SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):June 9, 1998 (June
9, 1998)
THE NETWORK CONNECTION, INC.
Georgia 1-13760 58-1712432
(State or other (Commission File (IRS Employer
jurisdiction of No.) ID No.)
incorporation)
1324 Union Hill Road, Alpharetta, GA 30201
(Address of principal executive offices)
(770) 751-0889
Registrant's telephone number, including area code
(Former name or former address, if changed since last report)
Item 5 - Other Events.
On March 11, 1998, the Company raised gross proceeds of $2.2
million in a private placement to a single institutional
investor, KA Investments LDC (the "Investor"), of five-year
convertible debt securities (the "Debentures") pursuant to the
terms of a Convertible Debenture Purchase Agreement, dated March
11, 1998, by and between the Company and the Investor (the
"Debenture Purchase Agreement"). Each Debenture was sold for
$50,000.00, accrued interest at a rate of 4% per annum, and was
convertible at the option of the holder into shares of the
Company's Common Stock at a price per share equal to the lesser
of (i) $8.02 or (ii) 80% of the average closing market price of
the Company's Common Stock during the 21 trading days prior to
conversion, but in no event less than $3.00 per share (as
adjusted for stock splits). As of June 9, 1998, the Investor and
the Company entered into a Convertible Preferred Stock Purchase
Agreement (the "Purchase Agreement"), pursuant to which the
Investor agreed to exchange all of its Debentures for 220,000
shares of the Company's 4% Series A Convertible Preferred Stock
(the "Preferred Stock"). The financial terms of the Preferred
Stock are identical to the financial terms of the Debentures for
which they were exchanged. The Company was obligated to file and
have declared effective by the Securities and Exchange Commission
(the "Commission"), on or prior to June 24, 1998, a registration
statement with respect to the resale of the Common Stock issuable
upon conversion of the Preferred Stock. The Company originally
filed such Registration Statement on May 1, 1998, and such
Registration Statement was declared effective by the Commission
on June 8, 1998. The Company has agreed to use its best efforts
to keep the Registration Statement effective for a period of
three (3) years following the effective date of the Registration
Statement, or through such earlier date when the Common Stock to
be acquired upon conversion of the Preferred Stock may be sold
pursuant to Rule 144(k) under the Securities Act.
The Company is registering the Shares underlying the
Preferred Stock to provide the holder of such shares, upon
conversion of the Preferred Stock, with freely tradable shares of
Common Stock. Pursuant to the terms of the Registration
Agreement, this Registration Statement covers up to 20% of the
number of shares of Common Stock outstanding on the issue date of
the Preferred Stock under the Purchase Agreement. The terms of
the Purchase Agreement require that the Company maintain a
reserve of up to 20% of the number of shares of Common Stock
outstanding on the issue date of the Preferred Stock under the
Purchase Agreement for issuance upon conversion. The terms of
the Preferred Stock permit the Company, at its option, to pay the
dividends on the Preferred Stock in shares of Common Stock in
lieu of cash under certain circumstances. However, the Company
does not intend to issue such number of shares of Common Stock in
lieu of cash dividends which, when added to the number of shares
of Common Stock into which the Preferred Stock is convertible,
would allow the aggregate number of such shares of Common Stock
to exceed 20% of the outstanding shares of Common Stock on the
issue date of the Preferred Stock under the Purchase Agreement
Each share of Preferred Stock is convertible, in whole or in
part, from time to time upon a date (the "Conversion Date") which
is the earlier to occur of (1) June 24, 1998, or (2) the date
that a Registration Statement with respect to the resale of the
Common Stock which may be acquired upon conversion of the
Preferred Stock is declared effective by the Securities and
Exchange Commission, subject to the restriction that the holders
of the Preferred Stock shall be entitled to convert up to 25% of
the aggregate Stated Value [e.g., ten ($10.00) dollars per share]
of the Preferred Stock on the Conversion Date, up to 50% of the
aggregate Stated Value of the Preferred Stock on the first month
anniversary of the Conversion Date, up to 75% of the aggregate
Stated Value of the Preferred Stock on the second month
anniversary of the Conversion Date, and the entire aggregate
Stated Value of the Preferred Stock on the third month
anniversary of the Conversion Date.
The outstanding Preferred Stock is subject to mandatory
redemption by the Company, at the aggregate Stated Value thereof
plus accrued and unpaid dividends, on March 11, 2003, or earlier
under certain circumstances. In addition, during the period from
March 11, 2001 through March 11, 2003, if any five- day average
of the closing bid price of the Common Stock is $3.00 or
greater, any outstanding shares of Preferred Stock shall be
subject to automatic conversion by the Company into shares of
Common Stock at $3.00 per share.
Item 7 - Financial Statements, Pro Forma Financial Statements and
Exhibits
(a) Financial Statements
None.
(b) Pro Forma Financial Statements
None.
(c) Exhibits
The following Exhibits are filed as part of this Form 8-
K:
3.1 Articles of Amendments dated June 5, 1998 to the Certificate of
Incorporation of the Registrant
10. - Convertible Preferred Stock Purchase Agreement,
1 - dated as of June 9, 1998, between KA Investments
LDC (the "Investor") and the Registrant.
10. - Registration Rights Agreement, dated as of June
2 - 9, 1998, between the Investor and the
Registrant.
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 hereto duly authorized.
THE NETWORK CONNECTION, INC.
(Registrant)
Dated: June 9, 1998 By:/S/ WILBUR L.
RINER
Wilbur L. Riner, Chairman
Exhibit 3.1
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
These Amended Articles of Incorporation are being executed as of
June 5, 1998, for the purpose of amending the Articles of
Incorporation of The Network Connection, Inc. (the "Company"),
pursuant to the Section 14-2-602 of the Georgia Business
Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the Corporation is The Network Connection,
Inc.
SECOND: That, pursuant to authority conferred upon the Board of
Directors by the Articles of Incorporation, said Board of
Directors, at a meeting of the Board of Directors, adopted a
resolution providing for the elimination of the existing Series A
Convertible Preferred Stock, $.01 par value (the "Preferred
Stock"), designation from Article V of the Articles of
Incorporation of the Company due to the fact that there are no
outstanding shares of Preferred Stock, due to the fact that all
previously outstanding shares of Preferred Stock have prior to
the date hereof been converted into shares of the Corporation's
Common Stock, $.001 par value (the "Common Stock").
The Amended Articles of Incorporation were approved by the Board
of Directors in the manner required by Section 14-2-602 of the
Georgia Business Corporation Code on June 5, 1998, and
shareholder approval was not required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned have hereunto signed their
names and affirm that the statements made herein are true under
the penalties of perjury as of this 5th day of June, 1998.
____________________________________
Wilbur L. Riner, Chairman
ATTEST:
____________________________
Barbara Riner, Assistant Secretary
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
These Amended Articles of Incorporation are being executed
as of June 5, 1998, for the purpose of amending the Articles of
Incorporation of The Network Connection, Inc. (the "Company"),
pursuant to the Section 14-2-602 of the Georgia Business
Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the Corporation is The Network
Connection, Inc.
SECOND: That, pursuant to authority conferred upon the
Board of Directors by the Articles of Incorporation, said Board
of Directors, at a meeting of the Board of Directors, adopted a
resolution providing for the creation of two hundred twenty
thousand (220,000) shares of 4% Series A Convertible Preferred
Stock, which resolution is as follows:
"RESOLVED: That, pursuant to Article V of the Articles of
Incorporation of the Company, there be and hereby is authorized
and created one series of Preferred Stock, hereby designated as
the 4% Series A Convertible Preferred Stock to consist of 220,000
shares with a par value of $.01 per share and a stated value of
$10.00 per share (the "Stated Value"), and that the designations,
preferences and relative, participating, optional or other
special rights of the 4% Series A Convertible Preferred Stock
(the "Series A Preferred Stock") and qualifications, limitations
or restrictions thereof, shall be as follows:
Section 1. Dividends.
The Company shall declare and pay to the holder of each
share of Series A Preferred Stock (the "Holder") dividends at the
rate per share (as a percentage of the Stated Value per share)
equal to 4% per annum at any time that the Company legally may
pay dividends in accordance with Georgia law. Such dividends
shall be cumulative commencing as of the Issue Date, shall be
paid prior to and in advance of payment of dividends on any other
capital stock of the Company ranking junior to the Series A
Preferred Stock, and shall be paid on a quarterly basis in
arrears, commencing June 30, 1998, but in no event later than the
earlier to occur of a Conversion Date (as defined in Section
6(a)(i)) for such shares of Series A Preferred Stock, or prior to
the payment of dividends on any other capital stock of the
Company ranking junior to the Series A Preferred Stock; provided,
however, that the first payment of dividends hereunder shall also
include any amounts due to the original Holder hereof on account
of accrued and unpaid interest due under certain Convertible
Debentures due March 11, 2003 which are being exchanged for the
Preferred Stock pursuant to the Purchase Agreement on the Issue
Date. Such dividends shall be paid in cash, in such coin or
currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts,
at the address of the Holder last appearing on the Company's
stock register; provided, that all overdue, accrued and unpaid
dividends and other amounts due hereunder shall bear interest at
the rate of 15% per annum (to accrue daily) from the date such
payment is due hereunder through and including the date of
payment; provided further, that dividends (but not interest on
overdue dividend payments) may, at the Company's option, be paid
in shares of Common Stock (as defined in Section 8) calculated
based upon the Conversion Price (as defined in Section 6) on the
date such dividends were due to be paid. Dividends shall be
calculated on the basis of a 360 day year and for the actual
number of days elapsed. All amounts due hereunder other than
such dividends shall be paid in cash. Notwithstanding anything
to the contrary contained herein, the Company may not issue
shares of Common Stock in payment of dividends if: (i) the
number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes, or held as treasury stock, is
insufficient to pay dividends hereunder in shares of Common
Stock; (ii) such shares are not either registered for resale
pursuant to an Underlying Securities Registration Statement (as
defined in Section 8 or freely transferable without volume
restrictions pursuant to Rule 144(k) 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 and in form and substance acceptable to
the Holder and the transfer agent for such shares; (iii) such
shares are not actively traded on the Nasdaq SmallCap Market (or
listed or quoted for trading on the OTC Bulletin Board, provided
that there are no fewer than four market makers actively trading
the shares of Common Stock), Nasdaq National Market, American
Stock Exchange, The New York Stock Exchange or any other exchange
on which the Common Stock is then listed for trading (each, a
"Subsequent Market"); (iv) the issuance of such shares would
result in the recipient thereof beneficially owning more than
4.999% of the issued and outstanding shares of Common Stock as
determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended; or (v) the Per Share Market
Value at such time is less than $3.00. The Common Stock shall
not be deemed to be "actively traded" on the Nasdaq SmallCap
Market under this Debenture if the Common Stock is delisted or
suspended from trading on such exchange, market or trading
facility, other than as a result of the suspension of trading in
securities on such market or exchange generally, or temporary
suspensions pending the release of material information, for more
than thirty (30) business days.
Each such dividend shall be paid to the holders of record of
shares of the Series A Preferred Stock as they appear on the
stock register of the Company on such record date.
So long as any Series A Preferred Stock remains outstanding,
without the vote in favor of the written consent of Holders of a
majority of the outstanding shares of Series A Preferred Stock,
neither the Company nor any subsidiary thereof shall (i) amend
its certificate of incorporation, by laws or other charter
documents so as to adversely affect any rights of the Holders,
(ii) redeem, purchase or otherwise acquire, or offer to redeem,
purchase or otherwise acquire, directly or indirectly, any shares
of Common Stock other than the Underlying Shares, or (iii) enter
into agreement with respect to any of the foregoing.
Notwithstanding anything herein to the contrary, in the event any
payments of dividends, in whatever form, or interest (in either
case payable under the terms of this Section 1) shall be subject
to withholding tax, the amount of such dividends and interest
shall be increased to the extent necessary to cause the Holder to
receive the full amount of dividends and interest on unpaid
dividends to which the Holder is entitled pursuant to this
Section 1, after giving effect to all such withholding taxes.
Section 2. Liquidation Rights.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company
("Liquidation"), the Holders shall be entitled to receive out of
the assets of the Company, whether such assets are capital or
surplus, prior and in preference to any distribution of any of
the assets or surplus funds of the Company to the holders of the
Common Stock or any other series of Preferred Stock or other
capital stock of the Company ranking junior to the Series A
Preferred Stock (collectively, the "Junior Securities") by reason
of their ownership thereof, an amount equal to (i) ten dollars
($10.00) per share, plus (ii) any and all accrued but unpaid
dividends, whether declared or not (and accrued and unpaid
interest on unpaid dividend payments) on each share of Series A
Preferred Stock declared or otherwise due and payable pursuant to
Section 1 hereof (the "Liquidation Amount"). If, upon any
liquidation, dissolution or winding up of the Company, the assets
of the Company available for distribution to the Holders shall be
insufficient to pay the Holders the full amounts to which they
respectively shall be entitled pursuant to this Section 2, the
Holders shall share ratably in any distribution of assets
according to the respective amounts that would be payable in
respect of the shares of Series A Preferred Stock held by them
upon such distribution if all amounts payable on or with respect
to said shares were paid in full. The Company shall mail a
written notice of such Liquidation not less than 45 days prior to
the payment date stated therein to each Holder.
All of the preferential amounts to be paid to the Holders of the
Series A Preferred Stock under this Section 2 shall be paid or
set apart for payment before the payment or setting apart for
payment of any amount for, or the distribution of any assets of
the Company to, the holders of Junior Securities in connection
with such Liquidation. After payment shall have been made to the
Holders of shares of the Series A Preferred Stock of the full
amounts to which they shall have been entitled pursuant to this
Section 2, the holders of Junior Securities shall be entitled to
share in all remaining assets of the Company available for
distribution to its shareholders, to the exclusion of the Holders
of shares of Series A Preferred Stock, shared according to their
respective rights and preferences.
Section 3. Voting.
The Holders of shares of Series A Preferred Stock shall not have
or enjoy any voting rights or power, except as otherwise required
by law or as specifically provided for in Section 1 hereof.
Section 4. Mandatory Redemption.
(a) The shares of Series A Preferred Stock outstanding on the
fifth anniversary of the Original Issue Date (the "Redemption
Date") shall be redeemed by the Company at a redemption price
equal to the Stated Value multiplied by such shares of Series A
Preferred Stock, plus accrued and unpaid dividends thereon (and
accrued and unpaid interest on unpaid dividend payments)
outstanding on such date (the "Redemption Price").
(b) If pursuant to Section 4(a) the Company shall redeem any
shares of Series A Preferred Stock, the Company shall give
written notice of such redemption to each holder of record of
shares of Series A Preferred Stock to be redeemed not less than
10 nor more than 30 days prior to the Redemption Date, by
certified mail enclosed in a postage paid envelope addressed to
such Holder at such Holder's address as the same shall appear on
the books of the Company. Such notice shall (i) state that the
Company is required to redeem the Series A Preferred Stock on the
Redemption Date, (ii) state the date fixed for redemption, (iii)
state the Redemption Price, (iv) state that the shares called for
redemption are convertible until the close of business on the
second day preceding the date fixed for redemption and (v) call
upon such Holder to surrender to the Company on or after said
date at its principal place of business designated in such
notice, a certificate or certificates representing the number of
shares of Series A Preferred Stock to be redeemed in accordance
with such notice. On the Redemption Date, each Holder of shares
of Series A Preferred Stock to be so redeemed shall present and
surrender the certificate or certificates for such shares to the
Company at the place designated in said notice and thereupon the
Redemption Price of such shares shall be paid to, or to the order
of, the person whose name appears on such certificate or
certificates as the owner thereof. From and after the Redemption
Date, unless default shall be made by the Company in providing
for the payment of the Redemption Price pursuant to such notice,
all rights of the holders of the Series A Preferred Stock so
redeemed, except the right to receive the Redemption Price, shall
cease and terminate.
Section 5. Events of Default.
(a) "Event of Default," wherever used herein, means any one 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 judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental
body):
(i) any default in a payment in relation to the Series A
Preferred Stock or of the Redemption Price on the Redemption
Date, dividends or interest on accrued and unpaid dividends, or
liquidated damages in respect of, the Series A Preferred Stock,
free of any claim of subordination, as and when the same shall
become due and payable (whether on the applicable quarterly
dividend payment date, the Conversion Date or the Redemption Date
or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit
any breach of, the terms of the Series A Preferred Stock and/or
Article V of the Articles of Incorporation of the Company, the
Purchase Agreement or the Registration Rights Agreement (as
defined in Section 8), and such failure or breach shall not have
been remedied within 10 days after the date on which notice of
such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence,
or there shall be commenced against the Company or any such
subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or
the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction whether now or hereafter in effect relating to
the Company or any subsidiary thereof, or there is commenced
against the Company or any subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary thereof
suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged
or unstayed for a period of 60 days; or the Company or any
subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary
thereof shall call a meeting of its creditors with a view to
arranging a composition or adjustment of its debts; or the
Company or any subsidiary thereof shall by any act or failure to
act indicate its consent to, approval of or acquiescence in any
of the foregoing; or any corporate or other action is taken by
the Company or any subsidiary thereof for the purpose of
effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture
agreement or other instrument under which there may be issued, or
by which there may be secured or evidenced any indebtedness of
the Company in an amount exceeding one hundred thousand dollars
($100,000), whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
(v) the Common Stock shall fail to be listed or quoted for
trading on the Nasdaq SmallCap Market or any Subsequent Market
for a period of thirty (30) calendar days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity
(or, if the Company is the surviving entity, the Company shall
issue or sell to another Person, or group thereof, in excess of
50% of the Common Stock) or shall dispose of all or substantially
all of its assets in one or more transactions, or shall redeem
more than a de minimis number of shares of Common Stock (other
than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall
not have been declared effective by the Securities and Exchange
Commission (the "Commission") on or prior to 180 days following
the Original Issue Date; or
(viii) an "Event" under Sections 6(c)(i)(d) and 6(c)(i)(e)
shall not have been cured to the satisfaction of the Holder prior
to the expiration of thirty (30) days from the Event Date (as
defined in Section 6(c)(i)) relating thereto.
(b) If any Event of Default occurs and is continuing, the Stated
Value multiplied by the number of outstanding shares of Series A
Preferred Stock, together with accrued and unpaid dividends
thereon, if any (and accrued and unpaid interest on unpaid
dividend payments) and other amounts owing in respect thereof, to
the date of the Event of Default, shall become immediately due
and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Series A Preferred Stock (the
"Default Redemption Amount") shall be equal to 120% (the
"Percentage") of the sum of the Stated Value multiplied by the
outstanding number of shares of Series A Preferred Stock,
together with accrued and unpaid dividends thereon, if any (and
accrued and unpaid interest on unpaid dividend payments);
provided, however, that for purposes of Section 5(a)(vii) above,
the Percentage shall be 110%. The Holder need not provide and the
Company hereby waives any demand or other notice of any kind, and
the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by the Holder at any
time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right
consequent thereon.
Section 6. Conversion.
(a) (i) Each share of Series A Preferred Stock shall be
convertible into shares of Common Stock at the option of the
Holder, in whole or in part at any time and from time to time,
upon the earlier to occur of (1) the date an Underlying
Securities Registration Statement is declared effective by the
Commission, or (2) the 105th day after the Original Issue Date,
and prior to the close of business on the Redemption Date;
provided, however, that, (w) on the Conversion Date (as defined
below), the Holder shall be entitled to convert up to 25% of the
aggregate number of shares of Series A Preferred Stock originally
issued under the terms of the Purchase Agreement, (x) on the
first month anniversary of the Conversion Date, the Holder shall
be entitled to convert up to 50% of the aggregate number of
shares of Series A Preferred Stock originally issued under the
terms of the Purchase Agreement, (y) on the second month
anniversary of the Conversion Date, the Holder shall be entitled
to convert up to 75% of the aggregate number of shares of Series
A Preferred Stock originally issued under the terms of the
Purchase Agreement, and (z) on the third month anniversary of the
Conversion Date, the Holder shall be entitled to convert up to
100% of the aggregate number of shares of Series A Preferred
Stock originally issued under the terms of the Purchase
Agreement. The number of shares of Common Stock as shall be
issuable upon a conversion hereunder shall be determined by
dividing (x) the product of (i) the Stated Value and (ii) the
number of shares of Series A Preferred Stock which are to be
converted, plus all accrued but unpaid dividends (and accrued and
unpaid interest on unpaid dividend payments) thereon, by (y) the
Conversion Price (as defined below), each as subject to
adjustment as provided hereunder. The Holder shall effect
conversions by surrendering certificates evidencing shares of
Series A Preferred Stock to be converted, together with the form
of conversion notice attached hereto as Exhibit A (a "Conversion
Notice") to the Company. Each Conversion Notice shall specify
the number of shares of Series A Preferred Stock to be converted
and the date on which such conversion is to be effected, which
date shall be the date such Conversion Notice is deemed to have
been delivered hereunder (a "Conversion Date"). Subject to
Section 6(b) hereof and Section 3.8 of the Purchase Agreement,
each Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the shares of Series A
Preferred Stock purchased under the Purchase Agreement, or if a
conversion hereunder cannot be effected in full for any reason,
the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section 6(b)) a new
certificate for such shares of Series A Preferred Stock as have
not been converted.
(ii) During the period from the third anniversary of the Original
Issue Date to the Redemption Date, if the Per Share Market Value
for any consecutive five (5) Trading Days (the "Measuring
Period") is equal to or greater than $3.00, any shares of Series
A Preferred Stock outstanding on the Trading Day immediately
following the Measuring Period (the "Automatic Conversion Date")
shall automatically be converted into shares of Common Stock at a
conversion price of $3.00; provided (i) the Company provides the
Holder thereof with notice of automatic conversion within two
Trading Days following the Automatic Conversion Date, and (ii)
there is, on the Automatic Conversion Date, sufficient authorized
and reserved shares to deliver shares upon such conversion and an
effective Underlying Securities Registration Statement, or such
shares of Common Stock as would then be issuable in respect
thereof would be freely tradeable without volume restrictions
under Rule 144 promulgated under the Securities Act.
Notwithstanding the foregoing, the Company shall honor
conversions tendered on any Conversion Date prior to the later to
occur of (i) the Automatic Conversion Date and (ii) the date that
the Holder receives the notice described in clause (ii) of this
subsection.
(b) Not later than three Trading Days after the 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
the Common Stock being acquired upon the conversion of Series A
Preferred Stock (subject to reduction pursuant to Section 3.8 of
the Purchase Agreement), (ii) certificates evidencing the shares
of Series A Preferred Stock not converted; (iii) a bank check in
the amount of all accrued and unpaid dividends (if the Company
has elected and is permitted hereunder to pay accrued dividends
in cash), together with all other amounts then due and payable in
accordance with the terms hereof, in respect of shares of Series
A Preferred Stock tendered for conversion and (iv) if the Company
has elected to pay accrued dividends in shares of the Common
Stock, 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 such number of
shares of the Common Stock as equals such dividends divided by
the Conversion Price calculated on the Conversion Date; provided,
however, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable
upon conversion of the shares of Series A Preferred Stock until
certificates evidencing the shares of Series A Preferred Stock
are delivered for conversion to the Company or the Holder
notifies the Company that such certificates evidencing the shares
of Series A Preferred Stock have been mutilated, lost, stolen or
destroyed and complies with Section 11 hereof. If in the case of
any Conversion Notice such certificate or certificates, including
for purposes hereof, any shares of the 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 Holder by
the third Trading Day after a 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 (whether subject to a
Holder or a Company Conversion Notice), in which event the
Company shall immediately return the shares of Series A Preferred
Stock tendered for conversion. If the Company fails to deliver
to the Holder such certificate or certificates pursuant to this
Section, including for purposes hereof, any shares of the Common
Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, prior to the fourth Trading Day
after the Conversion Date, the Company shall pay to such Holder,
in cash, as liquidated damages and not as a penalty, $1,500 for
each day thereafter until the earlier of (i) the 20th day
following the Conversion Date or (ii) until such time as the
Company delivers such certificates (such amount shall also be due
for each Trading Day after the date that the Holder may rescind
such conversion until such date as the Holder shall have received
the return of the shares of Series A Preferred Stock relating to
such rescission). If the Company fails to deliver to the Holder
such certificate or certificates pursuant to this Section on the
21st day following the Conversion Date, the Company shall, pay to
such Holder, in cash, as liquidated damages and not as a penalty,
$2,500 for each day thereafter until the Company delivers such
certificates (such amount shall also be due for each Trading Day
after the date that the Holder may rescind such conversion until
such date as the Holder shall have received the return of the
shares of Series A Preferred Stock relating to such rescission).
In addition, if the Company shall not have delivered to the
Holder such certificates by the 20th Trading Day after the
Conversion Date, an Event of Default shall be deemed to have
occurred under Section 5(a)(ii).
(c) (i) The conversion price (the "Conversion Price") in effect
on any Conversion Date shall be the lesser of (A) $8.02 (the
"Initial Conversion Price") or (B) 80% of the Average Price
calculated on the Conversion Date; provided, that, except as
otherwise specifically set forth herein, the Conversion Price
shall not be less than $3.00, as adjusted for stock splits (the
"Floor"). Notwithstanding the foregoing, the Floor shall not
apply to any conversions pursuant to adjustments to the Initial
Conversion Price as a result of the provisions of Section
6(c)(ii)-(v). If (a) an Underlying Securities Registration
Statement is not filed on or prior to the Filing Date (as defined
in the Registration Rights Agreement) (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 ten (10) Business 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 is not subject to further
review or comment by the Commission, or (c) the Underlying
Securities Registration Statement is not declared effective by
the Commission on or prior to the Effectiveness Date, 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 such term is
defined in the Registration Rights Agreement) at any time prior
to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being
succeeded by a subsequent Underlying Securities Registration
Statement filed with and declared effective by the Commission
within twenty one (21) days, or (e) the conversion rights of the
Holder are suspended for any reason or if the Holder is not
permitted to resell Registrable Securities under the Underlying
Securities Registration Statement, or (f) an amendment to the
Underlying Securities Registration Statement is not filed by the
Company with the Commission within twenty one (21) 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 being
referred to as an "Event", and for purposes of clauses (a), (c)
and (e) 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 (f) the date which
such ten (10) day period is exceeded, being referred to as "Event
Date"), the Company shall pay, in cash, as liquidated damages and
not as a penalty, (x) on the Event Date, 1.0% of the product of
the Stated Value and the number of shares of Series A Preferred
Stock then outstanding, allocated pro rata to Holders of the
Series A Preferred Stock, and (y) on the first day of each month
following the Event Date, until the triggering Event is cured,
the Company shall pay, in cash, as liquidated damages and not as
a penalty, 3.0% of the product of the Stated Value and the number
of shares of Series A Preferred Stock then outstanding, allocated
pro rata to Holders of the Series A Preferred Stock.
(ii) If the Company, at any time while any shares of the Series A
Preferred Stock are outstanding, (a) shall pay a stock dividend
or otherwise make a distribution or distributions on shares of
its Common Stock or any other equity or equity equivalent
securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of
shares, (c) combine outstanding shares of the Common Stock into a
smaller number of shares, or (d) issue by reclassification of
shares of the 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
the Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the
number of shares of the Common Stock 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, combination or reclassification.
(iii) If the Company, at any time while any shares of the
Series A Preferred Stock are outstanding, shall issue rights or
warrants to all holders of the Common Stock (and not to the
Holder) entitling them to subscribe for or purchase shares of the
Common Stock at a price per share less than the Per Share Market
Value of the Common Stock at the record date mentioned below, the
Initial Conversion Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date
of issuance of such rights or warrants plus the number of
additional shares of the Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of
the total number of shares so offered would purchase at such Per
Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase
shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this
Section, if any such right or warrant shall expire and shall not
have been exercised, the Initial Conversion Price shall
immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the
Initial Conversion Price made pursuant to the provisions of this
Section 6 after the issuance of such rights or warrants) had the
adjustment of the Initial Conversion Price made upon the issuance
of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common
Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) If the Company, at any time while shares of Series A
Preferred Stock are outstanding, shall distribute to all holders
of the Common Stock (and not to the Holder) evidences of its
indebtedness or assets or rights or warrants to subscribe for or
purchase any security, then in each such case the Initial
Conversion Price at which Series A 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 the 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 the 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, 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 holders of a majority in interest of the shares
of Series A 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 Series A Preferred Stock of
the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after
the record date mentioned above.
(v) 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, the Holders of
Series A Preferred Stock shall have the right thereafter to, at
their option, (A) convert the then outstanding Series A Preferred
Stock, together with all accrued but unpaid dividends and any
other amounts then owing hereunder in respect of the Series A
Preferred Stock only into the shares of stock and other
securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such
reclassification or share exchange, and the Holder shall be
entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the Company
into which the then outstanding Series A Preferred Stock,
together with all accrued but unpaid dividends and any other
amounts then owing hereunder in respect of the Series A Preferred
Stock, which could have been converted immediately prior to such
reclassification or share exchange into shares of Common Stock,
would have been entitled, or (B) require the Company to redeem
from funds legally available therefor at the time of such
redemption, the number of shares of Series A Preferred Stock then
outstanding, plus all accrued and unpaid dividends (and accrued
and unpaid interest on unpaid dividend payments) and other
amounts due and payable thereon at a price determined in
accordance with Section 5(b) (the "Reclassification Price"). The
entire Reclassification Price shall be paid in cash. This
provision shall similarly apply to successive reclassifications
or share exchanges.
(vi) All calculations under this Section 6 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may
be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 6(c)(ii) - (v), the Company shall
promptly mail to each Holder of Series A Preferred Stock a notice
setting forth the Initial Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
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; or
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 shares of Series A
Preferred Stock, and shall cause to be mailed to the Holder at
its last address as it shall appear upon the stock books of the
Company, 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
the 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 the Common Stock of record shall
be entitled to exchange their shares of the 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. The Holder is entitled to convert the Series A
Preferred Stock during the 30-day period commencing on the date
of such notice and terminating on the effective date of the event
triggering such notice.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of the
Common Stock solely for the purpose of issuance upon conversion
of the shares of Series A Preferred Stock free from preemptive
rights and payment of dividends on the Series A Preferred Stock,
each as herein specified or any other actual contingent purchase
rights of persons other than the Holder, not less than such
number of shares of the 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 6(c))
upon the conversion of all outstanding shares of Series A
Preferred Stock and payment of dividends hereunder. The Company
covenants that all shares of the Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, if the Underlying
Securities Registration Statement has been declared effective
under the Securities Act, freely tradable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of
shares of the 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 shall
be entitled to receive, in lieu of the final fraction of a share,
one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock
on conversion of the Series A Preferred Stock shall be made
without charge to the Holder 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 Series A 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) Any and all notices or other communications or deliveries to
be provided by the Holder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to the Company, at 1324 Union Hill Road, Alpharetta,
Georgia 30201 (facsimile number 770-751-0858), attention Chief
Financial Officer, or such other address or facsimile number as
the Company may specify for such purposes by notice to the Holder
delivered in accordance with this Section. 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, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid,
addressed to each Holder of the Series A Preferred Stock at the
facsimile telephone number or address of such Holder appearing on
the stock transfer records 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
5:00 p.m. (New York City 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 5:00 p.m. (New York City time) on any date and
earlier than 11:59 p.m. (New York City time) on such date, (iii)
four days after deposit in the United States mail, (iv) the
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (v) upon actual receipt
by the party to whom such notice is required to be given.
Section 7. Optional Redemption.
(a) The Company shall have the right, exercisable at any time
upon twenty (20) Trading Days prior written notice to the Holder
(the "Optional Redemption Notice"), to redeem shares of Series A
Preferred Stock from funds legally available therefor at the time
of such redemption, all or any portion of the outstanding shares
of Series A Preferred Stock for which Conversion Notices have not
previously been delivered hereunder, at a price equal to the
Optional Redemption Price (as defined below). Any such
redemption by the Company shall be in cash and shall be free of
any claim of subordination. The Holder shall have the right to
tender, and the Company shall honor, Conversion Notices delivered
prior to the expiration of the twentieth (20th) Trading Day after
receipt by the Holder of an Optional Redemption Notice for such
shares of Series A Preferred Stock (such date, the "Optional
Redemption Date").
(b) If any portion of the Optional Redemption Price shall not be
paid by the Company by the Optional Redemption Date, the Optional
Redemption Price shall be increased by 15% per annum (to accrue
daily) until paid (which amount shall be paid as liquidated
damages and not as a penalty). In addition, if any portion of the
Optional Redemption Price remains unpaid at 5:00 p.m., New York
time, on the Optional Redemption Date, the Holder subject to such
redemption may elect by written notice to the Company to either
(i) demand conversion in accordance with the formula and the time
period therefor set forth in Section 6 of any shares of Series A
Preferred Stock for which the Optional Redemption Price
(including accrued and unpaid dividends thereon), plus accrued
liquidated damages thereof, has not been paid in full (the
"Unpaid Redemption Shares Amount"), in which event the applicable
Per Share Market Value shall be the lower of the Per Share Market
Value calculated on the Optional Redemption Date and the Per
Share Market Value as of the Holder's written demand for
conversion, or (ii) invalidate ab initio such optional
redemption, notwithstanding anything herein contained to the
contrary. If the Holder elects option (i) above, the Company
shall, within three (3) Trading Days of the date such election is
deemed delivered hereunder, deliver to the Holder the shares of
Common Stock issuable upon conversion of the Unpaid Redemption
Shares Amount subject to such 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 notice of such election, return to the Holder new
shares of Series A Preferred Stock for the full Unpaid Redemption
Shares Amount, in such number of shares of Series A Preferred
Stock as shall equal the quotient found by dividing (x) the
Unpaid Redemption Shares Amount by (y) the Stated Value, with any
final fraction of a share to equal one whole share. If, upon an
election under option (i) above, the Company fails to deliver the
shares of Common Stock issuable upon conversion of the Unpaid
Redemption Shares Amount within four (4) Trading Days of the date
that such election is deemed delivered hereunder, the Company
shall pay to the Holder in cash, as liquidated damages and not as
a penalty, $1,500 per day until the Company delivers such Common
Stock to the Holder.
(c) The "Optional Redemption Price" for any Series A Preferred
Stock shall equal the greater of (1) the Default Redemption
Amount and (2) the sum of (i) the product of the Stated Value and
the number of shares of Series A Preferred Stock subject to the
applicable Optional Redemption Notice, plus all accrued and
unpaid dividends thereon, divided by the Conversion Price on (w)
the Optional Redemption Date or (x) the date the Optional
Redemption Price is paid in full, whichever is less, multiplied
by the Average Price on (y) the Optional Redemption Date or (z)
the date the Optional Redemption Price is paid in full, whichever
is greater, and (ii) all other amounts, expenses, costs and
liquidated damages due in respect of such shares of Series A
Preferred Stock.
Section 8. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Average Price" on any date means the average Per Share Market
Value for the twenty-one (21) Trading Days immediately preceding
such date.
"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 are authorized or required
by law or other government action to close.
"Common Stock" means the common stock, $.001 par value per share,
of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Issue Date" shall mean June 9, 1998.
"Original Issue Date" shall mean March 11, 1998.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date on
the Nasdaq SmallCap Market or other stock exchange or quotation
system on which the Common Stock is listed for trading, or (b) if
the Common Stock is not listed on the Nasdaq SmallCap Market or
any other stock exchange or market, the closing bid price per
share of the Common Stock on such date on 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, the closing
bid price per share of Common Stock on such date on 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), or (d) if the
Common Stock is no longer traded on the over-the-counter market
and reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding its functions of
reporting prices), such closing bid price shall be determined by
reference to "Pink Sheet" quotes for the relevant conversion
period as determined in good faith by the Holder, or (e) 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 in interest of the
outstanding shares of Series A Preferred Stock (the Company,
after receipt of the determination by such appraiser, shall have
the right to select an additional appraiser, in which case, the
fair market value shall be equal to the average of the
determinations by each such appraiser).
"Person" means a company, 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 5, 1998, between the Company
and KA Investments LDC, as amended, modified or supplemented from
time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of June 5, 1998, between the Company and KA
Investments LDC, as amended, modified or supplemented from time
to time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded
on the Nasdaq SmallCap Market or other stock exchange or market
on which the Common Stock is listed for trading, or (b) if the
Common Stock is not listed on the Nasdaq SmallCap Market or any
stock exchange or 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 or on the pink sheets as reported by
the National Quotation Bureau Incorporated or Bloomberg
Information Services, Inc., as the case may be (or any similar
organization or agency succeeding their respective functions of
reporting prices).
"Underlying Shares" means the shares of Common Stock into which
the Series A Preferred Stock is convertible in accordance with
the terms hereof and the Purchase Agreement.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement, covering, among other things, the
resale of the Underlying Shares and naming the Holder as a
"selling stockholder" thereunder.
Section 9. Additional Agreements. Except as expressly
provided herein, no provision of the Series A Preferred Stock
shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay any Redemption Price, the
Liquidation Amount, the Default Redemption Amount, the Optional
Redemption Price, any dividends or interest and liquidated
damages (if any) on, the Series A Preferred Stock at the time,
place, and rate, and in the coin or currency, herein prescribed.
The Company may only voluntarily redeem the shares of Series A
Preferred Stock in accordance with Section 7 hereof.
Section 10. No Rights as Holder of Common Stock. Ownership of
shares of Series A Preferred Stock shall not entitle the Holder
to any of the rights of a Holder of Common Stock, including
without limitation, the right to vote, to receive dividends
(other than as stated herein) and other distributions on Common
Stock, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and
to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 11. Lost, Mutilated or Stolen Certificates. If
certificates evidencing shares of Series A Preferred Stock shall
be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon
cancellation of mutilated certificates evidencing shares of
Series A Preferred Stock, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate
evidencing the number of shares of Series A Preferred Stock the
certificate for which was so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft
or destruction of such certificate, and of the ownership thereof,
and indemnity, if requested, all reasonably satisfactory to the
Company.
Section 12. Waiver. Any waiver by the Company or the Holder
of a breach of any provision of the terms of the Series A
Preferred Stock shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of
any other provision of the terms of the Series A Preferred Stock.
The failure of the Company or the Holder to insist upon strict
adherence to any term of the Series A Preferred Stock on one or
more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to
that term or any other term of the Series A Preferred Stock. Any
waiver must be in writing.
Section 13. Severability. If any provision of the terms of
the Series A Preferred Stock is invalid, illegal or
unenforceable, the balance of the terms of the Series A Preferred
Stock shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 14. Calculation of Days. Whenever any payment or other
obligation hereunder shall be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business
Day (or, if such next succeeding Business Day falls in the next
calendar month, the preceding Business Day in the appropriate
calendar month).
Section 15. Restriction on Additional Issuances. Except as
set forth in Section 3.15 of the Purchase Agreement, the Company
shall not, without the prior written consent of the Holders of at
least a majority of the then outstanding shares of Series A
Preferred Stock, create or issue any additional Series A
Preferred Stock (other than the 220,000 shares of Series A
Preferred Stock authorized hereby) or securities of the Company
which rank senior to the Series A Preferred Stock upon payment of
dividends or upon liquidation or other distribution of assets,
other than debt securities issued in connection with borrowings,
direct or indirect, from financial institutions or other persons
by the Company (provided that such debt securities issued in
connection with borrowings do not have any equity features,
including issuance along with warrants, options or other rights
to purchase capital stock, and are not convertible into capital
stock of the Company). The Company may create other series of
Preferred Stock on a basis which is on a parity with the Series A
Preferred Stock.
The Amended Articles of Incorporation were approved by the Board
of Directors in the manner required by Section 14-2-602 of the
Georgia Business Corporation Code on June 5, 1998.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned have hereunto signed their
names and affirm that the statements made herein are true under
the penalties of perjury as of this 5th day of June, 1998.
____________________________________
Wilbur L. Riner, Chairman
ATTEST:
____________________________
Barbara Riner, Assistant Secretary
EXHIBIT A
THE NETWORK CONNECTION, INC.
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
shares of the Series A Preferred Stock)
The undersigned hereby elects to convert Certificate No. ________
for ____________ shares of THE NETWORK CONNECTION, INC. Series A
Preferred Stock into shares of Common Stock, $.001 par value per
share (the "Common Stock"), of THE NETWORK CONNECTION, INC. (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 of Conversion Notice
_____________________________________________
Number of Shares of Series A Preferred Stock to be Converted
_____________________
Number of shares of Common Stock to be Issued
_____________________
Applicable Conversion Price
_____________________
Signature ______________________________________
Name ______________________________________
Address ______________________________________
______________________________________
Exhibit 10.1
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
June 9, 1998 (this "Agreement"), between The Network Connection,
Inc., a corporation organized under the laws of the State of
Georgia (the "Company"), and KA Investments LDC, a corporation
organized under the laws of the Cayman Islands (the "Purchaser").
WHEREAS, pursuant to the terms of that certain Convertible
Debenture Purchase Agreement, dated as of March 11, 1998 between
the Company and the Purchaser (the "Debenture Agreement"), the
Purchaser purchased from the Company $2,200,000 aggregate
principal amount of the Company's 4% Convertible Debentures, due
March 11, 2003 (the "Debentures"), which are convertible into
shares of the Company's common stock, $.001 par value (the
"Common Stock");
WHEREAS, the Company and the Purchaser, after a series of
discussions, have determined that it would be in the best
interests of the Company and the Purchaser were the Purchaser to
convert its Debentures issued in accordance with the terms of the
Debenture Agreement into shares of Preferred Stock (as defined
below) to be issued by the Company pursuant to this Agreement;
and
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 an aggregate of
220,000 shares (the "Shares") of the Company's 4% Series A
Convertible Preferred Stock (the "Preferred Stock"), which Shares
are convertible into shares of Common Stock.
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 Purchase and Sale. Subject to the terms and conditions
set forth herein, the Company shall issue and sell to the
Purchaser and the Purchaser shall purchase the Shares, in a
single certificate evidencing 220,000 shares of the Preferred
Stock. The terms of the Preferred Stock shall be in accordance
with the terms and conditions set forth in the Certificate of
Amendment to the Certificate of Incorporation of the Company (the
"Amendment"), which Amendment shall be in the form of Exhibit A
attached hereto.
1.2 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 the Shares by
surrendering the Debentures to the Company for cancellation by
the Company, for a purchase price equivalent to $2,200,000. 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 ("Robinson Silverman"), 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) At the Closing, (a) the Company shall deliver
to the Purchaser (1) a stock certificate
evidencing the Shares registered in the name
of the Purchaser, (2) the legal opinion of
Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, substantially in the form attached
hereto as Exhibit C, (3) evidence of the
filing with and acceptance by the Secretary
of State of the State of Georgia of the
Amendment, and (4) all other documents,
instruments and writings required to have
been delivered at or prior to the Closing by
the Company pursuant to this Agreement, and
(b) the Purchaser shall deliver to the
Company (1) the Debentures and (2) all
documents, instruments and writings required
to have been delivered at or prior to the
Closing by the Purchaser pursuant to this
Agreement. It is agreed that as of the date
of this Agreement, the dollar amount of all
interest that has accrued and remains unpaid
under the terms of the Debentures shall be
added to the dollar amount of dividends
payable to the holders of Preferred Stock
under the terms of this Agreement and the
Amendment, to be payable to the holders of
the Preferred Stock under the terms hereof
and thereof to the same extent and under the
same terms as if such amount of dividends had
accrued and were payable by the Company as
part of the first payment of dividends on the
Preferred Stock.
For purposes of this Agreement, "Average Price," "Conversion
Price," "Original Issue Date," "Conversion Date," "Trading Day"
and "Per Share Market Value" shall have the meanings set forth in
the Amendment.
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 Georgia, 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. The Company 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 this Agreement, the
Amendment, or the Registration Rights Agreement, dated the date
hereof, between the Company and the Purchaser, attached hereto as
Exhibit B (the "Registration Rights Agreement" and, together with
this Agreement and the Amendment, the "Transaction Documents"),
(y) have a material adverse effect on the results of operations,
assets, prospects, or financial condition of the Company, taken
as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any
Transaction Document (any of the foregoing, a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has 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 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. Each of the Transaction
Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof shall constitute
the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company is not
in violation of any of the provisions of its respective
certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The 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 under the terms of this Agreement, 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 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
(as defined below) 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.
Except as specified in Schedule 6(b) to the Registration Rights
Agreement, there are no agreements or arrangements under which
the Company is obligated to register the sale of any of their
securities under the Securities Act of 1933, as amended (the
"Securities Act"). 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. The Shares are duly authorized,
and, when issued in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusals of any kind
(collectively, "Liens"). The Company has and at all times while
the Shares are outstanding will maintain an adequate reserve of
duly authorized shares of Common Stock to enable it to perform
its conversion and other obligations under this Agreement and the
Amendment with respect to the Shares and in no circumstances
shall such reserved and available shares of Common Stock be less
than the sum of (i) the number of shares of Common Stock as would
be issuable upon conversion in full of the Shares, assuming such
conversion were effected at a conversion price of $3.00, and (ii)
the number of shares of Common Stock as are issuable as payment
of dividends on the Shares, provided, however, that the Company
shall not be required to maintain a reserve in excess of 20% of
the number of shares of the Common Stock outstanding on the
Original Issue Date (the "Issuable Maximum"). The shares of
Common Stock issuable upon conversion of the Shares and as
payment of dividends in respect thereof are sometimes referred to
herein as the "Underlying Shares," and the Shares and Underlying
Shares are, collectively, the "Securities." When issued in
accordance with the terms of the Amendment, the Underlying Shares
will be 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 consents referred to in Section 2.l(f), conflict
with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument
(evidencing a Company debt or otherwise) to which the Company is
a party or by which any property or asset of the Company 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, do
not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), the Company is not required to obtain any
consent, waiver, authorization or order of, or make any filing or
registration with, any court or other Federal, state, local or
other governmental authority or national securities exchange or
market on which the Common Stock may be listed 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 Amendment with the secretary of state of the State of
Georgia, (ii) the filing of a pre-effective amendment to the
Registration Statement (File No. 333-51629) on Form S-3
promulgated under the Securities Act with the Securities and
Exchange Commission (the "Commission") covering the resale by the
Purchaser of the Underlying Shares pursuant to the Registration
Rights Agreement (the "Underlying Securities Registration
Statement"), (iii) the application or the listing of the
Underlying Shares on any national securities exchange or market
on which the Common Stock is then listed, and (iv) in all other
cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing,
could not have or result in, individually or in the aggregate, a
Material Adverse Effect (together with the consents, waivers,
authorizations, orders, notices and filings referred to in
Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined), there is no
action, suit, notice of violation, proceeding or investigation
pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of its 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. The Company is not (i) 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), nor has the Company 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) in violation of any
order of any court, arbitrator or governmental body, or (iii) 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, individually or in the aggregate, a Material
Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchaser set forth herein,
the offer, issuance and sale of the Securities to the Purchaser
as contemplated hereby are exempt from the registration
requirements of the Securities Act. Neither the Company nor any
Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the
Securities to the registration requirements of the Securities
Act.
(j) SEC Documents. Except as set forth in Schedule 2.1(j),
since May 11, 1995, 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 (such reports, the "SEC Documents"
and, together with the Schedules to this Agreement and other
documents and information furnished by or on behalf of the
Company at any time prior to the Closing, including, the Risk
Factors annexed hereto as Exhibit E, 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. 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. Such
financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the
financial position of the Company 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
year-end audit adjustments. Since the date of the financial
statements included in the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1998, (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, and (c) the Company has not altered its method of
accounting or the identity of its auditors. The Schedules to this
Agreement furnished by or on behalf of the Company 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.
(k) Seniority. No class of equity securities of the Company is
senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise.
(l) Investment Company. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(m) Certain Fees. No fees or commissions will be payable by the
Company to any broker, financial advisor, finder, investment
banker, or bank with respect to the transactions contemplated
hereby. The Purchaser shall have no obligation with respect to
any claims made by or on behalf of any Persons for fees of a type
contemplated in this Section that may be due in connection with
the transactions contemplated hereby. The Company shall indemnify
and hold harmless the Purchaser, its respective employees,
officers, directors, agents, and partners, and its respective
Affiliates (as such term is defined under Rule 405 promulgated
under the Securities Act), from and against all claims, losses,
damages, costs (including the costs of preparation and attorneys'
fees) and expenses suffered in respect of any such claimed or
existing fees.
(n) Solicitation Materials. The Company has not (i) distributed
any offering materials in connection with the offering and sale
of the Securities other than the Disclosure Materials and any
amendments and supplements thereto or (ii) solicited any offer to
buy or sell the Securities by means of any form of general
solicitation or advertising.
(o) Exclusivity. The Company shall not issue and sell shares of
the Preferred Stock to any Person other than the Purchaser.
(p) Listing and Maintenance Requirements Compliance. The
Company has not in the two years preceding the date hereof
received written notice from any stock exchange, market or
trading facility on which the Common Stock is or has been listed
or quoted to the effect that the Company is not in compliance
with the listing, maintenance or other requirements of such
exchange, market, trading or quotation facility. The Company has
no reason to believe that it does not now or will not in the
future meet any such requirements.
(q) 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 which are necessary for use in connection with its
business and which the failure to so have would have a Material
Adverse Effect (collectively, the "Intellectual Property
Rights"). To the best knowledge of the Company, there is no
existing infringement of any of the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the
Purchaser or its respective representatives and counsel in
connection with the transactions contemplated hereby is true and
correct in all material respects and does not fail to state any
material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were
made, not misleading. The Company confirms that it has not
provided to the Purchaser or any of its representatives, agents
or counsel any information that constitutes or might constitute
material nonpublic information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing
representation in effecting transactions in securities of the
Company.
2.2 Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and
warranties to the Company.
(a) Organization; Authority. The Purchaser is a corporation
duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its organization with the
requisite power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and to
carry out its obligations thereunder. The acquisition of the
Securities by the Purchaser has been duly authorized by all
necessary action on the part of the Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly
executed and delivered by the Purchaser and constitutes the valid
and legally binding obligation of the Purchaser, enforceable
against the Purchaser, in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general
principles of equity.
(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, it was, and at the date hereof, it is, and at the Closing
Date, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) Experience of 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 Purchaser to Bear Risk of Investment. Purchaser
acknowledges that the Securities are speculative investments and
involve a high degree of risk and 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
been afforded (1) 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 Shares, and the merits and risks of investing in
the Shares; (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 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.
(g) Reliance. The Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to the Purchaser
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 thereof. In connection with any
transfer of any Securities other than pursuant to an effective
registration statement or to the Company, 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 under
the Securities Act. Notwithstanding the foregoing, the Company
hereby consents to and agrees to register any transfer by the
Purchaser to an Affiliate of the Purchaser, or any transfers
among any such Affiliates provided in such case the 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 any such Securities in accordance with the
representation provided by the original Purchaser in Section
2.2(b). Each such transferee shall have the rights of the
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 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.
[FOR PREFERRED STOCK ONLY] THE SHARES EVIDENCED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
CONVERSION SET FORTH IN SECTION 3.8 OF A CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY 20,
1998, BETWEEN THE NETWORK CONNECTION, INC. (THE "COMPANY")
AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain any legend if conversion
of Shares or other issuances of Underlying Shares as contemplated
hereby, as the case may be, 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 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 3.1(b).
3.2 Acknowledgement of Dilution. The Company acknowledges
that the issuance of Underlying Shares upon conversion of the
Shares and as payment of dividends thereon 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 in
accordance with the terms of the Amendment is unconditional and
absolute 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. If at any time prior to the date on which the
Purchaser may resell all of its Underlying Shares without volume
restrictions pursuant to Rule 144(k) promulgated under the
Securities Act (as determined by counsel to the Company pursuant
to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the benefit of and
enforceable by the Purchaser) the Company is not required to file
reports pursuant to Section 13(a) or 15(d) of the Exchange Act,
it will prepare and furnish to the 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 in the
time period that such filings would have been required to have
been made under the Exchange Act. The Company further covenants
that it will take such further action as any holder of Securities
may reasonably request, all to the extent required from time to
time to enable such Person to sell Securities 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. In connection with any future access or diligence
of the Company by the Purchaser, the Company agrees that it will
not furnish to the Purchaser any material non-public information
unless it first discloses in writing that such information is of
such character and the Purchaser thereafter agrees to receive
such information and to meet such conditions as are deemed
reasonably necessary by counsel to the Company to avoid
violations of the Securities Act.
3.4 Use of Disclosure Materials. The Company consents to
the use of the Disclosure Materials (which for purposes of the
non-SEC Document Disclosure Materials shall take into account any
amendments and supplements thereto) and any information provided
by or on behalf of the Company pursuant to Section 3.3 by the
Purchaser in connection with resales of the Securities other than
pursuant to an effective registration statement.
3.5 Blue Sky Laws. In accordance with and subject to the
limitations set forth in the Registration Rights Agreement, the
Company shall qualify and obtain exemptions for the Underlying
Shares under the securities or Blue Sky laws of such
jurisdictions as the Purchaser may 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 the Company shall not be
required in connection therewith to qualify as a foreign
corporation where it is 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 so subject.
3.6 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 issue or sale of the Securities to the
Purchaser.
3.7 Increase in Authorized Shares. At such time as the
Company would be, if a notice of conversion were to be delivered
on such date, precluded from converting the full outstanding
number of the Shares (and paying any accrued but unpaid dividends
in respect thereof in shares of Common Stock) that remain
unconverted at such date due to the unavailability of a
sufficient number of shares of authorized but unissued or re-
acquired Common Stock, the Board of Directors of the Company
shall promptly and in good faith (and in any case within 30
business days from such date) prepare and mail to the
shareholders 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 and reservation
of shares obligations as set forth in this Agreement and the
Amendment. 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 shareholders no later than the
60th day after delivery of the proxy materials relating to such
meeting) and (c) within 5 business days of obtaining such
shareholder authorization, file an appropriate amendment to the
Company's certificate of incorporation to evidence such increase.
3.8 Purchaser Ownership of Common Stock. The Purchaser
agrees not to convert Shares to the extent such conversion would
result in the Purchaser 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 of Common
Stock issuable upon conversion of the Shares held by the
Purchaser after application of this Section. To the extent that
the limitation contained in this Section applies, the
determination of whether Shares are convertible (in relation to
other securities owned by the Purchaser) and of which number of
the Shares are convertible shall be in the sole discretion of the
Purchaser, and the submission of certificates evidencing Shares
for conversion shall be deemed to be the Purchaser's
determination of whether such Shares are convertible (in relation
to other securities owned by the Purchaser) and of which portion
of such Shares 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 Purchaser to convert Shares at such
time as such conversion will not violate the provisions of this
Section. The provisions of this Section may be waived by the
Purchaser upon not less than 75 days prior notice to the Company,
and the provisions of this Section shall continue to apply until
such 75th day (or later, if stated in the notice of waiver).
3.9 Listing of Underlying Shares. If the Common Stock
hereafter is listed for trading on the Nasdaq SmallCap Market (or
on the Nasdaq National Market, American Stock Exchange or New
York Stock Exchange, or any other national securities market or
exchange), then the Company shall (1) take all necessary steps to
list the Underlying Shares thereon, including the preparation of
any required additional listing application therefor covering, up
to the Issuable Maximum, the sum of (i) the number of Underlying
Shares as would be issuable upon a conversion in full of the then
outstanding Shares, and (ii) the number of Underlying Shares are
issuable as payment of dividends thereon, assuming all such
dividends were paid in shares of Common Stock), and (2) provide
to the Purchaser evidence of such listing, and the Company shall
thereafter maintain the listing of its Common Stock on such
exchange or market as long as Underlying Shares are issuable
and/or outstanding.
3.10 Conversion Procedures. Exhibit D sets forth the
procedures with respect to the conversion of the Shares,
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 exercise its right of conversion smoothly
and expeditiously which are not set forth in the Amendment.
3.11 Purchaser's Rights if Trading in Common Stock is
Suspended or Delisted. If at any time while the Purchaser (or
any assignee thereof) owns any Securities, the Common Stock is
delisted or suspended from trading on such exchange, market or
trading facility, other than as a result of the suspension of
trading in securities on such market or exchange generally, or
temporary suspensions pending the release of material
information, for more than thirty (30) business days, then,
notwithstanding anything to the contrary contained in any
Transaction Document, at the Purchaser's option exercisable by
five (5) business days prior written notice to the Company, the
Company shall redeem all then outstanding Shares then held by the
Purchaser (and pay all accrued and unpaid dividends thereon) and
redeem all then outstanding Underlying Shares then held by the
Purchaser, at an aggregate purchase price equal to the sum of (I)
the product of $10.00 and the number of Shares then held by the
Purchaser divided by the Conversion Price on (a) the day prior to
the date of such suspension or delisting, (b) the day of such
notice or (c) the date of payment in full of the repurchase price
calculated under this Section, whichever is less, and multiplied
by the Average Price preceding (x) the day prior to the date of
such suspension or delisting, (y) the day of such notice and (z)
the date of payment in full of the repurchase price calculated
under this Section, whichever is greater, (II) the aggregate of
all accrued but unpaid dividends and other amounts (including
liquidated damages, if any) then payable in respect of all Shares
to be repaid, (III) the number of Underlying Shares then held by
the Purchaser multiplied by the Average Price immediately
preceding (x) the day prior to the date of such suspension or
delisting, (y) the date of the notice or (z) the date of payment
in full by the Company of the repurchase price calculated under
this Section, whichever is greater, and (IV) interest on the
amounts set forth in I - III above accruing from the 5th day
after such notice until the repurchase price under this Section
is paid in full at the rate of 15% per annum. If after the
Original Issue Date the Common Stock shall be listed for trading
or quoted on the Nasdaq SmallCap Market or any other national
securities exchange or market, this provision shall similarly
apply to any delistings or suspensions therefrom.
3.12 Use of Proceeds. The Company shall use all of the
proceeds from the sale of the Securities for working capital
purposes and not for the satisfaction of Company debt or to
redeem any equity or equity-equivalent securities of the Company.
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.
3.13 Notice of Breaches. 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 in the Transaction
Documents to be incorrect or breached as of such 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.
Notwithstanding the generality of the foregoing, the 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 Shares a copy of any written
statement in support of or relating to such claim or notice.
3.14 Conversion Obligations of the Company. The Company
shall honor conversions of the Shares and shall deliver
Underlying Shares in accordance with the respective terms and
conditions and time periods set forth in the Amendment.
3.15 Right of First Refusal; Subsequent Registrations;
Certain Corporate Actions. (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 any
instrument that permits the holders thereof to acquire Common
Stock at any time over the life of the security or investment at
a price that is less than the market price of the Common Stock at
the time of issuance of such security or investment (a
"Subsequent Financing") for a period of 180 days after March 11,
1998, except (i) the granting of options or warrants to
employees, officers, directors and consultants, and the issuance
of shares upon exercise of options granted, under any stock
option plan heretofore or hereinafter duly adopted by the
Company, (ii) the issuance of shares upon exercise of any
currently outstanding warrants and upon conversion of any
currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), or (iii) the issuance of shares of
Common Stock upon conversion of the Shares, or as payment of
dividends thereon, in accordance with their respective terms,
unless (A) the Company delivers to the Purchaser a written notice
(the "Subsequent Financing Notice") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be
raised thereunder, the Person with whom such Subsequent Financing
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) business day after its receipt of the Subsequent
Financing 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
Financing 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 Financing
substantially upon the terms and to the Persons (or Affiliates of
such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide the Purchaser with a
second Subsequent Financing Notice, and the Purchaser shall again
have the right of first refusal set forth above in this paragraph
(a), if the Subsequent Financing subject to the initial
Subsequent Financing Notice shall not have been consummated for
any reason on the terms set forth in such Subsequent Financing
Notice within thirty (30) business day after the date of the
initial Subsequent Financing Notice with the Person (or an
Affiliate of such Person) identified in the Subsequent Financing
Notice.
(b) Except for Underlying Shares and other "Registrable
Securities" (as such term is defined in the Registration Rights
Agreement) to be registered in accordance with the Registration
Rights Agreement, 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 business days after the date that the
Underlying Securities Registration Statement is declared
effective by the Commission. Any days that the Purchaser is
unable to sell Underlying Shares under the Underlying Securities
Registration Statement shall be added to such 90 business day
period for the purposes of (i) and (ii) above.
(c) As long as there are Shares outstanding, the Company shall
not, without the consent of the holders of a majority of the then
outstanding Shares, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any
rights of the holders of the Shares; (ii) repay, repurchase or
offer to repay, repurchase or otherwise acquire shares of its
Common Stock other than as to the Underlying Shares; or (iii)
enter into any agreement with respect to any of the foregoing.
3.16 Certain Securities Laws Disclosures; Publicity. (a)
The Company shall timely file with the Commission a Form D
promulgated under the Securities Act as required under Regulation
D promulgated under the Securities Act with respect to the
issuance of the Shares and provide a copy thereof to each
Purchaser promptly after the filing thereof. The Company shall
file with the Commission (i) a press release disclosing the
transactions contemplated hereby, provided that if such press
release shall mention the Purchaser by name, the Purchaser shall
have the right to review and object to the contents thereof, and
(ii) a Report on Form 8-K disclosing this Agreement and the
transactions contemplated hereby within ten (10) business days
after the Closing Date.
(b) In furtherance and in addition to the obligation of the
Company set forth in Section 3.16(a) above, the Company and the
Purchaser shall consult with each other in issuing any press
releases or otherwise making public statements with respect to
the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public
statement 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.
3.17 Cooperation on Withholding Taxes. The Purchaser shall
reasonably cooperate with the Company to receive and forward to
the Company any refunds of withholding taxes paid by the Company
with respect to dividends and interest paid on the Preferred
Stock.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall pay
$5,000 to the Purchaser for the legal fees and disbursements
incurred by the Purchaser in connection with the preparation of
the Transaction Documents. Except as 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
Shares pursuant hereto. The Purchaser shall be responsible for
its own tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this
Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together
with the Exhibits and Schedules hereto and the Amendment 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.
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 4:30 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 Agreement later than 4:30 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: The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30201
Facsimile No.:
Attn: Chief Financial Officer
With copies to: Greenberg Traurig Hoffman
Lipoff Rosen &
Quentel
200 Park Avenue
New York, NY 10166
Facsimile No.: (212) 801-6400
Attn: Peter W. Rothberg
If to the Purchaser: KA Investments LDC
c/o Tarmachan Capital
Management
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to: Robinson Silverman Pearce
Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
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 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 rights or obligations hereunder without the prior written
consent of the Company. The assignment by a party of this
Agreement or any rights hereunder shall not affect the
obligations of such party under this Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their
respective permitted successors and assigns and except for
permitted assignees under Section 4.6, 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 nonexclusive 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 or 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 in this Agreement shall survive the
Closing and the conversion of the Shares.
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 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
affected 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to bc duly
executed by their respective authorized persons as of the date
first indicated above.
THE NETWORK CONNECTION, INC.
By :
Name: Wilbur L. Riner
Title: CEO
KA INVESTMENTS LDC
By :
Name:
Title:
SCHEDULE 2.1 (c)
The Network Connection, Inc.
Capitalization of Company
June 9, 1998
Common Stock, $.001 par value
Authorized 10,000,000 shares
Issued and Outstanding -
4,154,943 shares
Preferred Stock, $.01 par value
Authorized 2,500,000 shares
Issued and Outstanding -0-
180,000 Warrants at $5.50 -
expire 1/06/03
31,750 Warrants at $8.00 -
expire 5/11/98
31,750 Warrants at $8.20 -
expire 5/11/98
726,328 employee stock options currently outstanding at exercise
prices ranging from $2.60 through $11.62 per share.
$2,200,000 aggregate principal of 4% Convertible
Debentures, due March 11, 2003, issued to the Purchaser.
Schedule 2.1 (f)
The Network Connection, Inc.
Required Approvals
None, other than the filing with and acceptance of the
Amendment by the Secretary of State of the State of Georgia.
Schedule 2.1 (j)
The Network Connection, Inc.
SEC Document Filing Exceptions
None
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement")
is made and entered into as of June 9, 1998 between The Network
Connection, Inc., a Georgia corporation (the "Company"), and KA
Investments LDC, a Cayman Islands corporation (the "Purchaser").
WHEREAS, the Company and Purchaser have previously
entered into that certain Convertible Debenture Purchase
Agreement, dated as of March 11, 1998, pursuant to which the
Purchaser acquired $2,200,000 aggregate principal amount of the
Company's 4% Convertible Debentures, due March 11, 2003 (the
"Debentures"), which Debentures are convertible into shares of
the Company's Common Stock, $.001 par value (the "Common Stock");
WHEREAS, the Purchaser and the Company entered into
that certain Registration Rights Agreement, dated March 11 1998
(the "Registration Agreement"), pursuant to which the Company
granted to the Purchaser certain registration rights with respect
to the Purchaser's resale of the shares of Common Stock issuable
upon conversion of the Debentures (the "Debenture Shares");
WHEREAS, on May 1, 1998, the Company filed a
Registration Statement (File No. 333-51629), under the terms of
the Securities Act of 1933, as amended, and the regulations
promulgated thereunder, in compliance with the terms of the
Registration Agreement, covering the Debenture Shares, with the
Securities and Exchange Commission (the "Initial Registration
Statement"), which Registration Statement was declared effective
on June 8, 1998;
WHEREAS, pursuant to the terms of that certain
Convertible Preferred Stock Agreement, of even date herewith,
between the Company and the Purchaser (the "Purchase Agreement"),
the Purchaser agreed to exchange the Debentures for shares of the
Company's 4% Series A Preferred Stock (the "Preferred Stock"), by
agreeing to cancel the Debentures in consideration for the
issuance by the Company of 220,000 shares of Preferred Stock to
the Purchaser, all under the terms of the Purchase Agreement; and
WHEREAS, this Agreement is made pursuant to the terms
of the Company's grant to the Purchaser of certain registration
rights with respect to the Purchaser's resale of the shares of
Common Stock issuable upon conversion of the Preferred Stock into
Common Stock under the terms of the Preferred Stock, and the
registration rights granted under the terms of this Agreement are
identical to the registration rights granted to the Purchaser
under the terms of the Registration Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth herein and for other good and
valuable consideration the receipt of which is hereby
acknowledged, 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(p).
"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.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Company's common stock, par
value $.001 per share.
"Effectiveness Date" means the 105th day following
March 11, 1998.
"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 45th day following March 11,
1998.
"Holder" or "Holders" means the holder or holders, as
the case may 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).
"New York Courts" shall have the meaning set forth in
Section 7(j).
"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 shares of the Company's 4%
Series A Convertible Preferred Stock 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 upon (a) conversion in full of the Preferred Stock
and (b) payment of dividends in respect of the Preferred Stock up
to a maximum of 20% of the number of shares of Common Stock
outstanding on the Original Issue Date (as such term is defined
in the Purchase Agreement). The Initial Registration Statement
shall continue to cover such maximum number of shares of Common
Stock issuable upon conversion in full of the Preferred Stock and
payment of dividends in respect of the Preferred Stock based upon
a conversion price of $3.00. The Company shall be required to
file additional Registration Statements to the extent the actual
number of shares of Common Stock into which the shares of
Preferred Stock are convertible (together with dividends thereon)
exceeds the number of shares of Common Stock registered in the
Initial Registration Statement in accordance with the immediately
prior sentence. The Company shall have 15 Business Days to file
such additional Registration Statement after notice to the
Company of the requirement thereof from the Holders. In the
event that the filing of any such additional registration
statements requires the preparation of updated financial
statements, (1) the Company shall use its best efforts to cause
such financial statements to be prepared as soon as possible, and
(2) the 15 Business Day period specified in the immediately prior
sentence shall be extended to up to 30 Business Days or such
lesser number of days as the Company shall, using its best
efforts, require for such preparation and filing.
"Registration Statement" means the registration
statement contemplated by Section 2(a) (covering such number of
Registrable Securities and any additional Registration Statements
contemplated in the definition of Registrable Securities),
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 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 law firm acting as 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.
2. Shelf Registration
(a) Although prior to the Filing Date the Company was
obligated to 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,
that it is hereby recognized that by filing the Initial
Registration Statement on May 1, 1998, which Initial Registration
Statement registered the resale of the Debenture Shares and was
declared effective on June 8, 1998 (prior to the Effectiveness
Date), with the obligation of "stickering", as necessary, such
Initial Registration Statement promptly following the date of
this Agreement to reflect the transactions underlying the
Purchase Agreement, the Company will have complied with its
obligations to file a Shelf Registration Statement covering all
Registrable Securities on or prior to the Filing Date under the
terms of this Section 2(a) and under the terms of Section 2(a) of
the Registration Agreement. The Registration Statement is on Form
S-3 (or, if the Company is not permitted to register the resale
of the Registrable Securities on Form S-3 at any future time, the
Registration Statement shall be on such other appropriate form in
accordance herewith as the Holders of a majority in interest of
the Registrable Securities may consent). The Company 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) promulgated under the Securities Act, 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 Person (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 (and any additional
Registration Statements as may be required) in accordance with
Section 2(a), and cause the Registration Statement to become
effective and remain effective as provided herein; provided,
however, that not less than five (5) Business Days prior to the
filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that
would be incorporated 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
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 to the
information contained in the Registration Statement concerning
the Registrable Securities, the Plan of Distribution, or any
information relating to the Holders of the Registrable Securities
(the "Registration Information").
(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the
Registration Statement as may be necessary to keep the
Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period
and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the
related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as
promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any
amendment thereto and promptly provide the Holders true and
complete copies of all correspondence from and to the Commission
relating to the Registration Statement; and (iv) comply 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
immediately (and, in the case of (i)(A) below, not less than five
(5) days prior to such filing) and (if requested in writing 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
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 Registration
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 Registration 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 reasonably 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 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 as
any Holder or underwriter reasonably 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 sold
pursuant to a Registration Statement, which certificates shall be
free of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request at
least five (5) 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 practicable, 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 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) In the case of an Underwritten Offering, enter
into such customary agreements on terms which are customary in
connection with such transactions (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) 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
selling Holder and each such underwriter, that are customary in
form, scope and substance and 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 underwriters;
(iii) immediately prior to the effectiveness of the Registration
Statement or at the time of delivery of any Registrable
Securities sold pursuant thereto (at the option of the
underwriters), 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 subsidiary 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 each Person and in
such 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, a representative of such Holders, an underwriter
participating in any disposition of Registrable Securities, and
an 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 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 reasonable 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 and make generally available to its security
holders earnings statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 not later than 45 days
after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date
of the Registration Statement, which statement shall cover said
12-month period, or such shorter periods as is consistent with
the requirements of Rule 158.
(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 selling Holder as is
reasonably determined to be 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.
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.
(p) Each Holder agrees by its acquisition of such
Registrable Securities that (i) it will not offer or 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 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 until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing
(the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall, except
as and to the extent specified in Section 4(b), 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 SmallCap Market and each
other securities exchange or market on which Registrable
Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the
underwriters or Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions 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, in the case of the Special Counsel, (v) Securities
Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of
the transactions contemplated by this Agreement. 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, and 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, settlements,
judgments, costs (including, without limitation, costs of
preparation and reasonable 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 or on behalf of such Holder expressly 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.
(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 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 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. 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 Proceeding. If any
Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "Indemnified Party"), such
Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that
it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and
materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Party or Parties unless:
(1) the Indemnifying Party has agreed in writing to pay such fees
and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any
such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is
likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at
the expense of the Indemnifying Party). The Indemnifying Party
shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such
Proceeding.
All fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall
be paid to the Indemnified Party, as incurred, within 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, or provide reasonable security or
assurance therefor, to reimburse all such fees and expenses to
the extent it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification
under Section 5(a) or 5(b) is unavailable to an Indemnified Party
because of a failure or refusal of a governmental authority to
enforce such indemnification in accordance with its terms (by
reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified
Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as
any other relevant equitable considerations. The relative fault
of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or 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),
the Purchaser shall not be required to contribute, in the
aggregate, any amount in excess of the amount by which the
proceeds actually received by the Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the
amount of any damages that the Purchaser 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.
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 damages, 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. Except as and to the
extent specifically set forth in Schedule 6(b) attached hereto,
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. The Company has not
previously entered into any agreement granting any registration
rights with respect to any of its securities to any Person which
conflicts or is inconsistent with the provisions of this
Agreement. 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. 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 enter into any agreement
providing any such right to any of its securityholders, except
with the consent of the holders of the Preferred Stock and a
majority of the outstanding Registrable Securities.
(d) Piggy-Back Registrations. If at any time during
the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the
Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own
account or the account of others under the Securities Act of any
of its equity securities, other than 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 statement all or any
part of the Registrable Securities such holder requests to be
registered. No right to registration of Registrable Securities
under this Section shall be construed to limit any registration
otherwise required hereunder.
(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 a majority 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
5:00 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 this Section later than 5:00 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: The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30201
Attn: Chief Financial Officer
Facsimile No.: 770-740-0858
With copies to: Greenberg Traurig Hoffman Lipoff Rosen &
Quentel
200 Park Avenue
New York, NY 10166
Facsimile No.: (212) 801-6400
Attn: Peter W. Rothberg
If to the Holder: KA Investments, LDC
c/o Tarmachan Capital Management
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
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. The Purchaser 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
the Purchaser 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 the
Purchaser to any assignee or transferee of all or a portion of
the Preferred Stock, without the consent of the Company, if: (i)
such Purchaser 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) 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 (iv) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement. The rights
to assignment shall apply to the Purchaser's (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; Submission to Jurisdiction. This
Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles
of conflicts of law. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of any New York state court sitting in
the Borough of Manhattan, the state and federal courts sitting in
the City of New York or any federal court sitting in the Borough
of Manhattan in the City of New York (collectively, the "New York
Courts") in respect of any Proceeding arising out of or relating
to this Agreement, and irrevocably accepts for itself and in
respect of its property, generally and unconditionally,
jurisdiction of the New York Courts. The Company irrevocably
waives to the fullest extent it may effectively do so under
applicable law any objection that it may now or hereafter have to
the laying of the venue of any such Proceeding brought in any New
York Court and any claim that any such Proceeding brought in any
New York Court has been brought in an inconvenient forum. Nothing
herein shall affect the right of any Holder. Each party hereby
irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by
receiving a copy thereof sent 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 the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by
reason of their 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.
(o) Termination of the Debenture Registration Rights
Agreement. By the execution and delivery of this Agreement, the
parties do hereby terminate and render null and void and of no
further force and effect as of the date of this Agreement that
certain Registration Rights Agreement, dated as of March 11,
1998, between the Company and the Purchaser.
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
THE NETWORK CONNECTION, INC.
By:___________________________
_____
Name:
Title:
KA INVESTMENTS LDC
By:___________________________
_____
Name:
Title:
Schedule 6(b)
None
