and entire
agreement of the parties with respect to the subject matter hereof.
M. Counterparts . This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
N. No Waivers; Amendments . No failure or delay on the part of any
party in exercising any right, power or remedy hereunder shall operate as a
<PAGE>
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to any party at law or in equity or otherwise. Any provision of
this Agreement may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower and the Lender.
O. Severability . If any provision of this Agreement shall be
declared void or unenforceable by a judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not
be affected thereby.
P. Headings . The Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Q. Tax Reporting. The Borrower agrees that it will not claim any
deduction for interest expense with respect to the Loans in excess of a
deduction for the stated cash interest payable on the Loans.
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
WINTER HARBOR, L.L.C.
By: First Media, L.P.
its General Manager/Member
By: First Media Corporation
its sole General Partner
By: /s Ralph W. Hardy
Name: Ralph W. Hardy
Title: Secretary
I-LINK INCORPORATED
By: /s John Edwards
Name: John Edwards
Title: President
<PAGE>
SCHEDULE I
Proceedings
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made and entered into as of April 14, 1998, by
and between I-LINK INCORPORATED, a Florida corporation (the "Pledgor"), and
Winter Harbor, L.L.C., a Delaware limited liability company (the "Pledgee").
RECITALS
The Pledgee has lent to the Pledgor $5,768,000 in four installments on
a demand loan basis (three of which are evidenced by demand promissory notes
(the "Notes")), which installments were made on January 26, 1998, February
23, 1998, March 3, 1998, and March 24, 1998 (collectively, the "Loans"). The
Pledgor has requested that the Pledgee not demand payment on the Loans before
the earlier of May 15, 1998, and the date on which the Pledgor consummates a
loan transaction with another lender or consummates the sale of any debt or
equity securities, in either case in an amount yielding net cash proceeds to
the Pledgor of not less than $6,000,000 (the earlier of such dates being
referred to hereinafter as the "Demand Date"). The Pledgor and the Pledgee
have entered into that certain Agreement dated as of even date herewith (as
the same may be extended, amended, restated or modified from time to time,
the "Agreement"), pursuant to which the Pledgee has agreed to such request.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Agreement. As security for the Loans and
the Agreement, the Pledgor has agreed to enter into this Pledge Agreement.
AGREEMENTS
In consideration of Loans, credit or other financial accommodation
extended or continued from time to time to the Pledgor by the Pledgee, the
Pledgor does hereby agree as follows:
1. Pledge.
(a) The Pledgor hereby grants to the Pledgee, as security for
the Loans and the obligations of the Pledgor under the Agreement, a first
priority security interest in, and pledges, assigns, hypothecates and
transfers to the Pledgee, all of the Pledgor's interests in and right
and title to, all of the issued and outstanding shares of capital stock of
each of I-Link Systems, Inc., I-Link Communications, Inc. and MiBridge, Inc.
and all of the issued and outstanding limited liability company interests of
I-Link Worldwide, L.L.C. (together, the "Collateral").
(b) The Pledgor covenants and agrees with the Pledgee that from
and after the date of this Pledge Agreement and until the Loans and
obligations of the Pledgor under the Agreement are fully paid and satisfied:
(i) At any time and from time to time, upon the reasonable
written request of the Pledgee, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver any and all such
instruments and documents and take such action as the Pledgee may reasonably
deem desirable to obtain the full benefits of this Pledge Agreement and of
the rights and powers herein granted, including, without limitation, the
execution and filing of any financing or continuation statements under the
Uniform Commercial Code with respect to the lien and security interest
<PAGE> granted hereby. The Pledgor also hereby authorizes the Pledgee to file
any
such financing or continuation statement without the signature of the Pledgor
to the extent permitted by applicable law. If any of the Collateral shall be
or become evidenced by any Instrument (as defined in Section 9-105(1)(i) of
the UCC), the Pledgor agrees to pledge such Instrument to the Pledgee and
shall duly endorse such Instrument in a manner satisfactory to the Pledgee
and deliver the same to the Pledgee.
(ii) For the Pledgee's further security, the Pledgor agrees
that the Pledgee shall have a special property interest in all of the
Pledgor's books and records pertaining to the Collateral and, upon
reasonable notice from the Pledgee, the Pledgor shall permit any
representative of the Pledgee to inspect such books and records and will
provide photocopies thereof to the Pledgee.
(iii) The Pledgor will not change its name, identity or
corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading
within the meaning of Section 9-402(7) of the UCC (or any other then
applicable provision of the UCC) unless the Pledgor shall have given the
Pledgee at least 30 days prior written notice thereof and shall have taken
all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by the Pledgee to amend such
financing statement or continuation statement so that it is not seriously
misleading or to file a new appropriate financing statement. The Pledgor
will not change its principal place of business or remove its records from
its office located at 13751 South Wadsworth Park Drive, Suite 200, Draper,
Utah 84020, unless it gives the Pledgee at least 30 days prior written
notice thereof and has taken such action as is necessary to cause the
security interest of the Pledgee in the Collateral to continue to be
perfected.
(c) The Pledgor and the Pledgee agree that the Collateral shall be
subject to the terms and conditions hereinafter set forth as collateral
security for the Loans and the obligations of the Pledgor to the Pledgee
under the Agreement.
2. Representations and Warranties. The Pledgor represents and
warrants to the Pledgee as follows:
(a) the Collateral constitutes all of the capital stock of
each of I-Link Systems, Inc. ("Systems"), I-Link Communications, Inc.
("Communications") and MiBridge, Inc. ("MiBridge") and the limited liability
company interests of I-Link Worldwide, L.L.C. ("Worldwide");
(b) the Collateral is validly issued, fully paid and
nonassessable and is not subject to any liens, charges or encumbrances
whatsoever, except for the security interest granted pursuant hereto;
(c) there are no existing options, warrants or other rights to
purchase any of the Collateral;
(d) the execution, delivery and performance of this Pledge
Agreement will not conflict with, result in a breach of or constitute a
default under any indenture or agreement to which the Pledgor, Systems,
Communications, MiBridge or Worldwide is a party or by which any of them
is bound, or result in the creation or imposition of any lien, charge or
<PAGE>
encumbrance of any nature whatsoever on any of their respective property or
assets;
(e) this Pledge Agreement constitutes the legal, valid and
binding obligation of the Pledgor, enforceable in accordance with its terms;
(f) the Pledgor has all requisite power and authority to enter
into this Pledge Agreement and to carry out the transactions contemplated
hereby; and
(g) no consent or approval of any person or entity is or will be
required in connection with the execution, delivery and performance of this
Pledge Agreement.
3. Term. The Collateral shall constitute security for the Loans
and the performance by the Pledgor of its obligations and liabilities under
the Agreement until the principal and interest due on the Loans are paid in
full and the Agreement shall have terminated, at which time the Pledgee
shall deliver prepare, execute, deliver and file all documents necessary to
evidence the termination of the security interest pursuant hereto, and this
Pledge Agreement shall thereupon terminate.
4. Voting. While the Collateral continues to be pledged to the
Pledgee, such Collateral shall remain in the name of the Pledgor, and the
Pledgor shall have and exercise all rights of ownership, including the right
to vote the Collateral; provided, however, that the Pledgor shall not vote
the Collateral in any manner that is inconsistent with the provisions of the
Agreement or this Pledge Agreement. If the Pledgor does not pay the full
amount outstanding on the Demand Date (an "Event of Default") the Pledgee
shall be entitled to the remedies set forth in Section 6 hereof.
5. Adjustments. The Pledgor agrees that in the event that during the
term of this Pledge Agreement any dividend, distribution,
reclassification, readjustment or other change is declared or made with
respect to the Collateral, or any subscription, warrant or other option is
exercisable with respect to the Collateral, it shall cause all new,
substituted or additional shares, limited liability company interests or
other securities issued by reason of any such change or option to be
pledged to the Pledgee in the same manner as the Collateral originally
pledged hereunder. There likewise shall be pledged to the Pledgee, to be
added to the pledged property and subject to the pledge, any and all
additional issued shares of Systems, Communications and MiBridge and limited
liability company interests of Worldwide to the Pledgor by way of dividend,
splits, rights, new securities or otherwise, to the end that all the issued
and outstanding shares of Systems, Communications and MiBridge and limited
liability company interests of Worldwide will be pledged to Pledgee.
6. Remedies. If an Event of Default shall occur, the Pledgee may,
after fifteen days prior notice to the Pledgor, sell, assign and deliver
the whole or, from time to time, any part of the Collateral or any interest
or part thereof, at any private sale or at public auction, for cash, or
credit or for other property, for immediate or future delivery, and for such
price or prices and on such terms as the Pledgee reasonably may determine to
be commercially reasonable. The Pledgee shall give the Pledgor reasonable
notice of the time and place of any public sale of the Collateral or the
time after which any private sale or other intended disposition thereof is to
be made. The requirement of reasonable notice shall be met if notice of such
sale or other intended disposition is mailed, by certified or registered
<PAGE>
mail, return receipt requested, to the Pledgor at the address set forth in
Section 9 at least fifteen days prior to the time of such sale or other
intended disposition. The Pledgor hereby waives and releases any and all
right or equity of redemption whether before or after sale hereunder. At any
such sale the Pledgee may bid for and purchase for its own account the whole
or any part of the Collateral so sold, free from any such right or equity
of redemption. Upon completion of the sale, Pledgee shall deliver the
Collateral, or any portion thereof, to the purchaser or purchasers thereof.
The net proceeds of any such sale shall be applied as follows:
(i) First, to the expenses of the sale and enforcement of this
Pledge Agreement, including but not limited to, attorneys' fees and expenses,
including attorneys' fees out of court, in trial, on appeal, in bankruptcy
proceedings, or otherwise;
(ii) Second, to the payment of the Pledgor's obligations under
the Agreement, including, without limitation, the payment of interest and
principal under the Loans; and
(iii) Third, only after payment in full of the above, to the
payment to the Pledgor of any excess proceeds, along with any Collateral
remaining unsold, subject to the receipt of notice of and the provisions of
any other agreement between the parties with respect to the disposition of
said excess proceeds or unsold Collateral. Notwithstanding the sale or other
disposition of the Collateral by the Pledgee hereunder, the Pledgor shall
remain liable for any deficiency.
7. Encumbrances. During the term of this Pledge Agreement specified
in Section 3, the Pledgor shall not sell, assign, transfer or otherwise
dispose of, grant any option to any individual or entity other than the
Pledgee with respect to, or mortgage, pledge or otherwise encumber any of
the Collateral.
8. Miscellaneous.
8.1 Transfer taxes, if any, applicable to any transfer of the
Collateral upon the occurrence of an Event of Default or upon termination of
this Pledge Agreement shall be payable by the person or persons to whom the
shares are being transferred; provided, however, that the Pledgor agrees to
reimburse the Pledgee promptly for all such transfer taxes which the Pledgee
may be required to pay.
<PAGE> 5
8.2 No single or partial exercise of any power hereunder shall
preclude other or future exercise thereof or the exercise of any other power.
The holder of the Loans may proceed against any portion of the security
held therefor in such order and in such manner as the holder may see fit,
without waiver of any rights with respect to any other security.
8.3 The Pledgee may deal in any manner with the Loans, the
Agreement or any other agreement required thereby without notice to or the
consent of the Pledgor, including, without limitation, in the following
manner:
(a) to modify, supplement or otherwise change any terms of
the Loans, the Agreement or any such other agreement (subject to any right
of the Pledgor to consent to any modification of or supplement or change to
any such terms); to grant any extension or renewal of the Loans, the
Agreement or such other agreement; to grant any other waiver or indulgence
<PAGE>
with respect to the Loans, the Agreement or such other agreement; and to
effect any release, compromise or settlement with respect to the Loans, the
Agreement or such other agreement; and
(b) to consent to the substitution, exchange or release of
all or any part of any other security (other than the Collateral) at any
time held by the Pledgee as security or surety for the obligations secured
hereby.
9. Notices. All notices required to be sent hereunder shall be in
writing and shall be sent by registered mail, return receipt requested, to
the parties as follows:
To the Pledgor:
I-Link Incorporated
13751 South Wadsworth Park Drive
Suite 200
Draper, Utah 84020
Attention: John W. Edwards, President
To the Pledgee:
Winter Harbor, L.L.C.
11400 Skipwith Lane
Potomac, Maryland 20854
Attention: Ralph W. Hardy, Jr.
Addresses may be changed by notice in writing to the other parties.
10. Choice of Law, etc. This Pledge Agreement shall be construed and
enforced under and governed by the laws of the State of Delaware, other than
the conflicts of law provisions thereof. This Pledge Agreement embodies the
entire agreement and understanding between the parties and supersedes all
prior agreements and understandings relating to the subject matter hereof,
and this Pledge Agreement may not be modified or amended or any term or
provision hereof waived or discharged except in writing signed by the party
against whom such amendment, modification, waiver or discharge is sought to
be enforced. This Pledge Agreement shall be binding on the successors,
assigns, and legal representatives of the parties hereto and shall inure to
the benefit of and be enforceable by their successors, assigns, and legal
representatives; provided, however, that neither the Collateral nor this
Pledge Agreement may be assigned or transferred in whole or in part,
voluntarily or involuntarily, by the Pledgor without the prior written
consent of the Pledgee, and the Pledgee may assign this Pledge Agreement and
all of its rights hereunder without any consent of the Pledgor. The headings
of this Pledge Agreement are for the purpose of reference only and shall not
limit or otherwise affect the meaning hereof. The Pledgor shall take such
further actions as may be reasonably requested by the Pledgee from time to
time in order to perfect the security interest of the Pledgee hereunder and
to assure and confirm onto the Pledgee its rights, powers and remedies
hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Pledge Agreement to be executed on their behalf all as of the day and year
first above mentioned.
I-LINK INCORPORATED
By: /s John Edwards
John Edwards, President
WINTER HARBOR, L.L.C.
By: First Media L.P.
its General Manager/Member
By: First Media Corporation
its sole General Partner
By: /s Ralph W. Hardy
Name: Ralph W. Hardy
Title: Secretary
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of April 14, 1998,
by and among I-LINK SYSTEMS, INC., a Utah corporation with its principal
place of business at 13751 South Wadsworth Park Drive, Suite 200, Draper,
UT 84020 ("Systems"), I-LINK COMMUNICATIONS, INC., a Utah corporation, with
its principal place of business at 13751 South Wadsworth Park Drive, Suite
200, Draper, UT 84020 ("Communications"), MIBRIDGE, INC., a Utah
corporation, with its principal place of business at 13751 South Wadsworth
Park Drive, Suite 200, Draper, UT 84020 ("MiBridge"), I-LINK WORLDWIDE,
L.L.C., a Delaware limited liability company, with its principal place of
business at 13751 South Wadsworth Park Drive, Suite 200, Draper, UT 84020
("Worldwide" and together with Systems, Communications and MiBridge,
collectively, the "Debtors" and individually, a "Debtor"), and WINTER
HARBOR, L.L.C., a Delaware limited liability company with its principal
place of business at 11400 Skipwith Lane, Potomac, Maryland 20854 (the
"Secured Party").
RECITALS
A. I-Link Incorporated, a Florida corporation (the "Company"), owns
all of the issued and outstanding shares of the capital stock of each of
Systems, Communications and MiBridge and all of the issued and outstanding
limited liability company interests of Worldwide. The Secured Party has
lent to the Company $5,768,000 in four installments on a demand loan basis
(three of which are evidenced by demand promissory notes (the "Notes")),
which installments were made on January 26, 1998, February 23, 1998, March
3, 1998, and March 24, 1998 (collectively, the "Loans"). The Company has
requested that the Secured Party not demand payment on the Loans before the
earlier of May 15, 1998, and the date on which the Company consummates a
loan transaction with another lender or consummates the sale of any debt or
equity securities, in either case in an amount yielding net cash proceeds
to the Company of not less than $6,000,000 (the earlier of such dates being
referred to hereinafter as the "Demand Date"). The Company and the Secured
Party have entered into an Agreement dated as of even date herewith (as the
same may be extended, amended, restated or modified from time to time, the
"Agreement"), which is hereby incorporated herein by this reference,
pursuant to which the Secured Party has agreed to such request. All
capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to such terms in the Agreement. The proceeds of the
Loans have been provided to the Guarantors for the acquisition of assets,
for capital expenditures and for working capital purposes.
B. The Debtors have guaranteed the Loans and the obligations of the
Company under the Agreement pursuant to the terms of a Subsidiary Guaranty
dated as of even date herewith (the "Guaranty").
C. The Company and the Debtors share an identity of interests as
members of a consolidated group of companies engaged in substantially
similar businesses. The Company provides certain centralized financial,
accounting and management services to the Debtors, and the Lender's
extensions of credit to the Borrower have facilitated the expansion and
will enhance the overall financial strength and stability of the Company's
consolidated group, including the Debtors. Accordingly, the
Debtors will derive substantial benefits as a result of the Lender's
<PAGE>
extensions of credit to the Company, which benefits are hereby acknowledged
by the Debtors, and the Debtors, therefore, desire to enter into this
Security Agreement.
AGREEMENTS
In consideration of the foregoing Recitals, and of the Lender's
agreement not to make demand on the Loans until the Demand Date, which will
be of material economic benefit to the Debtors, the Debtors and the Secured
Party agree as follows:
1. GRANT OF SECURITY INTEREST. In order to secure the payment and
performance of all of the obligations of the Debtors under the Guaranty and
the payment and performance of the Loans and of all of the obligations of
the Company to the Secured Party under the Agreement, plus interest accrued
thereon (being hereinafter collectively referred to as the "Obligations"),
the Debtors hereby grant to the Secured Party a first priority perfected
security interest in all of their respective right, title and interest in
and to all of their personal property, both tangible and intangible and of
every kind and description, whether now or hereafter existing, or now owned
or hereafter acquired, and wherever located, and all proceeds, products,
replacements, additions, accessions and/or substitutes therefor, including,
without limitation, all goods, machinery, equipment, furniture,
furnishings, fixtures, inventory, accounts, chattel paper, instruments and
general intangibles, as such terms may be defined in the Uniform Commercial
Code in the jurisdiction in which such assets are located (other than
equipment leased to any Debtor and any leases which by their terms prohibit
the grant of security interests in, or assignments of, such Debtor's
leasehold interest therein), and the proceeds and products of any and all
of the foregoing assets and properties described in this Section 1,
including proceeds of insurance policies relating to any and all of the
foregoing assets and properties. All of the foregoing shall be hereinafter
referred to as the "Collateral."
2. WARRANTIES AND COVENANTS OF THE DEBTORS. Each of the Debtors
represents, warrants and covenants that:
(a) the Collateral (and all records pertaining thereto) will at
all times be kept in their current locations and no Debtor will change the
location at which any of the Collateral is usually kept or the location of
its chief executive office or principal place of business without giving
thirty days prior written notice to the Secured Party;
(b) The Debtors own and have possession of the Collateral;
(c) all the Collateral is genuine and enforceable and free from
material liens, adverse claims, charges, encumbrances, taxes or
assessments, other than the liens created hereby, and the Debtors shall
defend the same against all claims and demands of all persons at any time
claiming against the same or any interests therein adverse to the Secured
Party;
(d) all items of the Collateral comply with applicable laws,
including, where applicable, Federal Reserve Regulations and any state
consumer credit and usury laws;
(e) no financing statement covering any of the Collateral, and
naming any secured party other than the Secured Party, is on file in any
public office;
<PAGE>
(f) The Debtors will, at their sole cost and expense, maintain,
replace, repair, service and take other action as may be necessary from
time to time to keep and preserve their inventory, machinery and equipment
in general repair and good working order and any inventory, machinery or
equipment which wears out or is destroyed will be replaced or restored if
necessary for the operation of the businesses of any of the Debtors in the
ordinary course. The Debtors will within 10 days notify the Secured Party
of any event comprising significant loss or decrease in the value of the
Collateral in excess of $5,000;
(g) The Debtors will comply with all laws, rules and regulations
relating to, and shall pay prior to delinquency, all license fees,
registration fees, taxes and assessments and all other charges, which may
be levied upon or assessed against, or which may become security interests,
liens or other encumbrances upon the ownership, operation, possession or
maintenance of the Collateral; provided that no Debtor shall be required to
comply with any such law, rule or regulation or to pay any such tax or
assessment or other such charge, the validity of which is being contested
by any Debtor in good faith by appropriate proceedings commenced and
prosecuted with due diligence and with respect to which adequate reserves
have been established and are being maintained in accordance with generally
accepted accounting principles;
(h) The Debtors will execute and at their expense file and
refile such financing statements, continuation statements and other
documents in such offices as the Secured Party may deem necessary or
appropriate in order to protect or preserve the Secured Party's security
interest in the Collateral;
(i) No Debtor will sell, offer to sell, hypothecate or otherwise
dispose of any material part of the Collateral (including proceeds) subject
hereto, or any part thereof or interest therein at any time other than in
the ordinary course of business and in exchange for Collateral of like
value in which the Secured Party shall have a security interest;
(j) The Debtors will at all times keep accurate records with
respect to the Collateral which are as complete and comprehensive as those
which are customarily maintained by those engaged in similar businesses,
and the Secured Party will have the right to inspect such records at such
times and from time to time as the Secured Party may reasonably request;
(k) The Debtors will provide any service and do any other acts
or things necessary to keep the Collateral free and clear of all defenses,
rights of offset and counterclaims; the Secured Party may, at any time
prior to termination hereof, require the Debtors from time to time to
deliver to the Secured Party (i) schedules describing all the Collateral
subject hereto and (ii) instruments and chattel paper included in the
Collateral, appropriately assigned and endorsed to the Secured Party;
(l) The Debtors will maintain insurance on the Collateral in
accordance with sound business practice. In the event of failure to
provide and maintain insurance as herein provided, the Secured Party may,
at its option, provide such insurance and the Debtors hereby promise to pay
the Secured Party on demand the amount of any disbursements made by the
Secured Party for such purpose. Risk of loss or damage shall accrue to the
Debtors to the extent of any deficiency in any effective insurance. The
Debtors shall furnish to the Secured Party certificates or other evidence
satisfactory to the Secured Party of compliance with the foregoing
<PAGE>
insurance provisions. The Debtors shall give immediate written notice to
the Secured Party and to the insurers of any loss or damage to the
Collateral or any part thereof in excess of $5,000 and shall promptly file
all necessary or appropriate proof of loss with the insurers. Any amounts
collected or received under any such insurance policies may be applied by
the Debtors either to the replacement or restoration of the Collateral or
to any of the Obligations secured hereby in the manner provided in Section
7 hereof; and
(m) The Debtors shall not change their respective names,
identity or corporate or limited liability company structure, voluntarily
or involuntarily.
3. AUTHORITY TO COLLECT. Except as otherwise hereinafter set forth,
unless and until the Company fails to pay the outstanding principal amount
and accrued interest under the Loans in full in cash on the Demand Date
("Event of Default"), the Debtors shall continue to collect, and upon the
occurrence of such an event, the Debtors may, at the direction of the
Lender, continue to collect, at their own expense, all amounts due and to
become due under any accounts, chattel paper, instruments or general
intangibles and in connection therewith may take such action as they may
deem necessary, advisable, convenient or proper for the enforcement,
collection, adjustment, settlement or compromise thereof.
4. REMEDIES. Upon the occurrence of an Event of Default, the
Secured Party shall have the right to declare immediately due and payable
all of the Obligations, without other notice or demand. The Secured Party
shall have all the rights and remedies of a secured party under the
Uniform Commercial Code and all other rights, privileges, powers and
remedies provided by law or equity.
Without limiting the generality of the foregoing, after the occurrence
of an Event of Default:
(a) the Secured Party shall have the power to notify the account
debtor or debtors obligated under any accounts, chattel paper, instruments
and general intangibles of the assignment of such accounts, chattel paper,
and general intangibles to the Secured Party and of its security interest
therein and to direct such account debtor or debtors to make payment of all
amounts due or to become due to any Debtor thereunder directly to the
Secured Party and, upon such notification to the account debtor or debtors,
to enforce collection of any thereof in the same manner and to the same
extent as any Debtor might have done. The funds so collected shall be held
as security for the payment of the Obligations secured hereby and applied
in the manner provided in Section 7 hereof.
The Debtors hereby constitute and appoint the Secured Party as their
true and lawful attorney, in the place and stead of the Debtors and with
full power of substitution, either in the Secured Party's own name or in
the name of any Debtor, to ask for, demand, collect, receive and give
acquittance for any and all monies due or to become due under and by virtue
of any account, chattel paper, instruments and general intangibles, to
endorse checks, drafts, orders and other instruments for the repayment of
monies payable to any Debtor on account thereof, and to settle, compromise,
prosecute or defend any action, claim or proceeding with respect thereto
and to sell, assign, pledge, transfer and make any agreement respecting, or
otherwise deal with, the same; provided, however, that nothing herein
contained shall be construed as requiring or obligating the Secured Party
<PAGE>
to make any demand, or to make any inquiry as to the nature or sufficiency
of any payment received by it, or to present or file any claim or notice or
to take any action with respect to any account, chattel paper, instruments
or general intangible or the monies due or to become due thereunder or the
property covered thereby, and no action taken or omitted to be taken by the
Secured Party with respect to any account, chattel paper, instruments or
general intangible shall give rise to any defense, counterclaim or set off
in favor of any Debtor or to any claim or action against the Secured Party;
(b) The Debtors will deliver to the Secured Party from time to
time, as requested by the Secured Party, current lists of the Collateral;
(c) No Debtor will dispose of the Collateral, except on terms
approved in writing by the Secured Party;
<PAGE> 5
(d) The Debtors will collect, assemble and deliver all of the
Collateral and books and records pertaining thereto, to the Secured Party
at a reasonably convenient place designated by the Secured Party; and
(e) the Secured Party may, to the extent permitted by law, enter
onto any Debtor's premises and take possession of the Collateral, and
assign, sell, lease or otherwise dispose of any Debtor's interests in the
Collateral for the account of any Debtor and the Debtors shall then be
liable for the difference between the payments and other amounts due under
the Agreement and amounts received pursuant to such assignment or contract
of sale or lease or other disposition of any Debtor's interests in the
Collateral and the amount of such difference shall then be immediately due
and payable. The Secured Party may, in its sole discretion, designate a
custodian or agent to take physical possession of the Collateral. The
Secured Party shall give the Debtors reasonable notice of the time and
place of any public sale of the Collateral or the time after which any
private sale or other intended disposition thereof is to be made. The
requirement of reasonable notice shall be met if notice of the sale or
other intended disposition is mailed, by first class mail, postage prepaid,
to the Debtors at their respective addresses set forth in Section 15 hereof
or such other address as the Debtors may by notice have furnished the
Secured Party in writing for such purpose, at least fifteen days prior to
the time of such sale or other intended disposition.
Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of any Debtor, and the
Debtors hereby waive (to the extent permitted by law) all rights of
redemption, stay and/or appraisal which they now have or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted.
5. POWERS OF THE SECURED PARTY. The Debtors appoint the Secured
Party their true attorney in fact to perform any of the following powers,
which are coupled with an interest, and are irrevocable until termination
of this Security Agreement and may be exercised by the Secured Party's
officers and employees, or any of them, upon the occurrence of an Event of
Default hereunder:
(a) to perform any obligation of any Debtor hereunder in such
Debtor's respective name or otherwise;
(b) to give notice of the Secured Party's rights in the
<PAGE>
Collateral, to enforce the same, and make extension agreements with respect
thereto;
(c) to release persons liable on the Collateral and to give
receipts and acquittance and compromise disputes in connection
therewith;
(d) to release security;
(e) to resort to security in any order;
(f) to prepare, execute, file, record or deliver notes,
assignments, schedules, designation statements, financing statements,
continuation statements, termination statements, statements of assignment
and applications or registration or like papers to perfect, preserve or
release the Secured Party's interest in the Collateral;
(g) to verify facts concerning the Collateral by inquiry of
obligors thereon, or otherwise;
(h) to endorse, collect, deliver and receive payment under
instruments for the payment of money constituting or relating to
Collateral;
(i) to prepare, adjust, execute, deliver and receive payment
under insurance claims;
(j) to exercise all rights, powers and remedies which any Debtor
would have, but for this Security Agreement, under all of the Collateral
subject to this Security Agreement; and
(k) to do all acts and things and execute all documents in the
names of any Debtor or otherwise, deemed by the Secured Party as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
6. REMITTANCES. The Debtors agree that upon the occurrence and
during the continuance of an Event of Default all cash or proceeds received
by any Debtor as a result of the sale, lease or other disposition of any
Collateral, whether received by any Debtor in the exercise of its
collection rights hereunder or otherwise, shall be, at Secured Party's
discretion, remitted to the Secured Party or deposited to an account for
the beneit of the Secured Party (according to its instructions) in the
form received (properly endorsed to the order of the Secured Party or for
collection in accordance with the Secured Party's instructions) not later
than the banking business day following the day of receipt, to be held as
security for the payment of the Obligations secured hereby and applied by
the Secured Party as provided in Section 7 hereof. The Debtors agree not
to commingle any such collections or proceeds with any of its other funds
or property and agree to hold the same upon an express trust for the
Secured Party until remitted to the Secured Party.
7. APPLICATION OF PROCEEDS. Except as expressly provided elsewhere
in this Security Agreement, all proceeds of the sale of the Collateral by
the Secured Party hereunder, and all other monies received by the Secured
Party pursuant to the terms of this Security Agreement (whether through
the exercise by the Secured Party of its rights of collection or
otherwise), including, but not limited to, any awards or other amounts
<PAGE>
payable upon any condemnation or taking by eminent domain, shall be
applied, as promptly as is practicable after the receipt thereof by the
Secured Party as follows:
FIRST: to the payment of all fees and expenses incurred by the Secured
Party or any custodian appointed hereunder, if not previously paid by any
Debtor, and all expenses incurred by the Secured Party in connection with
any sale of the Collateral, including, but not limited to, the expenses of
taking, advertising, processing, preparing and storing the Collateral to be
sold, all court costs and fees and expenses of counsel to the Secured Party
in connection therewith, to the payment of all expenses to be paid by any
Debtor pursuant to Section 16 of this Security Agreement, and to the
payment of all amounts for which the Secured Party is entitled to
indemnification hereunder and all advances made by the Secured Party
hereunder to the account of any Debtor and the payment of all costs and
expenses paid or incurred by the Secured Party in connection with the
exercise of any right or remedy hereunder, to the extent that such
advances, costs and expenses shall not theretofore have been reimbursed to
the Secured Party by any Debtor;
SECOND: to the payment to the Secured Party of the interest then due
and payable on the Loans;
THIRD: to the payment to the Secured Party of the principal then due
and payable on the Loans;
FOURTH: to the payment to the Secured Party of any other amount owing
to the Secured Party under the Agreement and any other documents related
thereto or under any other agreement of the Company or any Debtor with the
Secured Party; and
FIFTH: only if all of the foregoing have been paid in full, to the
Debtors.
Notwithstanding the sale or other disposition of any Collateral by the
Secured Party hereunder, the Debtors, jointly and severally, shall remain
liable for any deficiency.
8. RIGHTS CUMULATIVE. The rights, privileges, powers and remedies
of the Secured Party shall be cumulative and no single or partial exercise
of any of them shall preclude the further or other exercise of the same or
any other of them. No delay or failure of the Secured Party in exercising
any right, power, privilege or remedy hereunder shall affect such right,
power, privilege or remedy. No single or partial exercise of any right,
power, privilege or remedy or any abandonment or discontinuance of steps to
enforce such right, power, privilege or remedy shall affect such right,
power, privilege or remedy. Any waiver, permit, consent or approval of any
kind by the Secured Party of any default hereunder, or any such waiver of
any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing and shall not constitute
a waiver of any subsequent or other default. Failure of the Secured Party
to insist upon strict performance or compliance by any Debtor of any
covenants, warranties or agreements in this Security Agreement shall not
constitute a waiver of any subsequent or other failure to perform or comply
with any covenants, warranties or agreements.
9. CONTINUING AGREEMENT. This is a continuing agreement and shall
remain in full force and effect and be binding upon the Debtors and the
<PAGE>
successors and assigns of the Debtors until all of the Obligations shall
have been fully satisfied and discharged.
10. REINSTATEMENT OF AGREEMENT. If the Secured Party shall have
proceeded to enforce its rights under this Security Agreement and such
proceedings shall have been discontinued or abandoned for any reason prior
to the issuance of any judgment or award, then the Debtors and the Secured
Party shall be restored respectively to their positions and rights
hereunder, and all rights, remedies and powers of the Debtors and the
Secured Party shall continue as though no such proceeding had been
initiated. In the event of litigation arising under this Security
Agreement, the prevailing party shall be entitled to, in addition to all
other damages and remedies, reasonable attorneys' fees.
11. ASSIGNMENT. The Secured Party may assign and transfer any of the
Obligations of the Debtors and may deliver the Collateral, or any part
thereof, to the assignee or transferee of any such obligation, who shall
become vested with all the rights, remedies, powers, security interests and
liens herein granted to the Secured Party in respect thereto; and the
Secured Party shall thereafter be relieved and fully discharged from any
liability or obligation under this Security Agreement. No Debtor shall
have the right to assign this Security Agreement without the prior written
consent of the Secured Party.
12. DUTIES WITH RESPECT TO COLLATERAL. With respect to the
Collateral, the Secured Party shall be under no duty to send notices,
perform services, pay for insurance, taxes or other charges or take any
action of any kind in connection with the management thereof and its only
duty with respect thereto shall be to use reasonable care in its custody
and preservation while in its possession, which shall not include any steps
necessary to preserve rights against prior parties.
13. PERFORMANCE OF OBLIGATIONS BY THE SECURED PARTY. If any Debtor
shall fail to do any act or thing which it has covenanted to do hereunder,
or if any representation or warranty of any Debtor shall be breached, the
Secured Party may (but shall not be obligated to) perform such act or
thing on behalf of any Debtor or cause it to be done or remedy any such
breach, and there shall be added to the liabilities of the Debtors
hereunder the cost or expense incurred by the Secured Party in so doing,
and any and all amounts expended by the Secured Party in taking any such
action shall be repayable to it upon demand being made to the Debtors
therefore and shall bear interest at the rate provided for in the Notes,
from and including the date advanced to the date of repayment.
14. MISCELLANEOUS. After due consideration and consultation with
their attorneys, the Debtors voluntarily and knowingly, to the extent
permitted by law, agree as follows: (a) the Debtors waive presentment,
protest, notice of protest, notice of dishonor and notice of nonpayment
with respect to the Collateral to which the Secured Party is entitled
hereunder; (b) the Debtors waive any right to direct the application of
payments or security for the Obligations of the Debtors hereunder, or the
indebtedness of customers of any Debtor, and any right to require
proceedings against others or to require exhaustion of the security; (c)
the Debtors consent to the extension or forbearance of the terms of the
Obligations or indebtedness of customers, the release or substitution of
security, and the release of guarantors, if any; and (d) the Debtors waive
notice or a judicial hearing prior to the exercise by the Secured Party of
any right or remedy provided by this Security Agreement and also waive
<PAGE>
their rights, if any, to set aside or invalidate any sale duly consummated
in accordance with the provisions of this Security Agreement on the grounds
that the sale was consummated without a prior judicial hearing.
15. NOTICES. All notices or demands of any kind which may be
required or which the Secured Party desires to serve upon any Debtor under
the terms of this Security Agreement shall be served upon such Debtor by
personal service or by mailing a copy thereof by first class mail, postage
prepaid, addressed to such Debtor, at the respective addresses set forth in
Section 11.1 of the Agreement with the respective addresses of the Debtors
being the address of the Company in the Agreement. Service by mail shall
be determined to be effective when deposited in the mails.
16. EXPENSES. The Debtors agree to pay on demand all fees, costs and
expenses of the Secured Party, or of any custodian or agent designated by
the Secured Party, including the fees and out-of-pocket expenses of legal
counsel, independent public accountants and other outside experts retained
by the Secured Party in connection with the negotiation, administration or
enforcement of this Security Agreement or any other instrument or document
delivered pursuant hereto.
17. LAW APPLICABLE. This Security Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware other than
the conflicts of law provisions thereof.
18. SEVERABILITY OF PROVISIONS. If any provision of this Security
Agreement shall be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or any remaining provisions of this Security Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed as of the day and year first written above.
WINTER HARBOR, L.L.C.
By: First Media, L.P.
its General Manager/Member
By: First Media Corporation
its sole General Partner
By: /s Ralph W. Hardy
Name: Ralph W. Hardy
Title: Secretary
I-LINK COMMUNICATIONS, INC.
By: /s John Edwards
John Edwards, President
I-LINK SYSTEMS, INC.
By: /s John Edwards
John Edwards, President
MIBRIDGE, INC.
By: /s John Edwards
John Edwards, President
I-LINK WORLDWIDE, L.L.C.
By: I-Link Incorporated, its member
By: /s John Edwards
John Edwards, President
<PAGE>
FORM OF PROMISSORY NOTE
$___________ ___________________, 1998
FOR VALUE RECEIVED, the undersigned, I-LINK INCORPORATED, a Florida
corporation (the "Maker"),promises to pay to the order of WINTER HARBOR,
L.L.C., a Delaware limited partnership (the "Payee"), upon demand by Payee,
the principal sum of $__________, together with interest thereon at a rate
equal to the prime rate as set forth in the Wall Street Journal (Western
Edition) plus one (1) percentage point.
1. Prepayments. This Note may be voluntarily prepaid in whole or in
part without premium or penalty at any time and from time to time; provided,
however, that each partial prepayment shall be in the aggregate principal
amount of not less than $100,000 or an integral multiple of $50,000 in excess
thereof. In making a prepayment in whole, the Maker shall pay all accrued
interest through the date of such prepayment.
2. Payment on Business Days. If any payment of principal or interest
on this Note shall become due on a Saturday, Sunday or public holiday, such
payment may be made on the next succeeding business day, and such extension
of time in such case shall be included in the computation of interest in
connection with such payment.
3. Form of Payment. All payments made pursuant to the terms of this
Note shall be made in lawful money of the United States of America and shall
be payable to the Payee at its principal office located at 11400 Skipwith
Lane, Potomac, Maryland 20854 or at such other place as the Payee shall have
designated to the Maker in writing.
4. Choice of Law. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware with the exception of the
conflicts of laws provisions thereof.
5. Events of Default. Upon the occurrence of any Event of Default, the
Payee may at its option by written notice to the Maker declare the entire
unpaid principal amount of this Note, together with all unpaid interest and
all other amounts payable hereunder, immediately due and payable.
6. Collection Expenses. If at any time the indebtedness evidenced by
this Note is collected through legal proceedings or this Note is placed in
the hands of attorneys for collection, the Maker and each endorser of this
Note hereby jointly and severally agree to pay all costs and expenses
(including reasonable attorneys' fees) incurred by the holder of this Note in
collecting or attempting to collect such indebtedness.
7. Waivers. To the extent permitted by law, except as otherwise
provided herein, the Maker and each endorser of this Note, and their
respective successors and assigns, hereby severally waive presentment;
protest and demand; notice of protest, demand, dishonor and nonpayment;
diligence in collection, and any relief whatever from the valuation or
appraisement laws of any state.
<PAGE>
IN WITNESS WHEREOF, the Maker has executed this Note as of the date and
year first above written.
I-LINK INCORPORATED
By:_________________________________
John Edwards, President
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
I-LINK INCORPORATED
and
JNC OPPORTUNITY FUND LTD.
June 30, 1998
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of June 30, 1998, between I-Link Incorporated, a Florida
corporation (the "Company"), and JNC Opportunity Fund Ltd., a Cayman
Islands corporation (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase from the Company, shares of the Company's 5%
Series [A] Convertible Preferred Stock, par value [$ ] per share (the
"Preferred Stock"), which are convertible into shares of the Company's
common stock, par value $.007 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchaser
and the Purchaser shall purchase 1,000 shares of Preferred Stock (the
"Shares") for an aggregate purchase price of $10,000,000. The closing of
the purchase and sale of the Shares (the "Closing") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP (the "Escrow
Agent"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall
agree. The date of the Closing is hereinafter referred to as the "Closing
Date."
(ii) Prior to the Closing, the parties shall deliver or
shall cause to be delivered to the Escrow Agent such items as are required
to be delivered by them in accordance with and subject to the terms and
conditions of the Escrow Agreement, dated as of the date hereof, by and
among the Company, the Purchaser and the Escrow Agent, in the form of
Exhibit E (the "Escrow Agreement"), including the following: (A) the
Company shall deliver (1) stock certificates representing the Shares,
registered in the name of the Purchaser, (2) a Common Stock purchase
warrant, in the form of Exhibit D, registered in the name of the Purchaser,
pursuant to which the Purchaser shall have the right at any time and from
time to time thereafter through the fifth anniversary of the Closing Date
to acquire 250,000 shares of Common Stock at an exercise price per share
(subject to adjustment as provided therein) of $[ ] (the "Warrant"),
(3) the legal opinion of Hardy & Allen, outside counsel to the Company,
substantially in the form of Exhibit C, and (4) all other documents,
instruments and writings required to have been delivered at or prior to the
Closing Date by the Company pursuant to this Agreement, including an
executed Registration Rights Agreement, dated the date hereof, between the
Company and the Purchaser, in the form of Exhibit
- -------------
1 120% of the average of the Per Share Market Values for the five (5)
Trading Days immediately preceding the Original Issue Date.
<PAGE>
B (the "Registration Rights Agreement"), and the Irrevocable Transfer Agent
Instructions, in the form of Exhibit F, delivered to and acknowledged by
the Company's transfer agent (the "Transfer Agent Instructions"); and (B)
the Purchaser shall deliver (1) $10,000,000 in United States dollars in
immediately available funds by wire transfer to an account designated in
writing by the Company for such purpose, and (2) all documents, instruments
and writings required to have been delivered at or prior to the Closing
Date by the Purchaser pursuant to this Agreement, including, without
limitation, an executed Registration Rights Agreement.
1.2 Form of Preferred Stock. The Preferred Stock shall have the
rights preferences and privileges set forth in Exhibit A, and shall be
incorporated into a Certificate of Designation ("Certificate of
Designation"), in form and substance mutually agreed to by the parties.
For purposes of this Agreement, "Conversion Price," "Original
Issue Date," "Conversion Date" and "Trading Day" shall have the meanings
set forth in Exhibit A; "Business Day" shall mean any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a day on which
banking institutions in the State of New York are authorized or required by
law or other governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under
the laws of the State of Florida, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other
than as set forth in Schedule 2.1(a) (collectively the "Subsidiaries").
Each of the Subsidiaries is an entity, duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
full power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities
(as defined below) or any of this Agreement, the Certificate of
Designation, the Registration Rights Agreement, the Warrant or the Escrow
Agreement (collectively, the "Transaction Documents"), (y) have or result
in a material adverse effect on the results of operations, assets,
prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's
ability to perform fully on a timely basis its obligations under any of
the Transaction Documents (any of (x), (y) or (z), a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has the requisite
<PAGE>
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents, and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company. Each of the Transaction
Documents has been duly executed by the Company and, when delivered (or
filed, as the case may be) in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. Neither the Company nor
any Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c).
No shares of Common Stock are entitled to preemptive or similar rights, nor
is any holder of the Common Stock entitled to preemptive or similar rights
arising out of any agreement or understanding with the Company by virtue of
any of the Transaction Documents. Except as disclosed in Schedule 2.1(c),
there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or, except as
a result of the purchase and sale of the Shares and the Warrant,
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person or group of related Persons beneficially owns
(as determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or has the right to
acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock. A "Person"
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other
entity of any kind.
(d) Issuance of the Shares and the Warrant. The Shares and the
Warrant are duly authorized, and, when issued and paid for in accordance
with the terms hereof, shall have been validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of
first refusal of any kind (collectively, "Liens"). The Company has on the
date hereof and will, at all times while the Shares and the Warrant are
outstanding, maintain an adequate reserve of duly authorized shares of
Common Stock, reserved for issuance to the holders of the Shares, to enable
it to perform its conversion, exercise and other obligations under this
Agreement, the Certificate of Designation and the Warrant. Such number of
reserved and available shares of Common Stock is not less than the sum of
(i) 200% of the number of shares of Common Stock which would be issuable
upon conversion in full of the Shares, assuming such conversion occurred on
the Original Issue Date or the Filing Date (as defined in the Registration
Rights Agreement), whichever yields a lower Conversion Price, (ii) the
number of shares of Common Stock issuable upon exercise of the Warrant, and
(iii) the number of shares Common Stock which would be issuable upon
payment of dividends on the Shares, assuming each Share is outstanding for
<PAGE>
three years and all dividends are paid in shares of Common Stock (such
number of shares, the "Initial Minimum"). All such authorized shares of
Common Stock shall be duly reserved for issuance to the holders of such
Shares and Warrant. The shares of Common Stock issuable upon conversion of
the Shares, as payment of dividends thereon and upon exercise of the
Warrant are collectively referred to herein as the "Underlying Shares."
The Shares, the Warrant and the Underlying Shares are collectively, the
"Securities." When issued in accordance with the Certificate of
Designation and the Warrant, in accordance with their respective terms, the
Underlying Shares shall have been duly authorized, validly issued, fully
paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby do not and will not (i)
conflict with or violate any provision of its certificate of incorporation,
bylaws or other charter documents (each as amended through the date
hereof), or (ii) subject to obtaining the Required Approvals (as defined
below), conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, indenture or instrument (evidencing a Company debt or otherwise)
to which the Company or any Subsidiary is a party or by which any property
or asset of the Company or any Subsidiary is bound or affected, or (iii)
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii)
and (iii), as could not, individually or in the aggregate, have or result
in a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, could not have or result in a Material Adverse Effect.
(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any
court or other Federal, state, local or other governmental authority or
other Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) the filing of the
Certificate of Designation with the Secretary of State of Florida, (ii) the
filings required pursuant to Section 3.12, (iii) the filing of the
Underlying Securities Registration Statement with the Securities and
Exchange Commission (the "Commission") meeting the requirements set forth
in the Registration Rights Agreement and covering the resale of the
Underlying Shares by the Purchaser, (iv) the application(s) to the Nasdaq
SmallCap Market (the "NASDAQ") for the listing of the Underlying Shares
with the NASDAQ (and with any other national securities exchange or market
on which the Common Stock is then listed), (v) applicable Blue Sky filings
and, and (vi) in all other cases where the failure to obtain such consent,
waiver, authorization or order, or to give such notice or make such filing
or registration could not have or result in, individually or in the
aggregate, a Material Adverse Effect (the consents, waivers,
authorizations, orders, notices and filings referred to in (i)-(vi) of
this Section are, collectively, the "Required Approvals").
<PAGE>
(g) Litigation; Proceedings. Except as specifically disclosed
in the SEC Documents, there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or
any of their respective properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, state, county,
local or foreign) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result
in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has
occurred which has not been waived which, with notice or lapse of time or
both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or
(iii) is in violation of any statute, rule or regulation of any
governmental authority, except as could not individually or in the
aggregate, have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchaser
as contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the
Company nor any Person acting on its behalf has taken any action could
subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act.
(j) SEC Documents; Financial Statements. The Company has filed
all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the three years preceding
the date hereof (or such shorter period as the Company was required by law
to file such material) (the foregoing materials being collectively referred
to herein as the "SEC Documents" and, together with the Schedules to this
Agreement the "Disclosure Materials") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Documents
prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. All material agreements to
which the Company is a party or to which the property or assets of the
Company are subject have been filed as exhibits to the SEC Documents as
required. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been prepared in accordance with generally accepted accounting ("GAAP")
principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the
<PAGE>
notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Since December 31, 1997, except as
specifically disclosed in the SEC Documents, (a) there has been no event,
occurrence or development that has had or that could have or result in a
Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the
ordinary course of business consistent with past practice and (y)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made
with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not
declared or made any payment or distribution of cash or other property to
its stockholders or officers or directors (other than in compliance with
existing Company stock option plans) with respect to its capital stock, or
purchased, redeemed (or made any agreements to purchase or redeem) any
shares of its capital stock. The Company last filed audited financial
statements with the Commission on [April 15, 1998], and has not received
any comments from the Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(l) Certain Fees. Except for certain fees payable by the
Company to Wharton Capital Partners, Ltd. and Alpine Capital Partners,
Inc., no fees or commissions will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment
banker, or bank with respect to the transactions contemplated by this
Agreement. The Purchaser shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by this Agreement. The Company shall
indemnify and hold harmless the Purchaser, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any
such claimed or existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any Person
acting on the Company's behalf has (i) distributed any offering materials
in connection with the offering and sale of the Securities, or (ii)
solicited any offer to buy or sell the Securities by means of any form of
general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under
the Securities Act.
(o) Exclusivity. The Company shall not issue and sell the
Shares to any Person other than the Purchaser other than with the specific
prior written consent of the Purchaser.
(p) Seniority. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation or
<PAGE>
dissolution, or otherwise.
(q) Listing and Maintenance Requirements Compliance. The
Company has not, in the two years preceding the date hereof, received
notice (written or oral) from the NASDAQ or any other stock exchange,
market or trading facility on which the Common Stock is or has been listed
(or on which it has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such exchange or
market. The Company is in compliance with all such maintenance
requirements.
(r) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively,
the "Intellectual Property Rights") which are necessary or material for use
in connection with its business, and which the failure to so have would
have a Material Adverse Effect. To the best knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(s) Registration Rights; Rights of Participation. Except as set
forth on Schedule 6(b) to the Registration Rights Agreement, (i) the
Company has not granted or agreed to grant to any Person any rights
(including "piggy-back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority
which has not been satisfied and (ii) no Person, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
(t) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate Federal, state or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Documents,
except where the failure to possess such permits could not, individually or
in the aggregate, have or result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(u) Title. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property and personal property
owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all Liens, except for liens,
claims or encumbrances as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of
such property by the Company and its Subsidiaries. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
(v) Disclosure. The Company confirms that it has not provided
the Purchaser or its agents or counsel with any information that
constitutes or might constitute material non-public information. The
Company understands and confirms that the Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Purchaser regarding the Company,
its business and the transactions contemplated hereby, including the
<PAGE>
Schedules to this Agreement, furnished by or on behalf of the Company are
true and correct and do 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 light of the circumstances under which they
were made, not misleading.
2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations
thereunder. The purchase by the Purchaser of the Securities hereunder has
been duly authorized by all necessary action on the part of the Purchaser.
Each of this Agreement, the Registration Rights Agreement and the Escrow
Agreement has been duly executed and delivered by the Purchaser and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against it in accordance with its terms.
(b) Investment Intent. The Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part
thereof or interest therein, without prejudice, however, to the Purchaser's
right, subject to the provisions of this Agreement and the Registration
Rights Agreement, at all times to sell or otherwise dispose of all or any
part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities
laws or under an exemption from such registration.
(c) Purchaser Status. At the time the Purchaser was offered the
Shares and the Warrant, it was, and at the date hereof it is, and at each
exercise date under the Warrant, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of the Purchaser. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
(e) Ability of the Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(f) Access to Information. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has reviewed
the Disclosure Materials and has been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information
which the Company possesses or can acquire without unreasonable effort or
<PAGE>
expense that is necessary to make an informed investment decision with
respect to the investment and to verify the accuracy and completeness of
the information contained in the Disclosure Materials. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect
such Purchaser's right to rely on the truth, accuracy and completeness of
the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) General Solicitation. The Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article,
notice or other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television or radio
or presented at any seminar.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of
such exemption, depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and the
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act,
to the Company or pursuant to an available exemption from or in a
transaction not subject to the registration requirements of the Securities
Act. In connection with any transfer of Securities other than pursuant to
an effective registration statement or to the Company, except as otherwise
set forth herein, the Company may require the transferor thereof to provide
to the Company an opinion of counsel selected by the transferor, the form
and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of
such transferred securities under the Securities Act. Notwithstanding the
foregoing, the Company hereby consents to and agrees to register on the
books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities by the Purchaser to an Affiliate of the
Purchaser or to funds under common management with the Purchaser, and any
transfer among any such Affiliates or funds, provided that transferee
certifies to the Company that it is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes. Any such transferee shall agree
in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
<PAGE>
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Shares, the payment of dividends
thereon, and exercise of the Warrant or other issuances of Underlying
Shares as contemplated hereby, by the Certificate of Designation or the
Warrant occurs at any time while an Underlying Securities Registration
Statement is effective under the Securities Act or, in the event there is
not an effective Underlying Securities Registration Statement at such time,
if in the opinion of counsel to the Company such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The Company shall cause its counsel to issue the legal opinion included in
the Transfer Agent Instructions to the Company's transfer agent on the day
that the Underlying Securities Registration Statement is declared effective
by the Commission. The Company agrees that it will provide the Purchaser,
upon request, with a certificate or certificates representing Underlying
Shares, free from such legend at such time as such legend is no longer
required hereunder. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares and
payment of dividends thereon in accordance with the terms of the
Certificate of Designation, and (ii) exercise of the Warrant in accordance
with its terms, may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligation to issue Underlying
Shares upon (x) conversion of the Shares and payment of dividends thereon
in accordance with the terms of the Certificate of Designation, and (y)
exercise of the Warrant in accordance with its terms, is unconditional and
absolute, subject to the limitations set forth herein in the Certificate of
Designation or pursuant to the Warrant, regardless of the effect of any
such dilution.
3.3 Furnishing of Information. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act. As long as the Purchaser owns
Securities, if the Company is not required to file reports pursuant to such
sections, it will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144(c) promulgated under the Securities
Act annual and quarterly financial statements, together with a discussion
and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act,
as well as any other information required thereby, in the time period that
such filings would have been required to have been made under the Exchange
<PAGE>
Act. The Company further covenants that it will take such further action
as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the
request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has
complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of
the Underlying Shares under the securities or Blue Sky laws of such
jurisdictions as the Purchaser may reasonably request and shall continue
such qualification or exemption at all times until the Purchaser notifies
the Company in writing that it no longer owns Securities; provided,
however, that neither the Company nor its Subsidiaries shall be required in
connection therewith to qualify as a foreign corporation where they are not
now so qualified or to take any action that would subject the Company to
general service of process in any such jurisdiction where it is not then
subject.
3.5 Integration. The Company shall not, and shall use its best
efforts to ensure that, no Affiliate shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined
in Section 2 of the Securities Act) that would be integrated with the offer
or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchaser.
3.6 Increase in Authorized Shares. At such times as the Company
would be, if a notice of conversion or exercise (as the case may be) were
to be delivered on such date, precluded from (a) issuing 200% of the number
of Underlying Shares as would then be issuable upon a conversion in full of
the Shares and as payment of any accrued and unpaid dividends in respect
thereof in shares of Common Stock, or (b) honoring the exercise in full of
the Warrant, in either case, due to the unavailability of a sufficient
number of shares of authorized but unissued or reserved Common Stock, the
Board of Directors of the Company shall promptly (and in any case, within
30 Business Days from such date) prepare and mail to the stockholders of
the Company proxy materials requesting authorization to amend the Company's
Certificate of Incorporation to increase the number of shares of Common
Stock which the Company is authorized to issue to at least such number of
shares as reasonably requested by the Purchaser in order to provide for
such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its conversion exercise and reservation of shares
obligations as set forth in this Agreement, the Certificate of Designation
and the Warrant (the sum of (x) the number of shares of Common Stock then
authorized, (y) the number of shares of Common Stock then outstanding plus
all shares of Common Stock issuable upon exercise of all outstanding
options, warrants and convertible instruments, and (z) the sum of (i) 200%
of the number of Underlying Shares as are then issuable upon a conversion
in full of all Shares and as payment of dividends thereon, and (ii) the
number of Underlying Shares as are issuable upon exercise in full of the
Warrant, shall be a reasonable number). In connection therewith, the Board
of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly
obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the 60th day after
<PAGE>
delivery of the proxy materials relating to such meeting) and (c) within
five (5) Business Days of obtaining such stockholder authorization, file an
appropriate amendment to the Company's Certificate of Incorporation to
evidence such increase.
3.7 Listing and Reservation of Underlying Shares. (a) The Company
shall (i) not later than the fifth Business Day following the Closing Date
prepare and file with the NASDAQ (or such other national securities
exchange or market or trading or quotation facility on which the Common
Stock is then listed) an additional shares listing application covering a
number of shares of Common Stock which is at least equal to the number of
shares required to be reserved pursuant to Section 2.1(d), (ii) take all
steps necessary to cause such shares to be approved for listing in the
NASDAQ (as well as on any such other national securities exchange or market
or trading or quotation facility on which the Common Stock is then listed)
as soon as possible thereafter, and (iii) provide to the Purchaser evidence
of such listing, and the Company shall maintain the listing of its Common
Stock thereon. If the number of Underlying Shares as are issuable upon
conversion in full of the then outstanding Shares, as payment of dividends
thereon, and upon exercise of the then unexercised portion of the Warrant
exceeds 85% of the number of Underlying Shares previously listed on account
thereof with NASDAQ (and such other required exchanges), the Company shall
take the necessary actions to immediately list a number of Underlying
Shares as equals the sum of (x) 200% of the number of Underlying Shares
then issuable upon conversion of the Shares and as payment of dividends
thereon and (y) the number of Underlying Shares as are then issuable upon
exercise of the Warrant.
(b) The Company shall maintain a reserve of Common Stock for
issuance upon conversion of the Shares and for payment of dividends
thereupon in shares of Common Stock pursuant to the terms of the
Certificate of Designation and upon exercise of the Warrant in accordance
with its terms, in such amount as may be required to fulfill obligations in
full under the Transaction Documents, which reserve shall include a number
of shares of Common Stock equal to no less than the Initial Minimum.
3.8 Conversion Procedures. The Transfer Agent Instructions,
Conversion Notice (as defined in Exhibit A) and Notice of Exercise under
the Warrant set forth the totality of the procedures with respect to the
conversion of the Shares and exercise of the Warrant, including the form of
legal opinion, if necessary, that shall be rendered to the Company's
transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchaser to convert its Shares and
exercise the Warrant as contemplated in the Certificate of Designation and
the Warrant (as applicable).
3.9 Notice of Breaches. (a) Each of the Company and the Purchaser
shall give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date
hereof which would reasonably be likely to cause any representation or
warranty or other agreement of such party, as the case may be, contained
therein to be incorrect or breached as of the Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure
any breach of any representation, warranty or other agreement contained in
any Transaction Document.
(b) Notwithstanding the generality of Section 3.9(a), the
<PAGE>
Company shall promptly notify the Purchaser of any notice or claim (written
or oral) that it receives from any lender of the Company to the effect that
the consummation of the transactions contemplated by the Transaction
Documents violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly furnish
by facsimile to the holders of the Securities a copy of any written
statement in support of or relating to such claim or notice.
3.10 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Shares and exercises of the Warrant and
shall deliver Underlying Shares in accordance with the respective terms,
conditions and time periods set forth in the respective Certificate of
Designation and the Warrant.
3.11 Right of First Refusal; Subsequent Registrations. (a) The
Company shall not, directly or indirectly, without the prior written
consent of the Purchaser, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition) any of its or its Affiliates' equity or
equity-equivalent securities or a transaction intended to be exempt or not
subject to registration under the Securities Act (a "Subsequent Placement")
for a period of 180 days after the Closing Date, except (i) the granting of
options or warrants to employees, officers and directors, and the issuance
of shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) shares of
Common Stock issued upon exercise of any currently outstanding warrants and
upon conversion of any currently outstanding convertible securities of the
Company, in each case disclosed in Schedule 2.1(c), and (iii) shares of
Common Stock issued upon conversion of Preferred Stock and as payment of
dividends thereon and upon exercise of the Warrant in accordance with the
Certificate of Designation or the Warrant, respectively, unless (A) the
Company delivers to the Purchaser a written notice (the "Subsequent
Placement Notice") of its intention effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the
proposed terms of such Subsequent Placement, the amount of proceeds
intended to be raised thereunder, the Person with whom such Subsequent
Placement shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) the Purchaser shall not have
notified the Company by 5:00 p.m. (New York City time) on the tenth (10th)
Trading Day after its receipt of the Subsequent Placement Notice of its
willingness to cause the Purchaser to provide (or to cause its sole
designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set
forth in the Subsequent Placement Notice. If the Purchaser shall fail to
notify the Company of its intention to enter into such negotiations within
such time period, the Company may effect the Subsequent Placement
substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Placement Notice; provided, that the
Company shall provide the Purchaser with a second Subsequent Placement
Notice, and the Purchaser shall again have the right of first refusal set
forth above in this paragraph (a), if the Subsequent Placement subject to
the initial Subsequent Placement Notice shall not have been consummated for
any reason on the terms set forth in such Subsequent Placement Notice
within thirty (30) Trading Days after the date of the initial Subsequent
Placement Notice with the Person (or an Affiliate of such Person)
identified in the Subsequent Placement Notice.
(b) Except for (x) Underlying Shares, (y) other "Registrable
<PAGE>
Securities" (as such term is defined in the Registration Rights Agreement)
to be registered, and securities of the Company permitted pursuant to
Schedule 6(b) of the Registration's Rights Agreement to be registered in
the Underlying Securities Registration in accordance with the Registration
Rights Agreement, and (z) Common Stock to be registered for resale in
connection with financings permitted pursuant to paragraph (a)(i) and (iii)
of Section 3.11(a), the Company shall not, without the prior written
consent of the Purchaser (i) issue or sell any of its or any of its
Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) register for resale any
securities of the Company for a period of not less than 90 Trading Days
after the date that the Underlying Securities Registration Statement is
declared effective by the Commission. Any days that a Purchaser is unable
to sell Underlying Securities under the Underlying Securities Registration
Statement shall be added to such 90 Trading Day period for the purposes of
(i) and (ii) above.
3.12 Certain Securities Laws Disclosures; Publicity. The Company
shall: (i) issue a press release acceptable to the Purchaser disclosing the
transactions contemplated hereby on the Closing Date, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated
hereby within ten (10) Business Days after the Closing Date, and (iii)
timely file with the Commission a Form D promulgated under the Securities
Act as required under Regulation D promulgated under the Securities Act and
provide a copy thereof to the Purchaser promptly after the filing thereof.
The Company shall, no less than two (2) Business Days prior to the filing
of any disclosure required by clauses (ii) and (iii) above, provide a copy
thereof to Encore Capital Management, L.L.C. ("Encore"). No such filing
or disclosure may be made that mentions the Purchaser or Encore by name
without the prior consent of Encore.
3.13 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for
the satisfaction of any portion of Company debt or to redeem any Company
equity or equity-equivalent securities. Pending application of the
proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term,
investment grade interest bearing securities.
3.14 Transfer of Intellectual Property Rights. Except in connection
with the sale of all or substantially all of the assets of the Company, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or allow any of the Intellectual Property Rights to become
subject to any Liens, or fail to renew such Intellectual Property Rights
(if renewable and it would otherwise lapse if not renewed), without the
prior written consent of the Purchaser.
3.15 Reimbursement. If the Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in
any action, proceeding or investigation brought by or against any Person,
including stockholders of the Company, in connection with or as a result of
the consummation of the transactions contemplated by Transaction Documents,
the Company will reimburse the Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred
in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which the Purchaser is a named
party, the Company will pay the Purchaser the charges, as reasonably
determined by the Purchaser, for the time of any officers or employees of
<PAGE>
the Purchaser devoted to appearing and preparing to appear as witnesses,
assisting in preparation for hearings, trials or pretrial matters, or
otherwise with respect to inquiries, hearings, trials, and other
proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any Affiliates of the
Purchaser who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Purchaser and any such
Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchaser and any such Affiliate and any such Person. The Company also
agrees that neither the Purchaser nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in
right of the Company in connection with or as a result of the consummation
of the Transaction Documents except to the extent that any losses, claims,
damages, liabilities or expenses incurred by the Company result from the
gross negligence or willful misconduct of the Purchaser or entity in
connection with the transactions contemplated by this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall (i) pay
$20,000 to the Escrow Agent in connection with the preparation and
negotiation of the Transaction Documents, and (ii) pay to $10,000 to Encore
for its due diligence expenses and disbursements in connection with the
transactions contemplated hereby. Other than the amounts contemplated in
the immediately preceding sentence, and except as otherwise set forth in
the Registration Rights Agreement, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The
Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Securities.
4.2 Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, the Registration Rights Agreement, the
Certificate of Designation, the Transfer Agent Instructions, the Warrant
and the Escrow Agreement contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such
matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to 8:00 p.m. (New York City time) on a Business Day, (ii) the Business Day
after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in the
Purchase Agreement later than 8:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
<PAGE>
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: I-Link Incorporated
13751 S. Wadsworth Park Drive, Suite 200
Draper, Utah 84020
Facsimile No.: (801)_______
Attn: Chief Financial Officer
With copies to: Hardy & Allen
60 East South Temple
Suite 2200
Salt Lake City, Utah 84111
Facsimile No.: (801) 264-6664
Attn: David Hardy
If to the Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver
in the future or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of either party to exercise any
right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and
permitted assigns. The Company may not assign this Agreement or any rights
<PAGE>
or obligations hereunder without the prior written consent of the
Purchaser. Except as set forth in Section 3.1(a), the Purchaser may not
assign this Agreement or any of the rights or obligations hereunder (other
than to an Affiliate of the Purchaser) without the consent of the Company,
except that the Purchaser may assign its rights hereunder and under the
Transaction Documents without the consent of the Company as long as such
assignee demonstrates to the reasonable satisfaction of the Company its
satisfaction of the representations and warranties set forth in Section
2.2. This provision shall not limit the Purchaser's right to transfer
securities or transfer or assign rights hereunder or under the Registration
Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective successors and
permitted assigns and, other with respect to Encore who is an intended
beneficiary of, and entitled to enforce, Sections 3.12, 4.1 and 4.11, is
not for the benefit of, nor may any provision hereof be enforced by, any
other Person.
4.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof.
Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Shares and the Warrant.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect
as if such facsimile signature page were an original thereof.
4.11 Publicity. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and neither party shall issue any such
press release or otherwise make any such public statement, filings or other
<PAGE>
communications without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by law, in which
such case the disclosing party shall provide the other party with prior
notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the
name of the Purchaser or Encore, or include the name of the Purchaser or
Encore in any filing with the Commission, or any regulatory agency, trading
facility or stock market without the prior written consent of Encore,
except to the extent such disclosure (but not any disclosure as to the
controlling Persons thereof) is required by law, in which case the Company
shall provide the Purchaser and Encore with prior notice of such
disclosure.
4.12 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the
validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision which
shall be a reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages,
the Purchaser will be entitled to specific performance of the obligations
of the Company under the Transaction Documents. Each of the Company and
the Purchaser agree that monetary damages may not be adequate compensation
for any loss incurred by reason of any breach of its obligations described
in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at
law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to be duly executed by
their respective authorized signatories as of the date first indicated
above.
I-LINK INCORPORATED
By:_____________________________________
Name: John W. Edwards
Title: President
JNC OPPORTUNITY FUND LTD.
By:_____________________________________
Name:
Title:
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 30, 1998, between I-Link Incorporated, a Florida
corporation (the "Company"), and JNC Opportunity Fund Ltd., a Cayman Islands
corporation (the "Purchaser ").
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof between the Company and the
Purchaser (the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control,"
when used with respect to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities,
by contract or otherwise; and the terms of "affiliated," "controlling" and
"controlled" have meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value $.007
per share.
"Effectiveness Date" means the 90th day following the Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may
<PAGE>
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the Company's shares of 5% Series A
Convertible Preferred Stock, $[ ] par value, to be issued to the Purchaser
pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
(i) upon conversion in full of the Preferred Stock, (ii) as payment of
dividends in respect of the Preferred Stock, assuming all such dividends are
paid in shares of Common Stock and that the shares of Preferred Stock remain
outstanding for three years, and (iii) upon exercise of the Warrants;
provided, however that in order to account for the fact that the number of
shares of Common Stock issuable upon conversion of the shares of Preferred
Stock (together with the payment of dividends thereon) is determined in part
upon the market price of the Common Stock prior to the time of conversion,
Registrable Securities contemplated by clauses (i) and (ii) above shall
include (but not be limited to) a number of shares of Common Stock equal to
no less than 200% of the number of shares of Common Stock into which the
shares of Preferred Stock (together with the payment of dividends thereon)
are convertible, assuming such conversion occurred on the Closing Date or the
Filing Date, whichever yields a lower Conversion Price (as defined in the
Purchase Agreement). The Company shall be required to file additional
Registration Statements to the extent the sum of (i) the number of the shares
of Common Stock into which the shares of Preferred Stock are convertible
(together with the payment of dividends thereon), and (ii) the number of
shares of Common Stock issuable upon exercise in full of the Warrants,
exceeds the number of shares of Common Stock initially registered in
accordance with the immediately prior sentence. The Company shall have ten
(10) days to file such additional Registration Statements after notice of the
requirement thereof, which the Holders may give at such time when the number
<PAGE>
of shares of Common Stock as are issuable upon conversion of shares of
Preferred Stock (together with the payment of dividends thereon) and upon
exercise of the Warrants, exceeds 85% of the number of shares of Common Stock
to be registered in a Registration Statement hereunder.
"Registration Statement" means the registration statement and any
additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference
or deemed to be incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to
an underwriter for reoffering to the public pursuant to an effective
registration statement.
"Warrants" means collectively (i) the common stock purchase warrant
issued to the Purchaser pursuant to the Purchase Agreement, and (ii) the
common stock purchase warrants issued to Wharton Capital Partners, Ltd. and
Alpine Capital Partners, Inc. in connection with consulting services provided
to the Company.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-3 (if
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3 such registration shall be on another appropriate form
in accordance herewith). The Registration Statement shall state, to the
extent permitted by Rule 416 under the Securities Act, that it also covers
such indeterminate number of shares of Common Stock as may be required to
effect conversion of the shares of Preferred Stock (and payment of dividends
thereon) or exercise of the Warrants, in each case to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason
of changes in the Conversion Price in accordance with the terms of the
<PAGE>
Certificate of Designation (as defined in the Purchase Agreement) or by
reason of changes in the Exercise Price (as defined in the Warrants) in
accordance with the terms of the Warrants. The Company shall use its best
efforts to cause the Registration Statement to be declared effective under
the Securities Act as promptly as possible after the filing thereof, but in
any event prior to the Effectiveness Date, and shall use its best efforts to
keep such Registration Statement continuously effective under the Securities
Act until the date which is three years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when
all Registrable Securities covered by such Registration Statement have been
sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter
to such effect, addressed and acceptable to the Company's transfer agent (the
"Effectiveness Period"), provided, however, that the Company shall not be
deemed to have used its best efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any action
that would result in the Holders not being able to sell the Registrable
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company
has filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and, if the managing underwriters advise the Company and such Holders
in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such Underwritten Offering exceeds the amount of
Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such
Registrable Securities which in the opinion of such managing underwriters can
be sold, and such amount shall be allocated pro rata among the Holders
proposing to sell Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such
Holder (i) agrees to sell its Registrable Securities on the basis provided in
any underwriting agreements approved by the Persons entitled hereunder to
approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or,
in connection with an Underwritten Offering hereunder, such other form agreed
to by the Company and by the Holders of Registrable Securities) which shall
contain the "Plan of Distribution" attached hereto as Annex A (except if
otherwise directed by the Holders), and cause the Registration Statement to
<PAGE>
become effective and remain effective as provided herein; provided, however,
that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated or
deemed to be incorporated therein by reference), the Company shall, (i)
furnish to the Holders, their Special Counsel and any managing underwriters,
copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) will be
subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as
shall be necessary, in the reasonable opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within
the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities, their Special Counsel, or any managing underwriters, shall
reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare
and file with the Commission such additional Registration Statements in order
to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented
by any required Prospectus supplement, and as so supplemented or amended to
be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; (iii) respond as promptly as reasonably
possible to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence
from and to the Commission relating to the Registration Statement; and (iv)
comply in all material respects with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable period
in accordance with the intended methods of disposition by the Holders thereof
set forth in the Registration Statement as so amended or in such Prospectus
as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five (5) days prior
to such filing) and (if requested by any such Person) confirm such notice in
writing no later than one (1) Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C)
with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or
any other Federal or state governmental authority for amendments or
supplements to the Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for
<PAGE>
that purpose; (iv) if at any time any of the representations and warranties
of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect
to the suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction, or the initiation
or threatening of any Proceeding for such purpose; and (vi) of the occurrence
of any event that makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires any revisions to
the Registration Statement, Prospectus or other documents so that, in the
case of the Registration Statement or the Prospectus, as the case may be, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein, and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as practicable
after the Company has received notification of the matters to be incorporated
in such Prospectus supplement or post-effective amendment; provided, however,
that the Company shall not be required to take any action pursuant to this
Section 3(e) that would, in the opinion of counsel for the Company, violate
applicable law or be materially detrimental to the business prospects of the
Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Regis-
tration Statement and each amendment thereto, including financial statements
and schedules, all documents incorporated or deemed to be incorporated
therein by reference, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by reference) promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and
any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders and any underwriters in
connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
<PAGE>
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action that would subject it
to general service of process in any such jurisdiction where it is not then
so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request at least two
Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq SmallCap
Market ("NASDAQ") and any other securities exchange, quotation system, market
or over-the-counter bulletin board, if any, on which similar securities
issued by the Company are then listed as and when required pursuant to the
Purchase Agreement.
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not
an underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the
same if and when requested; (ii) in the case of an Underwritten Offering
obtain and deliver copies thereof to each Holder and the managing
underwriters, if any, of opinions of counsel to the Company and updates
thereof addressed to each Holder and each such underwriter, in form, scope
and substance reasonably satisfactory to any such managing underwriters and
Special Counsel to the selling Holders covering the matters customarily
covered in opinions requested in Underwritten Offerings and such other
matters as may be reasonably requested by such Special Counsel and
<PAGE>
underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, use its
best reasonable efforts to obtain and deliver copies to the Holders and the
managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any sub-
sidiary of the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to be, included in
the Registration Statement), addressed to the Company in form and substance
as are customary in connection with Underwritten Offerings; (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 5 (or
such other provisions and procedures acceptable to the managing underwriters,
if any, and holders of a majority of Registrable Securities participating in
such Underwritten Offering); and (v) deliver such documents and certificates
as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant
retained by such selling Holders or underwriters, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case
reasonably requested by any such Holder, representative, underwriter,
attorney or accountant in connection with the Registration Statement;
provided, however, that any information that is determined in good faith by
the Company in writing to be of a confidential nature at the time of delivery
of such information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel to such Person, is
required by law; (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard by such
Person; or (iv) such information becomes available to such Person from a
source other than the Company and such source is not known by such Person to
be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder
as is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
<PAGE>
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal
statute then in force) the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated
by Section 3(c) and (ii) it and its officers, directors or Affiliates, if
any, will comply with the prospectus delivery requirements of the Securities
Act as applicable to it in connection with sales of Registrable Securities
pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of
such Registrable Securities under the Registration Statement until such
Holder's receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 3(j), or until it is advised
in writing (the "Advice") by the Company that the use of the applicable Pro-
spectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not
pursuant to an Underwritten Offering and whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the NASDAQ and any subsequent market on which the Common Stock is then
listed for trading, and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel for
the Holders in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Regis-
trable Securities for investment under the laws of such jurisdictions as the
managing underwriters, if any, or the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and
of printing prospectuses if the printing of prospectuses is requested by the
managing underwriters, if any, or by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and Special Counsel for the Holders, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi)
fees and expenses of all other Persons retained by the Company in connection
<PAGE>
with the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated
by this Agreement (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to
the terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of
the Underwriters (including any underwriting commissions and discounts) and
their legal counsel and accountants. By way of illustration which is not
intended to diminish from the provisions of Section 4(a), the Holders shall
not be responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of
the Registrable Securities in accordance with the requirements hereof, and
printing expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the offer and sale of
Registrable Securities), brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law, from
and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or relating to
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto,
in light of the circumstances under which they were made) not misleading,
except to the extent, but only to the extent, that such untrue statements or
omissions are based solely upon information regarding such Holder furnished
in writing to the Company by such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which
the Company is aware in connection with the transactions contemplated by this
Agreement.
<PAGE>
(b) Indemnification by Holders. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent jurisdiction in
a final judgment not subject to appeal or review) arising solely out of or
based solely upon any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading to the extent, but
only to the extent, that such untrue statement or omission is contained in
any information so furnished in writing by such Holder to the Company
specifically for inclusion in the Registration Statement or such Prospectus
and that such information was reasonably relied upon by the Company for use
in the Registration Statement, such Prospectus or such form of prospectus or
to the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed
and expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus, or in any
amendment or supplement thereto. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall promptly
notify the Person from whom indemnity is sought (the "Indemnifying Party") in
writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Indem-
nified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall
have failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
<PAGE>
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided,
that the Indemnifying Party may require such Indemnified Party to undertake
to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public
policy or otherwise), then each Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions
that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations
set forth in Section 5(c), any reasonable attorneys' or other reasonable fees
or expenses incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or expenses if
the indemnification provided for in this Section was available to such party
in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no Holder
shall be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by such Holder from the
sale of the Registrable Securities subject to the Proceeding exceeds the
amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
<PAGE>
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to
the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of dam-
ages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees
that, in the event of any action for specific performance in respect of such
breach, it shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specified in Schedule 6(b)
hereto, neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to
any of its securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the
then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in
all respects to the prior rights in full of the Holders set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto)
may include securities of the Company in the Registration Statement other
than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right to any of its
security holders.
(d) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering all of the Registrable Securities
and the Underlying Shares, the Company shall determine to prepare and file
with the Commission a registration statement relating to an offering for its
own account or the account of others under the Securities Act of any of its
<PAGE> 13
equity securities, other than on Form S-4 or Form S-8 (each as promulgated
under the Securities Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock
option or other employee benefit plans, then the Company shall send to each
holder of Registrable Securities written notice of such determination and, if
within twenty (20) days after receipt of such notice, any such holder shall
so request in writing, the Company shall include in such registration
<PAGE>
statement all or any part of such Registrable Securities such holder requests
to be registered; provided, however, that the Company shall not be required
to register any Registrable Securities pursuant to this Section 7(d) that are
eligible for sale pursuant to Rule 144(k) of the Commission.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and the Holders of at least two-thirds of the then outstanding
Registrable Securities; provided, however, that, for the purposes of this
sentence, Registrable Securities that are owned, directly or indirectly, by
the Company, or an Affiliate of the Company are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended, modified,
or supplemented except in accordance with the provisions of the immediately
preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 8:00 p.m.
(New York City time) on a Business Day, (ii) the Business Day after the date
of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in the Purchase Agreement later
than 8:00 p.m. (New York City time) on any date and earlier than 11:59 p.m.
(New York City time) on such date, (iii) the Business Day following the date
of mailing, if sent by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:
If to the Company: I-Link Incorporated
13751 S. Wadsworth Park Drive, Suite 200
Draper, Utah 84020
Facsimile No.: (801)_______
Attn: Chief Financial Officer
With copies to: Hardy & Allen
60 East South Temple
Suite 2200
Salt Lake City, Utah 84111
Facsimile No.: (801) 264-6664
Attn: David Allen
<PAGE> 14
If to the Purchaser:JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
<PAGE>
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
With copies to: Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the
stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of each Holder. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.
(h) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall
be automatically assignable by each Holder to any Affiliate of such Holder,
any other Holder or Affiliate of any other Holder if: (i) the Holder agrees
in writing with the transferee or assignee to assign such rights, and a copy
of such agreement is furnished to the Company within a reasonable time after
such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect
to which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities
Act and applicable state securities laws, (iv) at or before the time the
Company receives the written notice contemplated by clause (ii) of this
Section, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement, and (v) such transfer shall
have been made in accordance with the applicable requirements of the Purchase
Agreement. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by and
<PAGE>
construed and enforced in accordance with the internal laws of the State of
New York without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is improper. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted
by law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or its Affiliates (other than any Holder or transferees or successors or
assigns thereof if such Holder is deemed to be an Affiliate solely by reason
of its holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
I-LINK INCORPORATED
By:_____________________________________
Name: John W. Edwards
Title: President
JNC OPPORTUNITY FUND LTD.
By:_____________________________________
Name:
Title:
<PAGE>
Annex A
Plan of Distribution
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder (the "Shares") in privately
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
market prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders by one or more of the following methods, without limitation: (a)
block trades in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus, (c) an exchange distribution in accordance with the rules of
the applicable exchange, (d) ordinary brokerage transactions and transactions
in which the broker solicits purchasers, (e) privately negotiated
transactions, (f) short sales, (g) a combination of any such methods of sale
and (h) any other method permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver
the Shares in connection therewith or in settlement of securities loans. If
the Selling Stockholders engage in such transactions, the applicable
conversion price may be affected. From time to time the Selling Stockholders
may pledge their Shares pursuant to the margin provisions of its customer
agreements with its brokers. Upon a default by the Selling Stockholders, the
broker may offer and sell the pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate in such
sales. Brokers or dealers may receive commissions or discounts from the
Selling Stockholders (or, if any such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser) in amounts to be negotiated
which are not expected to exceed those customary in the types of transactions
involved. Broker-dealers may agree with the Selling Stockholders to sell a
specified number of such Shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Stockholder, to purchase as principal any unsold Shares at the price required
to fulfill the broker-dealer commitment to the Selling Stockholders. Broker-
dealers who acquire Shares as principal may thereafter resell such Shares
from time to time in transactions (which may involve block transactions and
sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market or otherwise at prices
and on terms then prevailing at the time of sale, at prices then related to
the then-current market price or in negotiated transactions and, in
connection with such resales, may pay to or receive from the purchasers of
such Shares commissions as described above. The Selling Stockholders may
also sell the Shares in accordance with Rule 144 under the Securities Act,
rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the Shares may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such
<PAGE>
broker-dealers or agents and any profit on the resale of the Shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of counsel to
the Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE
WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
I-LINK INCORPORATED
WARRANT
Dated: June 30, 1998
I-Link Incorporated, a Florida corporation (the "Company"), hereby
certifies that, for value received, JNC Opportunity Fund Ltd., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 250,000 shares of Common
Stock, $.007 par value per share (the "Common Stock"), of the Company (each
such share, a "Warrant Share" and all such shares, the "Warrant Shares") at
an exercise price equal to $[ ] per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at any time and from time to
time from and after the date hereof and through and including June 30, 2003
(the "Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant
as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, and the Company shall
not be affected by notice to the contrary.
1 120% of the average of the Per Share Market Values for the five (5) Trading
Days immediately preceding the Original Issue Date.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with
the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such
new warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing
the remaining portion of this Warrant not so transferred, if any, shall be
issued to the transferring Holder. The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof
by the Holder to the office of the Company specified in or pursuant to
<PAGE>
Section 3(b) for one or more New Warrants, evidencing in the aggregate the
right to purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered
Holder on any business day before 5:30 P.M., Eastern time, at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 5:30 P.M., Eastern time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem
this Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of
this Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number
of Warrant Shares that the Holder intends to purchase hereunder, in lawful
money of the United States of America, in cash or by certified or official
bank check or checks, all as specified by the Holder in the Form of Election
to Purchase, the Company shall promptly (but in no event later than 3
business days after the Date of Exercise) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends other than as
required by applicable law. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New
Warrant) appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares so indicated by the holder
hereof to be purchased.
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If
less than all of the Warrant Shares which may be purchased under this Warrant
are exercised at any time, the Company shall issue or cause to be issued, at
its expense, a New Warrant evidencing the right to purchase the remaining
number of Warrant Shares for which no exercise has been evidenced by this
Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the
Securities and Exchange Commission (other than registration statements of the
Company filed on Form S-8 or Form S-4, each as promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to which
the Company is registering securities pursuant to a Company employee benefit
plan or pursuant to a merger, acquisition or similar transaction including
supplements thereto, but not additionally filed registration statements in
respect of such securities) at any time when there is not an effective
registration statement covering the resale of the Warrant Shares and naming
the Holder as a selling stockholder thereunder, unless the Company provides
the Holder with not less than 20 days notice of its intention to file such
registration statement and provides the Holder the option to include any or
<PAGE>
all of the applicable Warrant Shares therein. The piggyback registration
rights granted to the Holder pursuant to this Section shall continue until
all of the Holder's Warrant Shares have been sold in accordance with an
effective registration statement or upon the Expiration Date. The Company
will pay all registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of
this Warrant when the Warrant Shares are not registered pursuant to an
effective registration statement, the Holder may make a written request for
the registration under the Securities Act (a "Demand Registration"), of all
of the Warrant Shares (the "Registrable Securities"), and the Company shall
use its best efforts to effect such Demand Registration as promptly as
possible, but in any case within 90 days thereafter. Any request for a
Demand Registration shall specify the aggregate number of Registrable
Securities proposed to be sold and shall also specify the intended method of
disposition thereof. The right to cause a registration of the Registrable
Securities under this Section 5 shall be limited to one such registration.
In any registration initiated as a Demand Registration, the Company will pay
all of its registration expenses in connection therewith. A Demand
Registration shall not be counted as a Demand Registration hereunder until
the registration statement filed pursuant to the Demand Registration has been
declared effective by the Securities and Exchange Commission and maintained
continuously effective for a period of at least 360 days or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such registration statement, provided, however that any days
on which such registration statement is not effective or on which the Holder
is not permitted by the Company or any governmental authority to sell Warrant
Shares under such registration statement shall not count towards such 360 day
period.
6. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name
other than that of the Holder, and the Company shall not be required to issue
or cause to be issued or deliver or cause to be delivered the certificates
for Warrant Shares unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid. The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and indemnity, if requested, satisfactory to it. Applicants for
a New Warrant under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable charges
as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it
to issue Warrant Shares upon exercise of this Warrant as herein provided, the
<PAGE>
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder (taking
into account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares that shall be so issuable and deliverable
shall, upon issuance and the payment of the applicable Exercise Price in
accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter
prior to the Expiration Date be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares issuable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid
on outstanding preferred stock as of the date hereof which contain a stated
divided rate) or otherwise make a distribution or distributions on shares of
its Common Stock (as defined below) or on any other class of capital stock
and not the Common Stock) payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, or (iii)
combine outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding before such event and of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale
or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event
to receive such amount of securities or property equal to the amount of
Warrant Shares such Holder would have been entitled to had such Holder
exercised this Warrant immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The terms of any
such consolidation, merger, sale, transfer or share exchange shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this Section 9(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
<PAGE>
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to
holders of this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred
to in Sections 9(a), (b) and (d)), then in each such case the Exercise Price
shall be determined by multiplying the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Exercise Price determined as of the record date mentioned above, and of which
the numerator shall be such Exercise Price on such record date less the then
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of Common Stock as determined by the Company's independent certified public
accountants that regularly examines the financial statements of the Company
(an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in
effect, then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to the price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding immediately prior to such issuance, and (ii) the
number of shares of Common Stock which the aggregate consideration received
(or to be received, assuming exercise or conversion in full of such rights,
warrants and convertible securities) for the issuance of such additional
shares of Common Stock would purchase at the Exercise Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by
or for the account of the Company, and the disposition of any such shares
shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to
Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which
<PAGE>
shall be a nationally recognized accounting firm), in which case the
adjustment shall be equal to the average of the adjustments recommended by
each of the Appraiser and such appraiser. The Holder shall promptly mail or
cause to be mailed to the Company, a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. Such adjustment shall become effective
immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of any
rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted
into other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants,
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, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, 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, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately
<PAGE>
available funds; or
(b) Cashless Exercise. The Holder shall surrender this
Warrant to the Company together with a notice of cashless exercise, in which
event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the issue date.
11. Fractional Shares. The Company shall not be required to issue
or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate
number of Warrant Shares purchasable on exercise of this Warrant so
presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 11, be issuable on the exercise of this Warrant,
the Company shall pay an amount in cash equal to the Exercise Price
multiplied by such fraction.
12. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 4:30 p.m. (Eastern time) on a business
day, (ii) the business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:30 p.m. (Eastern time) on any date and
earlier than 11:59 p.m. (Eastern time) on such date, (iii) the business day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is required to be given. The addresses for such communications shall be:
(i) if to the Company, to 13751 S. Wadsworth Park Drive, Suite 200, Draper,
Utah 84020, Attention: Chief Financial Officer, or to facsimile no. (801) [],
or (ii) if to the Holder, to the Holder at the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this
Section 12.
13. Warrant Agent.
<PAGE>
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to
which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act. Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Warrant
Register.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under
this Warrant. This Warrant shall inure to the sole and exclusive benefit of
the Company and the Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall
not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be
a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
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SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
I-LINK INCORPORATED
By:
Name: John W. Edwards
Title: President
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To I-Link Incorporated:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase
_____________ shares of Common Stock ("Common Stock"), $.007 par value per
share, of I-Link Incorporated and , if such Holder is not utilizing the
cashless exercise provisions set forth in this Warrant, encloses herewith
$________ in cash, certified or official bank check or checks, which sum
represents the aggregate Exercise Price (as defined in the Warrant) for the
number of shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned
pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
______________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the undersigned
requests that a New Warrant (as defined in the Warrant) evidencing the right
to purchase the shares of Common Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
______________________________________________________________________________
Dated:_____________,_____ Name of Holder:
(Print)__________________________________
(By:)____________________________________
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of I-Link
Incorporated to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of I-Link
Incorporated with full power of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
<PAGE>
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT, dated as of July 28, 1998, between I-Link
Incorporated, a Florida corporation (the "Company"), and JNC Opportunity Fund
Ltd., a Cayman Islands corporation (the "Purchaser").
WHEREAS, the Company and the Purchaser entered into a Convertible
Preferred Stock Purchase Agreement, dated as of June 30, 1998 (the "Purchase
Agreement"), pursuant to which the Company issued to the Purchaser 1,000
shares of its 5% Series E Convertible Preferred Stock, par value $10 per
share and stated value of $10,000 per share (the "Series E Stock"), which are
convertible into shares of the Company's common stock, par value $.007 per
share (the "Common Stock"), which shares of Series E Stock have the rights,
preferences and privileges set forth in the Certificate of Designation of the
Company filed with the Florida Secretary of State on July 7, 1998; and
WHEREAS, the Company and the Purchaser have agreed to exchange the
Series E Stock for (x) an equal number of shares of the Company's to be
created 5% Series F Convertible Preferred Stock, par value $10 per share and
stated value of $10,000 per share (the "Series F Stock"), which are
convertible into Common Stock and which have the rights, preferences and
privileges set forth in the Certificate of Designation of the Company,
attached hereto as Exhibit A, to be filed with the Florida Secretary of State
promptly following the execution of this Exchange Agreement (the "Series F
Designation"), and (y) a certain Common Stock purchase warrant described
below (the "Exchange").
NOW THEREFORE, in consideration of the mutual covenants contained in
this Exchange Agreement, and for other good and valuable consideration the
receipt and adequacy are hereby acknowledged, the Company and Purchaser,
intending to be legally bound, agree as follows:
Capitalized terms used but not defined herein that are defined in the
Purchase Agreement shall have the respective meaning ascribed to them in the
Purchase Agreement.
1. Exchange. Upon receipt of evidence satisfactory to the Purchaser of
the acceptance for filing of the Series F Designation by the Florida
Secretary of State, (A) the Company will deliver to the Purchaser (1)
stock certificates representing 1,000 shares of the Series F Stock,
registered in the name of the Purchaser (the "Shares"), (2) a Common
Stock purchase warrant, in the form of Exhibit D to the Purchase
Agreement, registered in the name of the Purchaser, pursuant to which
the Purchaser shall have the right at any time and from time to time
thereafter through the fifth anniversary of the date of the issuance
thereof to acquire 100,000 shares of Common Stock at an exercise price
per share (subject to adjustment as provided therein) of $4.00 (the
"Additional Warrant"), (3) the legal opinion of David E. Hardy &
Associates, outside counsel to the Company, and (4) $10,000 to Robinson
Silverman Pearce Aronsohn & Berman LLP in connection with the
preparation and
negotiation of the documents relating to the Exchange
and (B) the Purchaser shall deliver to the Company the stock
<PAGE>
certificates evidencing its ownership of the Series E Stock.
2. Purchase Agreement and Registration Rights Agreement. The
Purchase Agreement and the Registration Rights Agreement shall be deemed
amended to the extent required to provide for the Exchange. The term
"Preferred Stock" in the Registration Rights Agreement shall hereafter
mean the Series F Stock. The term "Shares" in the Purchase Agreement
shall hereafter have the meaning ascribed to it in the Exchange
Agreement and the term "Underlying Shares" in the Purchase Agreement
shall hereafter mean the shares of Common Stock issuable upon conversion
of the Shares, as payment of dividends thereon and upon exercise of the
Warrant All references to the term "Warrant" in the Registration Rights
Agreement and the Purchase Agreement shall include the Additional
Warrant. Other than as expressly amended hereby, the Purchase Agreement
and the Registration Rights Agreement are not amended and remain in full
force and effect.
3. Representation and Warranties of the Company.The Company hereby
reaffirms the representations and warranties in Section 2.1 of the
Purchase Agreement and further represents and warrants as follows:
(a) The execution, delivery and performance by the
Company of this Exchange Agreement and the
consummation of the transactions contemplated
hereby (i) are within the power of Company and (ii)
have been duly authorized by all necessary actions
on the part of Company. Upon issuance, the Shares
and the Common Stock issuable upon conversion
thereof and upon payment of dividends thereon (if
such dividends are paid in the form of Common
Stock) will be validly issued, fully paid and non-
assessable.
(b) This Exchange Agreement has been duly executed
and delivered by the Company and constitutes a
legal, valid and binding obligation of Company,
enforceable against Company in accordance with its
terms.
(c) The Company restates the representations and
warranties in Section 2.1(e) of the Purchase
Agreement with respect to the Exchange.
(d) No consent, approval, order or authorization
of, or registration, declaration or filing with,
any governmental authority or other person is
required in connection with the execution and
delivery of this Exchange Agreement and the
performance and consummation of the transactions
contemplated thereby, other than the acceptance of
the Series F Designation with the Florida Secretary
of State and any filings that may be required by
the Commission and/or NASDAQ.
(e) The Company has paid no commission or other
remuneration directly or indirectly to any person
for soliciting the Exchange.
<PAGE>
(f) The Exchange is not subject to the registration
requirements of the Securities Act.
4. Representation and Warranties of the Purchaser.The Purchaser hereby
reaffirms the representations and warranties in Section 2.2 of the
Purchase Agreement and further represents and warrants as follows:
(a) The execution, delivery and performance by the
Purchaser of this Exchange Agreement and the
consummation of the transactions contemplated
hereby (i) are within the power of the Purchaser
and (ii) have been duly authorized by all necessary
actions on the part of the Purchaser.
(b) This Exchange Agreement has been duly executed
and delivered by the Purchaser and constitutes a
legal, valid and binding obligation of such
Purchaser, enforceable against the Purchaser in
accordance with its terms.
5. Governing Law. This Exchange Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State
of New York without regard to the principles of conflicts of laws
thereof.
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SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Exchange
Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.
I-LINK INCORPORATED
By:_____________________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:_____________________________________
Name:
Title:
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE
WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
I-LINK INCORPORATED
WARRANT
Dated: July 28, 1998
I-Link Incorporated, a Florida corporation (the "Company"), hereby
certifies that, for value received, JNC Opportunity Fund Ltd., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 100,000 shares of Common
Stock, $.007 par value per share (the "Common Stock"), of the Company (each
such share, a "Warrant Share" and all such shares, the "Warrant Shares") at
an exercise price equal to $4.00 per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at any time and from time to
time from and after the date hereof and through and including July 28, 2003
(the "Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant
as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, and the Company shall
not be affected by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with
the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such
new warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing
the remaining portion of this Warrant not so transferred, if any, shall be
issued to the transferring Holder. The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof
by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the
right to purchase the number of Warrant Shares which may then be purchased
<PAGE>
hereunder. Any such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered
Holder on any business day before 5:30 P.M., Eastern time, at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 5:30 P.M., Eastern time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem
this Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of
this Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number
of Warrant Shares that the Holder intends to purchase hereunder, in lawful
money of the United States of America, in cash or by certified or official
bank check or checks, all as specified by the Holder in the Form of Election
to Purchase, the Company shall promptly (but in no event later than 3
business days after the Date of Exercise) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends other than as
required by applicable law. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New
Warrant) appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares so indicated by the holder
hereof to be purchased.
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If
less than all of the Warrant Shares which may be purchased under this Warrant
are exercised at any time, the Company shall issue or cause to be issued, at
its expense, a New Warrant evidencing the right to purchase the remaining
number of Warrant Shares for which no exercise has been evidenced by this
Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the
Securities and Exchange Commission (other than registration statements of the
Company filed on Form S-8 or Form S-4, each as promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to which
the Company is registering securities pursuant to a Company employee benefit
plan or pursuant to a merger, acquisition or similar transaction including
supplements thereto, but not additionally filed registration statements in
respect of such securities) at any time when there is not an effective
registration statement covering the resale of the Warrant Shares and naming
the Holder as a selling stockholder thereunder, unless the Company provides
the Holder with not less than 20 days notice of its intention to file such
registration statement and provides the Holder the option to include any or
all of the applicable Warrant Shares therein. The piggyback registration
rights granted to the Holder pursuant to this Section shall continue until
<PAGE>
all of the Holder's Warrant Shares have been sold in accordance with an
effective registration statement or upon the Expiration Date. The Company
will pay all registration expenses in connection therewith.
5. Demand Registration Rights. At any time during the term of
this Warrant when the Warrant Shares are not registered pursuant to an
effective registration statement, the Holder may make a written request for
the registration under the Securities Act (a "Demand Registration"), of all
of the Warrant Shares (the "Registrable Securities"), and the Company shall
use its best efforts to effect such Demand Registration as promptly as
possible, but in any case within 90 days thereafter. Any request for a
Demand Registration shall specify the aggregate number of Registrable
Securities proposed to be sold and shall also specify the intended method of
disposition thereof. The right to cause a registration of the Registrable
Securities under this Section 5 shall be limited to one such registration.
In any registration initiated as a Demand Registration, the Company will pay
all of its registration expenses in connection therewith. A Demand
Registration shall not be counted as a Demand Registration hereunder until
the registration statement filed pursuant to the Demand Registration has been
declared effective by the Securities and Exchange Commission and maintained
continuously effective for a period of at least 360 days or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such registration statement, provided, however that any days
on which such registration statement is not effective or on which the Holder
is not permitted by the Company or any governmental authority to sell Warrant
Shares under such registration statement shall not count towards such 360 day
period.
6. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name
other than that of the Holder, and the Company shall not be required to issue
or cause to be issued or deliver or cause to be delivered the certificates
for Warrant Shares unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid. The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and indemnity, if requested, satisfactory to it. Applicants for
a New Warrant under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable charges
as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it
to issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other
<PAGE>
actual contingent purchase rights of persons other than the Holder (taking
into account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares that shall be so issuable and deliverable
shall, upon issuance and the payment of the applicable Exercise Price in
accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter
prior to the Expiration Date be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares issuable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid
on outstanding preferred stock as of the date hereof which contain a stated
divided rate) or otherwise make a distribution or distributions on shares of
its Common Stock (as defined below) or on any other class of capital stock
and not the Common Stock) payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, or (iii)
combine outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding before such event and of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale
or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event
to receive such amount of securities or property equal to the amount of
Warrant Shares such Holder would have been entitled to had such Holder
exercised this Warrant immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The terms of any
such consolidation, merger, sale, transfer or share exchange shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this Section 9(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to
<PAGE>
holders of this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred
to in Sections 9(a), (b) and (d)), then in each such case the Exercise Price
shall be determined by multiplying the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Exercise Price determined as of the record date mentioned above, and of which
the numerator shall be such Exercise Price on such record date less the then
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of Common Stock as determined by the Company's independent certified public
accountants that regularly examines the financial statements of the Company
(an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in
effect, then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to the price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding immediately prior to such issuance, and (ii) the
number of shares of Common Stock which the aggregate consideration received
(or to be received, assuming exercise or conversion in full of such rights,
warrants and convertible securities) for the issuance of such additional
shares of Common Stock would purchase at the Exercise Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by
or for the account of the Company, and the disposition of any such shares
shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to
Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case the
adjustment shall be equal to the average of the adjustments recommended by
<PAGE>
each of the Appraiser and such appraiser. The Holder shall promptly mail or
cause to be mailed to the Company, a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. Such adjustment shall become effective
immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of any
rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted
into other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants,
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, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, 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, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up; provided,
however, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately
available funds; or
<PAGE>
(b) Cashless Exercise. The Holder shall surrender this
Warrant to the Company together with a notice of cashless exercise, in which
event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the issue date.
11. Fractional Shares. The Company shall not be required to issue
or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate
number of Warrant Shares purchasable on exercise of this Warrant so
presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 11, be issuable on the exercise of this Warrant,
the Company shall pay an amount in cash equal to the Exercise Price
multiplied by such fraction.
12. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 4:30 p.m. (Eastern time) on a business
day, (ii) the business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:30 p.m. (Eastern time) on any date and
earlier than 11:59 p.m. (Eastern time) on such date, (iii) the business day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is required to be given. The addresses for such communications shall be:
(i) if to the Company, to 13751 S. Wadsworth Park Drive, Suite 200, Draper,
Utah 84020, Attention: Chief Financial Officer, or to facsimile no. (801) [
], or (ii) if to the Holder, to the Holder at the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number
as the Holder may provide to the Company in accordance with this Section 12.
13. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.
<PAGE>
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to
which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act. Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Warrant
Register.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under
this Warrant. This Warrant shall inure to the sole and exclusive benefit of
the Company and the Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall
not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be
a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
I-LINK INCORPORATED
By:___________________________________
Name: John W. Edwards
Title: President
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To I-Link Incorporated:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase
_____________ shares of Common Stock ("Common Stock"), $.007 par value per
share, of I-Link Incorporated and , if such Holder is not utilizing the
cashless exercise provisions set forth in this Warrant, encloses herewith
$________ in cash, certified or official bank check or checks, which sum
represents the aggregate Exercise Price (as defined in the Warrant) for the
number of shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned
pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
_____________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the undersigned
requests that a New Warrant (as defined in the Warrant) evidencing the right
to purchase the shares of Common Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:
___________________________________________________________________________
(Please print name and address)
___________________________________________________________________________
___________________________________________________________________________
Dated:_________,_________ Name of Holder:
(Print)__________________________________
(By:)____________________________________
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of I-Link
Incorporated to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of I-Link
Incorporated with full power of substitution in the premises.
Dated: _______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS DATED JUNE 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 930176
<SECURITIES> 0
<RECEIVABLES> 4966391
<ALLOWANCES> 883000
<INVENTORY> 0
<CURRENT-ASSETS> 6839288
<PP&E> 6523227
<DEPRECIATION> 1667626
<TOTAL-ASSETS> 23815227
<CURRENT-LIABILITIES> 20962659
<BONDS> 0
0
832150
<COMMON> 125425
<OTHER-SE> 1894993
<TOTAL-LIABILITY-AND-EQUITY> 23815227
<SALES> 11801763
<TOTAL-REVENUES> 11801763
<CGS> 0
<TOTAL-COSTS> 22296242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7640577
<INCOME-PRETAX> (18071592)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18071592)
<DISCONTINUED> (108006)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18179598)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
