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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): MARCH 11, 1998 (MARCH 17,
---------------------------
1998)
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THE NETWORK CONNECTION, INC.
GEORGIA 1-13760 58-1712432
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(State or other (Commission File (IRS Employer
jurisdiction of No.) ID No.)
incorporation)
1324 UNION HILL ROAD, ALPHARETTA, GA 30201
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(Address of principal executive offices)
(770) 751-0889
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Registrant's telephone number, including area code
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(Former name or former address, if changed since last report)
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ITEM 5 - OTHER EVENTS.
On March 11, 1998, pursuant to a Convertible Purchase Agreement, dated
March 11, 1998 (the "Purchase Agreement"), The Network Connection, Inc. (the
"Company") sold $2.2 Million aggregate principal of its 4% Convertible
Debentures, due March 11, 2003 (the "Debentures"), to a single investor in a
private placement. Each Debenture was sold for $50,000 and is convertible at the
option of the holder into shares of the Company's Common Stock, $.001 par value
(the "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 Common Stock during the 21-
trading days prior to conversion; but in no event can the conversion price be
less than $3.00 per share. In the event that following March 11, 2001 the market
price of the Common Stock for any five (5) consecutive trading days exceeds
$3.00, the Holder must convert the Debentures to Common Stock under the terms of
the Debenture.
Each Debenture 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) 105
days after the March 11, 1998 Original Issue Date 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 Debentures is declared effective by
the Securities and Exchange Commission (the "Commission"), subject to the
restriction that the Debenture holder shall be entitled to convert up to 25%
of Debentures principal on the Conversion Date, up to 50% of Debentures
principal on the first month anniversary of the Conversion Date, up to 75% of
Debentures principal on the second month anniversary of the Conversion Date
and the entire Debentures principal on the third month anniversary of the
Conversion Date.
In connection with, and prior to 45-days following, its sale of the
Debentures, under the terms of the Purchase Agreement and a Registration
Rights Agreement, dated March 11, 1998, between the Company and the Debenture
holder, the Company agreed to file with the Commission a registration
statement with respect to resale of the Common Stock which may be acquired by
the Debenture holders upon conversion of the Debentures. In order to avoid
penalties and an event of default under the Purchase Agreement, such
registration statement must be declared effective by the Commission within
105 days and 180 days, respectively, from the date of the Purchase Agreement.
The Company also granted to the Debenture holder "piggy back" registration
rights as contained in the Registration Rights Agreement.
The purpose of the sale of Debentures is to provide funds for working
capital and for general corporate purposes.
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:
10.1 Debenture Purchase Agreement, dated March 11, 1998, by and
between The Network Connection, Inc. and KA Investments LDC
(without schedules)
10.2 Form of Convertible Debenture, dated March 11, 1998, made by The
Network Connection, Inc.
10.3 Registration Rights Agreement, dated March 11, 1998, by and
between The Network Connection, Inc. and KA Investments LDC
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
THE NETWORK CONNECTION, INC.
(Registrant)
Dated: March 17, 1998 By: /s/ Wilbur L. Riner
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Wilbur L. Riner, Chairman
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Exhibit 10.1
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
between
THE NETWORK CONNECTION, INC.
and
KA INVESTMENTS LDC
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March 11, 1998
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of March 11, 1998 (this
"AGREEMENT"), between the Network Connection, 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, 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 principal amount of $2,200,000 of the Company's 4%
Convertible Debentures, due March 11, 2003 (the "DEBENTURES"), which are
convertible into shares of the Company's common stock, par value $.001 per share
(the "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 DEBENTURES
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 Debentures, in denominations of $50,000. The Debentures 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 Debentures for a purchase price of $2,200,000
(the "PURCHASE PRICE"). The closing of the purchase and sale of the Debentures
(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) the Debentures 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, and (3) 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) $2,200,000, less the fees contemplated in Section
4.1, in United States dollars in immediately available funds by wire transfer to
an account designated in writing by the Company for such purpose on or prior to
the Closing Date, and (2) all documents, instruments and writings
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required to have been delivered at or prior to the Closing by the Purchaser
pursuant to this Agreement.
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 Debentures.
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 Debentures 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 Debentures, 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
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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 Debentures hereunder, 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 DEBENTURES. The Debentures 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 Debentures 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 Debentures 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 Debentures, 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 interest on the Debentures, 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 Debentures, as payment of interest in respect thereof are
sometimes referred to herein as the "UNDERLYING SHARES," and the Debentures and
Underlying Shares are, collectively, the "SECURITIES." When issued in
accordance with the terms of the Debentures, the Underlying Shares will be duly
authorized, validly issued, fully paid and nonassessable, free and clear of all
Liens.
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(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 2.1(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 a registration
statement 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 (the "UNDERLYING SECURITIES REGISTRATION STATEMENT"),
(ii) the application for the listing of the Underlying Shares on any national
securities exchange or market on which the Common Stock is then listed, and
(iii) 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.
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(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-Q for the period ended September 30, 1997,
(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
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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) 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.
(l) CERTAIN FEES. Except for fees payable to Goodbody
International, Inc., 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 such fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated 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
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees.
(m) 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.
(n) EXCLUSIVITY. The Company shall not issue and sell
Debentures to any Person other than the Purchaser.
(o) 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.
(p) 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.
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(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
Debentures, 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
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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
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Debentures, and the merits and risks of
investing in the Debentures; (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.
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
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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] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER 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 DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON
CONVERSION SET FORTH IN SECTION 3.8 OF A SUBSCRIPTION AGREEMENT, DATED AS
OF MARCH 11, 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
Debentures 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 each 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 Debentures and as payment
of interest 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 Debentures is unconditional and absolute
regardless of the effect of any such dilution.
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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 their 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.
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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 principal amount of Debentures (and paying any
accrued but unpaid interest 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 Debentures. 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 Debentures 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 issuable upon
conversion of the Debentures held by the Purchaser after application of this
Section. To the extent that the limitation contained in this Section applies,
the determination of whether Debentures are convertible (in relation to other
securities owned by the Purchaser) and of which portion of the principal amount
of such Debentures are convertible shall be in the sole discretion of the
Purchaser, and the submission of Debentures for conversion shall be deemed to be
the Purchaser's determination of whether such Debentures are convertible (in
relation to other securities owned by the Purchaser) and of which portion of
such Debentures 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 Debentures 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).
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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 principal amount of
Debentures, and (ii) the number of Underlying Shares are issuable as payment of
interest thereon, assuming all such interest 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 Debentures, 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 Debentures.
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 repay the
entire principal amount of then outstanding Debentures (and all accrued and
unpaid interest 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 aggregate outstanding principal amount of Debentures 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 interest and
other non-principal amounts (including liquidated damages, if any) then payable
in respect of all Debentures 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
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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 Document 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 Debentures
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 Debentures and shall deliver Underlying Shares in accordance
with the respective terms and conditions and time periods set forth in the
Debentures.
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 the Closing Date, except (i) the granting of options or
warrants to employees, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued 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), (iii)
shares of Common Stock issued upon conversion of Debentures, as payment of
interest thereon, in accordance with their respective terms, unless (A) the
Company delivers to the Purchaser a
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<PAGE>
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 affected, 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 Debentures outstanding, the Company
shall not, without the consent of the holders of the Debentures, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the holders of Debentures; (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 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
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<PAGE>
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 3.19(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.
IV. MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing the Company shall pay $8,000 to
the Purchaser for the legal fees and disbursements incurred by the Purchaser in
connection with the preparation and negotiation of the Transaction Documents.
Other than the amounts contemplated by the immediately preceding sentence, and
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 Debentures 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 Debentures 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 Purchase 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:
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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 Rothberg
If to the Purchaser: KA Investments, LDC
c/o Tamarchan 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.
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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 who is an intended beneficiary of the provisions of Section 3.15,
entitled to enforce such provisions against the parties hereto and 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 non-exclusive jurisdiction of the state and Federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (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
Debentures.
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
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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]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
THE NETWORK CONNECTION, INC.
By:
---------------------------
Name:
Title:
KA INVESTMENTS LDC
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.2
EXHIBIT A
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
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.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH
IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF MARCH
11, 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.
No. 1 U.S. $50,000
THE NETWORK CONNECTION, INC.
4% CONVERTIBLE DEBENTURE DUE MARCH 11, 2003
THIS DEBENTURE is one of a series of duly authorized issued debentures of
The Network Connection, Inc., a corporation organized under the laws of the
State of Georgia and having a principal place of business at 1324 Union Hill
Road, Alpharetta, Georgia 30201 (the "COMPANY"), designated as its 4%
Convertible Debentures, due March 11, 2003 (the "DEBENTURES"), in an aggregate
principal amount of $2,200,000.
FOR VALUE RECEIVED, the Company promises to pay to KA INVESTMENTS LDC, or
registered assigns (the "HOLDER"), the principal sum of Fifty Thousand Dollars
($50,000), on or prior to March 11, 2003 or such earlier date as the Debentures
are required to be repaid as provided hereunder (the "MATURITY DATE") and to pay
interest to the Holder on the principal sum at the rate of 4% per annum, payable
quarterly in arrears commencing March 31, 1998, but in no event later than the
earlier to occur of a Conversion Date (as defined in Section 4(a)(i)) for such
principal amount or the Maturity Date. Interest shall accrue daily commencing
on the Original Issue Date (as defined in Section 6) until payment in full of
the principal sum, together with all accrued and unpaid interest and other
amounts which may become due hereunder, has been made. Interest shall be
calculated on the basis of a 360-day year and for the actual number of days
elapsed. Interest hereunder will be paid to the Person (as defined in Section
6) in whose
<PAGE>
name this Debenture (or one or more predecessor Debentures) is registered on the
records of the Company regarding registration and transfers of the Debentures
(the "DEBENTURE REGISTER"). All overdue, accrued and unpaid interest and other
amounts due hereunder shall bear interest at the rate of 15% per annum (to
accrue daily) from the date such interest is due hereunder through and including
the date of payment. The principal of, and interest on, this Debenture are
payable 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 Debenture Register, except that
interest due on the principal amount (but not overdue interest) may, at the
Company's option, be paid in shares of Common Stock (as defined in Section 6)
calculated based upon the Conversion Price (as defined below) on the date such
interest was due. All amounts due hereunder other than such interest shall be
paid in cash. Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of interest on the
principal amount 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 interest 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 6) 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.
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such
registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section
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6) and may be transferred or exchanged only in compliance with the Purchase
Agreement. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
SECTION 3. 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 the payment of the principal of, interest
on or liquidated damages in respect of, this Debenture, free of any claim
of subordination, as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, the Conversion
Date or the Maturity Date or by acceleration 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, this Debenture, the Purchase Agreement or the Registration
Rights Agreement (as defined in Section 6), 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
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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 4(c)(i)(d) and 4(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
4(c)(i)) relating thereto.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by the Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures (the "MANDATORY REPAYMENT AMOUNT") shall
be equal to 120% (the "PERCENTAGE") of the sum of the aggregate principal amount
due under the Debentures plus accrued interest thereunder, PROVIDED, HOWEVER,
that for purposes of Section 3(a)(vii) above, the Percentage shall be 110%. The
Holder need not provide and the Company hereby waives any presentment, demand,
protest 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.
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SECTION 4. CONVERSION.
(a)(i) This Debenture 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
Maturity Date, PROVIDED, HOWEVER, that, on the Conversion Date (as defined
below), the Holder shall be entitled to convert up to 25% of the aggregate
principal amount of the Debentures, on the first month anniversary of the
Conversion Date, the Holder shall be entitled to convert up to 50% of the
aggregate principal amount of the Debentures, on the second month anniversary of
the Conversion Date, the Holder shall be entitled to convert up to 75% of the
aggregate principal amount of the Debentures and on the third month anniversary
of the Conversion Date, the Holder shall be entitled to convert the remaining
aggregate principal amount of the Debentures. The number of shares of Common
Stock as shall be issuable upon a conversion hereunder shall be determined by
dividing the outstanding principal amount of this Debenture to be converted,
plus all accrued but unpaid interest thereon, by the Conversion Price (as
defined below), each as subject to adjustment as provided hereunder. The Holder
shall effect conversions by surrendering the Debentures (or such portions
thereof) 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 principal amount of Debentures to be converted and the
date on which such conversion is to be effected, which date may not be prior to
the date such Conversion Notice is deemed to have been delivered hereunder (a
"CONVERSION DATE"). If no Conversion Date is specified in a Conversion Notice,
the Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 4(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 principal amount represented by
the Debenture(s) tendered by the Holder with the Conversion Notice, 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 4(b)) a new Debenture for such principal amount as has not been
converted.
(ii) During the period from the third anniversary of
the Original Issue Date to the Maturity 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 principal amount of Debentures 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 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 latter to occur
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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
Debentures (subject to reduction pursuant to Section 3.8 of the Purchase
Agreement), (ii) Debentures in a principal amount equal to the principal amount
of Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected and is permitted hereunder to pay
accrued interest in cash), together with all other amounts then due and payable
in accordance with the terms hereof, in respect of Debentures tendered for
conversion and (iv) if the Company has elected to pay accrued interest 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 interest 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 principal amount of Debentures until Debentures are delivered
for conversion to the Company or the Holder notifies the Company that such
Debenture has been mutilated, lost, stolen or destroyed and complies with
Section 9 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 interest
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 Debentures 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 interest
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 principal amount of Debentures 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 principal amount
of Debentures 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 4(a)(ii).
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(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 fort 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 4(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) days
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, on the Event
Date, 1.0% of the aggregate principal amount of Debentures then outstanding and
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 aggregate principal amount of Debentures then
outstanding.
(ii) If the Company, at any time while any Debentures
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
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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 re-classification.
(iii) If the Company, at any time while any Debentures
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 4 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 Debentures 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 Debentures 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
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<PAGE>
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 Debentures 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
Debentures 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 Holder of this Debenture
shall have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid interest and
any other amounts then owing hereunder in respect of this Debenture 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 principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire prepayment price shall
be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 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 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures 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
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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 the Debentures, and shall cause to be mailed to the
Holder at its last addresses 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 Debentures during the 30-day period commencing the date
of such notice to 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 Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights 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 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
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
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and, if the Underlying Securities Registration Statement has been declared
effective under the Securities Act, freely tradeable.
(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 Debentures 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 Debentures 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 Debentures at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 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 send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.
SECTION 5. OPTIONAL PREPAYMENT.
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(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "OPTIONAL
PREPAYMENT NOTICE"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to the
Optional Prepayment Price (as defined below). Any such prepayment 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 Prepayment Notice for such Debentures
(such date, the "OPTIONAL PREPAYMENT DATE").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
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 Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment 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 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price (including interest therefor), plus accrued liquidated
damages thereof, has not been paid in full (the "UNPAID PREPAYMENT PRINCIPAL
AMOUNT"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment 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 Prepayment 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 Debentures for the full Unpaid Prepayment
Principal Amount. If, upon an election under option (i) above, the Company
fails to deliver the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Principal 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 PREPAYMENT PRICE" for any Debentures shall equal
the greater of (1) the Mandatory Prepayment Amount and (2) the sum of (i) the
principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, divided by the Conversion Price on (x) the Optional Prepayment
Date or (y) the date the Optional Prepayment Price is paid in full, whichever is
less, multiplied by the Average Price on (x) the Optional Prepayment Date or (y)
the date the Optional Prepayment Price is paid in full, whichever is greater,
and (ii) all other amounts, expenses, costs and liquidated damages due in
respect of such principal amount.
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<PAGE>
SECTION 6. 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.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of
any Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"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
Debentures (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 corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
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<PAGE>
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, 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
Debentures are 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 7. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of
the Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
SECTION 8. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, 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 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
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<PAGE>
SECTION 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. The Company 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 the Company at the address in effect for
notices to it under this instrument 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.
SECTION 11. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture 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 this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture 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 this
Debenture. Any waiver must be in writing.
SECTION 12. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture 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 13. 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).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed by a duly authorized officer as of the date first above indicated.
THE NETWORK CONNECTION, INC.
By:
--------------------------------
Name:
Title:
Attest:
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT A
THE NETWORK CONNECTION, INC.
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. 1 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 to Effect Conversion
--------------------------------------------------
Principal Amount of Debentures to be Converted
--------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Signature
--------------------------------------------------
Name
--------------------------------------------------
Address
<PAGE>
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of March 11, 1998 between The Network Connection, Inc., a
Georgia corporation (the "COMPANY"), and KA Investments LDC, a Cayman Islands
corporation (the "PURCHASER").
This Agreement is made pursuant to the Convertible Debenture
Agreement, dated as of the date hereof between the Company and the Purchaser
(the "PURCHASE AGREEMENT").
The Company and the Purchaser hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"ADVICE" shall have meaning set forth in Section 3(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.
"CLOSING DATE" shall have the meaning set forth in the Purchase
Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value $.001 per
share.
"DEBENTURES" means Company's 4% Convertible Debentures due March 11,
2003 issued to the Purchaser pursuant to the Purchase Agreement.
<PAGE>
"EFFECTIVENESS DATE" means the 105th day following the Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILING DATE" means the 45th day following the Closing Date.
"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.
"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 Debentures and (b) payment of interest in
respect of the Debentures. The initial Registration Statement shall, up to 20%
of the number of shares of Common Stock outstanding on the Original Issue Date
(as such term is defined in the Purchase Agreement), cover the shares of Common
Stock issuable upon conversion in full of the Debentures and payment of interest
in respect of the Debentures 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
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<PAGE>
Common Stock into which Debentures are convertible (together with interest
thereon) exceeds the number of shares of Common Stock initially registered 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
10 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) On or prior to the Filing Date the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (or, if the Company is not
permitted to register the resale of the Registrable Securities on Form S-3, 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
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<PAGE>
Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and shall use
its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is three years after the date that
such Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) 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
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<PAGE>
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 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
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<PAGE>
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
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<PAGE>
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)
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<PAGE>
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 7 (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
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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 earning
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
end 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 Pro-
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spectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
4. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company 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, 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
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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
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<PAGE>
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 PROCEEDINGS. 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 (regard-
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<PAGE>
less 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 have 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.
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<PAGE>
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 Debentures 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
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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 the Purchase Agreement 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.:
With copies to: Greenberg Traurig Hoffman Lipoff Rosen & Quentel
200 Park Avenue
New York, NY 10166
Facsimile No.: (212) 801-6400
Attn: Peter Rothberg
If to the Holder: KA Investments, LDC
c/o Tamarchan Capital Management
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<PAGE>
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 Debentures, 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 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
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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
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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.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
THE NETWORK CONNECTION, INC.
By:
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Name:
Title:
KA INVESTMENTS LDC
By:
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Name:
Title:
