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EXHIBIT 2
DEBENTURE PURCHASE & SECURITY AGREEMENT
AGREEMENT (this "AGREEMENT") made and entered into as of the 22nd day
of May, 2001 by and between FastComm Communications Corporation, a Virginia
corporation (the "COMPANY"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇ Corporation, a Canadian
corporation (the "PURCHASER").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE OF CONVERTIBLE SUBORDINATED SECURED DEBENTURE.
The Company will sell to Purchaser, and Purchaser will purchase from
the Company, a Convertible Subordinated Secured Debenture (the "CONVERTIBLE
DEBENTURE"), convertible into that number of shares of the Company's common
stock, $.01 par value per share, (the "SHARES") as set forth opposite the
Purchaser's name on SCHEDULE A, at a price per Share of $0.446 (such price
subject to equitable adjustment in the event of any stock dividend, stock split,
combination, reclassification or other similar event). On May 8, 2001 the
Purchaser paid to the Company $1,000,000 (the "FIRST DISBURSEMENT") pursuant to
a Subordinated Promissory Note (the "NOTE"). So long as the conditions set forth
in Section 3 of the Convertible Debenture are satisfied, remain true, valid, and
correct on June 1, 2001, Purchaser shall disburse $1,000,000 (the "SECOND
DISBURSEMENT") to the Company in exchange for the Convertible Debenture. So long
as the conditions set forth in Section 3 of the Convertible Debenture are
satisfied, remain true, valid, and correct on June 29, 2001, Purchaser shall
disburse an additional $1,000,000 on such date (the "THIRD DISBURSEMENT"). On
June 1, 2001, the Note will be delivered by the Purchaser to the Company, with
authorization to ▇▇▇▇ "paid in full," and such principal under the Note shall
convert into principal, in addition to the Second Disbursement, under the
Convertible Debenture. This Agreement, the Convertible Debenture, the Warrant
(as defined in Section 5.6), the Conditional Assignment Agreement and other
documents and agreements referenced herein shall from time to time be referred
to as the "FINANCING DOCUMENTS."
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2. CLOSING DATE. The terms and conditions of the purchase and sale of
the Convertible Debenture are agreed upon by and between the Company and the
Purchaser as of the the date first set forth above (the "CLOSING DATE"). The
Second Disbursement and the Third Disbursement, each of an additional
$1,000,000, shall take place, on the conditions so stated in Section 1, by use
of facsimile and overnight mail, on June 1, 2001, and June 29, 2001,
respectively.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser that,
except as set forth in the schedule of exceptions attached as SCHEDULE B hereto
(the "SCHEDULE OF EXCEPTIONS"):
3.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, legally existing and in good standing under the laws of the
Commonwealth of Virginia. The Company has the requisite corporate power to own
and operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. The Company is licensed or qualified
as a foreign corporation and is in good standing in every state or other
jurisdiction wherein the character of its property or the nature of its
activities makes such licensing or qualification necessary and wherein the
failure to be so licensed or qualified would have a material adverse effect on
the Company. Attached as EXHIBITS A AND B hereto are copies of the certificate
of incorporation (the "CERTIFICATE OF INCORPORATION") and by-laws (the
"BY-LAWS") of the Company. Said copies are true, correct and complete and
contain all amendments through the date of this Agreement.
3.2 CORPORATE POWER; AUTHORIZATION. (i) The Company has now,
and will have at the Closing Date, all requisite legal and corporate power and
authority to enter into and perform its obligations under this Agreement, the
Convertible Debenture, the Conditional Assignment Agreement and the Warrant, and
to issue and sell the Convertible Debenture and Warrant in accordance with the
terms hereof; (ii) the execution, delivery and performance of this Agreement,
the Convertible Debenture, and the Warrant and the other Financing Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby (including, without limitation, the issuance of the Convertible
Debenture and Warrant and the issuance and reservation for issuance of the
Shares for the Convertible Debenture and the Warrant) have been duly authorized
by the Company's Board of Directors and no further consent
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or authorization of the Company, its Board of Directors, any committee of the
Board of Directors, or the Company's stockholders is required (under Rules
4310(c)(25)(H) or 4460(i) promulgated by the National Association of Securities
Dealers ("NASD") or otherwise); (iii) this Agreement has been duly executed and
delivered by the Company; and (iv) this Agreement constitutes, and, upon
execution and delivery by the Company of the Convertible Debenture and the
Warrant, such agreements will constitute, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms.
3.3 SUBSIDIARIES. The Company does not own or control,
directly or indirectly, any interest or investment in any other corporation,
association, partnership or other business entity (a "SUBSIDIARY").
3.4 CAPITALIZATION. The Company's entire authorized capital
stock consists of 50,000,000 shares, all of which are common stock, $0.01 par
value per share ("COMMON STOCK"), 28,896,668 shares of which are issued and
presently outstanding. All such issued and outstanding shares are duly
authorized and validly issued, fully paid and nonassessable and have been issued
in compliance with all applicable state and federal laws concerning the issuance
of securities. Subject to the terms and conditions hereof, the Company has
authorized the issuance on the Closing Date of a Convertible Debenture, the
principal and interest of which is convertible into a number of Shares based on
a conversion price per share of $0.446 (such price subject to adjustment in the
event of any stock dividend, stock split, combination, reclassification or other
similar event). The Company has authorized the reservation of the number of
shares of Common Stock issuable upon conversion of such Convertible Debenture,
and the number of shares of Common Stock issuable upon exercise of the Warrant
(said reserved shares, when issued, being referred to herein as the "PURCHASER
RESERVED SHARES"), the Common Stock having the terms and provisions set forth in
EXHIBIT A hereto. There are presently reserved for issuance 2,750,000 shares of
Common Stock pursuant to options or purchase rights granted or to be granted to
employees, officers, directors, consultants or similar service providers of or
to the Company ("EMPLOYEE RESERVED SHARES") and 8,176,366 shares of Common Stock
pursuant to warrants held by prior purchasers of shares (such shares reserved
with respect to warrants being herein referred to as "WARRANT SHARES"). Except
for the foregoing, no subscription, warrant, option, convertible security or
other right (contingent or otherwise) permitting any party other than the
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Company to purchase or acquire any shares of capital stock of the Company is
authorized or outstanding. Other than as provided in the Certificate of
Incorporation, the Company has no obligation, contingent or otherwise, to
purchase, redeem or otherwise acquire any shares of its capital stock (other
than the Shares) or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Upon the effectiveness of this Agreement,
no person or entity will be entitled to any preemptive right, right of first
refusal or similar right with respect to the issuance, sale, redemption or
transfer of any capital stock of the Company or any rights with respect to the
registration of any capital stock of the Company under federal or state
securities laws, except for the registration rights contained in the
Registration Rights Agreement, dated as of February 27, 2001, between the
Company and Zanett Securities Corporation (the "FEBRUARY REGISTRATION RIGHTS
AGREEMENT") and in this Agreement. There are no existing voting or stock
restriction agreements or similar agreements between the Company and any of its
stockholders, nor, to the best knowledge of the Company, are there any such
agreements among any of the Company's stockholders. Immediately after the
Closing, the capital stock of the Company issued and outstanding and the
Employee Reserved Shares and Warrant Shares will be as stated in SCHEDULE C
hereto.
3.5 SEC DOCUMENTS, FINANCIAL STATEMENTS. Since May 1, 2000,
the Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it with
the Securities and Exchange Commission (the "SEC") pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") (all of the foregoing and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act or the Securities Act of 1933 (the
"SECURITIES ACT"), as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. None of the
statements made in any such SEC Documents is, or has been,
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required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings made prior to
the date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to immaterial year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents filed prior to the date hereof, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such financial statements, (ii)
liabilities not required by GAAP to be disclosed on a balance sheet prepared in
accordance with GAAP, and (iii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under GAAP to be
reflected in such financial statements, which liabilities and obligations
referred to in clauses (i), (ii) and (iii), individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
3.6 CHANGES. Since the most recent filing of SEC Documents
including the Company's financial statements (the "MOST RECENT FINANCIALS
DATE"), there has not been any event or condition of any type known to the
Company, other than events affecting the economy generally, that has materially
and adversely affected the Company's business, prospects, condition, affairs,
operation, properties or assets. Since the Most Recent Financials Date, the
physical properties owned or leased by the Company have not suffered any
material destruction or damage, regardless of whether or not any such loss was
insured against.
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS. Except as set forth
in SCHEDULE B, and subject to the Senior Indebtedness (as that term is defined
in Section 11 hereof) obligations of the Company under that certain Accounts
Receivable Financing Agreement, dated February 6,
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2001, between the Company and Alliance Financial Capital, Inc. (the "ALLIANCE
FINANCING AGREEMENT"), the Company has good and marketable title to all its
properties and assets and has good title to all its leasehold estates in each
case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
than minor liens and encumbrances which do not in any case materially detract
from the value of the property subject thereto or materially impair the
operations of the Company and which have not arisen otherwise than in the
ordinary course of business.
3.8 COMMITMENTS. Attached hereto as EXHIBIT C is a list of all
agreements, contracts, indebtedness, liabilities and other obligations,
including any agreements related to the issuance or resale of securities
(excluding any such agreements in connection with the Employee Reserved Shares)
(collectively, "COMMITMENTS") to which the Company is a party or by which it is
bound and which are material to the conduct and operations of its business. For
purposes of this Section 3.8, a Commitment occurring in the ordinary course of
the Company's business shall not be considered material unless it, together with
other Commitments with the same party, involve more than $100,000, except that,
where a Commitment consists of an agreement to license the Company's product to
a third party in the ordinary course of the Company's business, such Commitment
shall not be considered material unless it, together with other Commitments with
the same party, involve more than $200,000.
3.9 INTELLECTUAL PROPERTIES. The Company has or believes that
it can develop or obtain on commercially reasonable terms sufficient and valid
right, title and ownership in and of all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
copyright applications, licenses, permits, trade secrets, inventions, domain
names, know how, (including other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTELLECTUAL PROPERTIES"), including
without limitation those relating to the Company's signaling, voice, and data
system products, or licenses, rights or purchase options with respect to the
foregoing, necessary for the conduct of its business as now being conducted and
as described in the Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 2000, or will be able to obtain on terms which will not
materially and adversely affect its business all such necessary permits,
licenses and other authority with respect thereto without any
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conflict with or infringement of the known or asserted rights of others. EXHIBIT
A of the Conditional Assignment Agreement (as defined in Section 11.5) contains
a complete list of Intellectual Properties owned or used by the Company. Neither
the Company nor, to the Company's knowledge, any officer or management,
technical or professional employee of the Company is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict with the Company's business as
conducted (or as currently proposed to be conducted) or, in the case of any such
employee, such employee's right to be employed by the Company. The Company does
not believe it is utilizing any inventions or proprietary ideas of any of its
employees (or persons it currently intends to hire) made prior to their
employment by the Company and which are known by the Company to be inventions of
such employees or persons. To the best of the Company's knowledge, the Company
has obtained all governmental permits, authorizations, approvals and licenses
known by the Company to be necessary for its business as now conducted and as
currently proposed to be conducted and the absence of which would have a
material adverse effect on the Company.
3.10 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth in
SCHEDULE B, the Company is not in violation in any material respect of any term
of its Certificate of Incorporation, By-laws, or any Commitment, judgment,
decree, order or, to its knowledge, any statute, rule or regulation applicable
to the Company. The execution, delivery and performance of and compliance with
this Agreement, and the issuance of the Convertible Debenture and Warrant
pursuant hereto, will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, a material
default under any such term, or result in the creation of any pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such terms.
3.11 LITIGATION. Except as set forth in SCHEDULE B, there is
no action, suit, proceeding, inquiry or investigation pending or, to the
Company's knowledge, currently threatened against or affecting the Company or
any of their respective directors or officers in their capacities as such, which
questions the validity of this Agreement or the right of the Company to enter
into it or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets,
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condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor does the Company know
of any basis for the foregoing. The foregoing includes, without limitation,
actions which to the Company's knowledge are pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's officers or employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. Except as set forth in the Company's Form 10K for the fiscal year
ended April 30, 2000, the Company is not a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality.
3.12 INSURANCE. All of the insurable properties of the Company
are insured for the benefit of the Company with coverage extending to the
properties' full replacement value. The key person insurance coverage referred
to in Section 7.9 shall be secured as soon as practicable after the date hereof.
3.13 GOVERNMENTAL CONSENT. Except as provided in Section 8
hereof, based in part on the representations and warranties of the Purchaser in
Section 4, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement.
3.14 DISCLOSURE. All information relating to or concerning the
Company set forth in this Agreement or provided to the Purchaser in writing or
orally by senior management of the Company in connection with the transactions
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein not misleading. No event or circumstance known
to the Company has occurred or exists with respect to the Company or its
business, properties, prospects, operations or financial conditions, which has
not been publicly disclosed but, under applicable law, rule or regulation, would
be required to be disclosed by the Company in a registration statement filed on
the date hereof by the Company under the Securities Act with respect to the
primary issuance of the Company's securities.
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3.15 AGREEMENTS; CHANGES.
(a) Except for this Agreement, the agreements referred to in
this Agreement, or the Schedules hereto, employment relationships between the
Company and certain stockholders, and options granted pursuant to Company option
plans, there are no agreements, understandings or proposed transactions between
the Company and any person or entity which is a stockholder, officer or director
of the Company, a relative by blood or marriage of, a trust or estate for the
benefit of, or a person or entity which directly or indirectly controls, is
controlled by, or is under common control with, any such person or entity
(hereinafter referred to as an "ASSOCIATE").
(b) Since the Most Recent Financials Date, the Company has not
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
presently in excess of $50,000 or in excess of $100,000 in the aggregate, other
than (A) in the ordinary course of business, and (B) pursuant to the Alliance
Financing Agreement, (iii) made any loans or advances to any person, other than
in the ordinary course of business, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than in the ordinary course of
business.
3.16 TAX STATUS. Except as set forth on SCHEDULE B, the
Company has made or filed all foreign, federal, state and local income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company has set
aside on its books provisions reasonably adequate for the payment of all unpaid
and unreported taxes) and has paid all taxes and other governmental assessments
and charges, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. Except as set forth on SCHEDULE B, there are no unpaid taxes claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any federal, state or local tax. Except as set forth on SCHEDULE
B, none of the Company's tax returns is presently being audited by any taxing
authority.
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3.17 EMPLOYEES. There are no material controversies pending
or, to the knowledge of the Company, currently threatened between it and its
employees. Other than in connection with the proposed Sale of the Chanlcomm
Division as described on SCHEDULE B, to the Company's knowledge no executive
officer or key management employee has any present intention of terminating his
or her employment with the Company and the Company has no present intention of
terminating any such employment. The Company is not a party to any collective
bargaining agreement and, to its knowledge, no organizational efforts are
presently being made with respect to any of its employees. The Company has
complied in all material respects with all applicable state and federal laws and
regulations respecting employment and employment practices, terms and conditions
of employment, wages and hours and other laws related to employment, and there
are no arrears in the payments of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations.
3.18 RETIREMENT OBLIGATIONS. Except as set forth in SCHEDULE
B, the Company has no pension, retirement or similar plan or obligation, whether
of a legally binding nature or in the nature of informal understandings.
3.19 BOOKS AND RECORDS. The minute books of the Company
contain accurate summary records of all meetings and written consents to action
of the Company's stockholders, the Board and all committees, if any, appointed
by the Board. The books of account and other financial records and the order
books, if any, of the Company accurately and completely reflect all material
information purported to be shown therein in all material respects.
3.20 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
3.21 NO GENERAL SOLICITATION. Neither the Company nor any
person acting for the Company, has conducted any "general solicitation," as such
term is defined in Regulation D, with respect to any of the Convertible
Debenture, Warrant, or Shares issued or issuable upon conversion of the
Convertible Debenture or exercise of the Warrant, as such are being offered
hereby.
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3.22 ENVIRONMENTAL LIABILITIES.
(a) To its knowledge, the Company has no obligations or
liabilities, matured or not matured, absolute or contingent, assessed or
unassessed, which could reasonably be expected to have a material and adverse
effect, and no pending claims have been made against it and no currently
outstanding citations or notices including, without limitation, notice letters,
information requests or notices of potential responsibility, have been issued
against it, which could reasonably be expected to have a material and adverse
effect, and which, in the case of any of the foregoing, have been or are imposed
by reason of or based upon any provision of any Environmental Laws.
(b) As used herein, the term "ENVIRONMENTAL LAWS" shall mean
any and all federal, state, local, or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, or requirements of any
federal, state, municipal, or other governmental department, commission, board,
bureau, agency, or instrumentality, or other court or arbitrator, in each case
whether of the United States or foreign, regulating, relating to, or imposing
liability or standards of conduct concerning any hazardous materials or
petroleum products or environmental protection, as now in effect.
3.23 FOREIGN CORRUPT PRACTICES ACT. The Company has not taken
any action which would cause it to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules and regulations thereunder. To
the knowledge of the Company, there is not now, and there has never been, any
employment by the Company of, or beneficial ownership in the Company by, any
governmental or political official in any country in the world.
3.24 KNOWLEDGE QUALIFICATION. As used in this Section 3, all
references to information known to the Company or to the Company's knowledge
shall mean information that is actually, constructively, and impliedly known to
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("CHIEF EXECUTIVE OFFICER") or any other executive officer of
the Company.
3.25 ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF THE
CONVERTIBLE DEBENTURE & WARRANT.
(a) The Company acknowledges and agrees that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement or the transactions contemplated
hereby, the relationship between the Company and
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the Purchaser is "arms-length" and any statement made by the Purchaser or any of
its representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Purchaser's purchase of the Convertible Debenture and the
Warrant and has not been relied upon by the Company, its officers or directors
in any way.
(b) The Company and the Purchaser also acknowledge that the
Company's and the Purchaser's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and the Purchaser, as
the case may be, and their representatives.
(c) The Company and the Purchaser further acknowledge that,
notwithstanding any meaning to the contrary, the Convertible Debenture is
intended to be and shall be a secured instrument to the benefit of the
Purchaser, as prescribed in Section 11 of this Agreement.
3.26 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause this offering of the
Convertible Debenture and Warrant to be integrated with any prior offering of
securities of the Company for purposes of the Securities Act or for purposes of
any applicable stockholder approval provisions, and, for purposes of the
Securities Act, neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would require registration of the Convertible Debenture, the
Warrant, or Shares issued or issuable upon conversion of the Convertible
Debenture or exercise of the Warrant being offered hereby under the Securities
Act.
3.27 REGULATORY PERMITS. The Company possesses all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities which are material to the conduct of its
business, and the Company has not received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization or permit.
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4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company as follows:
4.1 AUTHORITY. Such Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of Canada. Any corporate,
partnership or similar action on the part of such Purchaser necessary for the
purchase of the Convertible Debenture and Warrant and the performance of its
obligations hereunder has been taken or will be taken prior to the Closing Date.
This Agreement, when executed and delivered by such Purchaser, will constitute a
valid and legally binding obligation of such Purchaser, enforceable in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy laws or other similar laws affecting creditors' rights generally.
4.2 INVESTMENT REPRESENTATIONS. This Agreement is made with
Purchaser upon the understanding as a specific representation to the Company by
such Purchaser that:
(a) the Convertible Debenture purchased hereunder will be
acquired for Purchaser's own account and not with a view to the distribution of
any part thereof, and Purchaser has no present intention of selling, granting
participations in, or otherwise distributing the same;
(b) the Warrant issued by the Company hereunder will be
acquired for Purchaser's own account and not with a view to the distribution of
any part thereof, and Purchaser has no present intention of selling, granting
participations in, or otherwise distributing the same;
(c) Purchaser acknowledges that it has the knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of and protecting Purchaser's own interests in connection
with it's purchase of such Convertible Debenture and Warrant, has had the
opportunity to ask such questions of the Company and to review such documents as
Purchaser deemed necessary in connection with its purchase of the Convertible
Debenture and Warrant, is able to fend for Purchaser in the transactions
contemplated by this Agreement and has the ability to bear the economic risk of
Purchaser's investment pursuant to this Agreement;
(d) Purchaser is an accredited investor, as defined in Rule
501 promulgated by the SEC pursuant to the Securities Act; and
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(e) Purchaser understands that such Convertible Debenture and
Warrant are characterized as "restricted securities" under the federal
securities laws and certain state securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such Convertible Debenture and
Warrant may be converted into or exercised in exchange for Shares which may be
resold without registration under the Securities Act and those state securities
laws only in certain limited circumstances.
4.3 BROKERS. Purchaser has no contract, arrangement or
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
5. CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT CLOSING. The obligation
of the Purchaser to purchase the Convertible Debenture and the Warrant at the
Closing is subject to the fulfillment on or prior to the Closing Date of each of
the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they had been made on and as
of said date, subject to changes contemplated by this Agreement; and the Company
shall have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.
5.2 OPINION OF COUNSEL. The Purchaser shall have received from
▇▇▇▇▇▇▇, Dunaud, Mercadier & Carreras, LLP, counsel to the Company, an opinion,
dated as of the Closing Date, as to matters covered by Sections 3.1, 3.2, 3.3,
3.4, 3.5, 3.11, 3.13, and 3.28, with customary qualifications.
5.3 QUALIFICATIONS. All authorizations, approvals or permits
of any governmental authority that are required in connection with the lawful
issuance and sale of the Convertible Debenture and the Warrant under this
Agreement shall have been duly obtained and shall be effective.
5.4 DIRECTORS. The Purchaser shall have the right but not the
obligation to designate one director on the Company's board of directors (the
"BOARD"), who shall also be
15
nominated to chair the Audit Committee. If Purchaser chooses to exercise this
right, the directors of the Company shall consist of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇, and such individual
designated by Purchaser, such person to be approved by a majority of the other
directors at the next regularly scheduled meeting of the Board.
5.5 CHIEF EXECUTIVE OFFICER CERTIFICATE. The Chief Executive
Officer shall have executed and delivered to the Purchaser a certificate in the
form of EXHIBIT F.
5.6 WARRANT TO PURCHASE COMMON STOCK. The Company shall have
executed and delivered to Purchaser a warrant to purchase 3,363,229 shares of
Common Stock (the "WARRANT"), to be exercised, at a price per share of $0.5575
(such price subject to adjustment in the event of any stock dividend, stock
split, combination, reclassification or other similar event); such Warrant shall
be in the form attached as EXHIBIT G hereto.
5.7 PRE-APPROVAL OF PRESS RELEASE. The Purchaser shall have
the opportunity to approve any press release to be issued by the Company, prior
to such issuance, announcing the purchase by the Purchaser of the Convertible
Debenture and the Warrant. Such approved press release is attached hereto as
EXHIBIT E.
5.8 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to the Purchaser and counsel to the Purchaser, and the
Purchaser shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
6. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell and issue the Convertible Debenture and the Warrant at the
Closing is subject to the fulfillment on or prior to the Closing Date of the
following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Purchaser in Section
4 hereof shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of said date, and the Purchaser shall have performed all
16
obligations and conditions herein required to be performed by them on or prior
to the Closing Date.
6.2 QUALIFICATIONS. All authorizations, approvals or permits
of any governmental authority that are required in connection with the lawful
issuance and sale of the Convertible Debenture under this Agreement shall have
been duly obtained and shall be effective.
7. COVENANTS OF THE COMPANY OR THE PURCHASER. The Company and the
Purchaser, in the case of Section 7.5, hereby covenant and agree as follows:
7.1 PAYMENTS OF PRINCIPAL AND INTEREST. The Company shall duly
and punctually pay, or cause to be paid, the principal and interest on the
Convertible Debenture as set forth in Section 1 of the Convertible Debenture.
7.2 PLEDGE OF ASSETS. The Company shall not cause or permit to
exist, or agree or consent to cause or permit to exist, any of its property or
assets to be subject to a security interest or other encumbrance, except for
such liens, security interests and other encumbrances in favor of the holders of
Senior Indebtedness (as such term is defined in Section 11.3 herein) and those
in favor of the Purchaser created by Section 11 of this Agreement.
7.3 FINANCIAL INFORMATION. The Company will furnish the
following reports, via electronic transmission, to the persons indicated:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as practicable, but
in any event within 90 days after the end of each fiscal year of the Company, a
consolidated statement of earnings for such fiscal year, a consolidated balance
sheet of the Company as of the end of such year, and a consolidated statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles,
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company and reasonably acceptable to the
Purchaser, shall be furnished to the Purchaser and to its transferees.
(b) AUDIT REPORTS. As soon as available, copies of all other
financial reports submitted to the Company or any Subsidiary (as defined in
Section 3.3) by independent public
17
accountants, relating to any annual or interim audit of the books of the Company
or any Subsidiary, shall be furnished to the Purchaser and to its transferees.
(c) QUARTERLY FINANCIAL STATEMENTS. Within 45 days of the end
of each quarter, an unaudited statement of earnings, balance sheet and statement
of cash flow and current operating plan of the Company for or as of the end of
such quarter, in reasonable detail, shall be furnished to the Purchaser.
(d) REGULATORY FILINGS. Within 10 days after filing, copies of
all reports filed by the Company pursuant to Section 13 or Section 15(d) of the
Exchange Act shall be furnished to the Purchaser and their transferees and,
promptly upon request by the Purchaser, the Company shall furnish copies of
press releases and other documents that the Company shall have released to the
press during the preceding 90 days.
(e) LITIGATION. Promptly upon the Company's learning thereof,
notice shall be furnished to the Purchaser of (i) any litigation filed against
or affecting the Company or any Subsidiary, whether or not covered by insurance,
which litigation involves an amount in controversy in excess of $50,000 or which
litigation is requesting a specific equitable remedy including, without
limitation, an injunction or restraining order, and (ii) the institution of any
suit or administrative proceeding which is reasonably expected materially and
adversely to affect the business, assets, operations, prospects, employee
relations or condition (financial or otherwise) of the Company or any
Subsidiary.
(f) UNBUDGETED COSTS. Promptly upon the occurrence thereof,
notice of any event which has resulted in, or could reasonably be expected to
result in, an unanticipated cost to the Company or any Subsidiary in excess of
$150,000, including, without limitation, disputes with customers, employees,
consultants or creditors or disputes relating to contractual obligations and
amendments, modifications or waivers of any such obligation, shall be furnished
to the Purchaser.
(g) OTHER INFORMATION. The Company shall furnish to Purchaser,
and to each transferee or prospective transferee of Purchaser, such other
information relating to the financial condition, business, prospects or
corporate affairs of the Company as Purchaser may from time to time reasonably
request; provided, however, that the Company shall not be obligated to provide
information which the Company deems in good faith to be proprietary or the
disclosure of which
18
might violate Regulation FD. Notwithstanding the foregoing provisions of this
Section 7.2 or Section 7.4, the Company shall not be obligated to furnish
information to Purchaser or a transferee or prospective transferee of Purchaser
unless Purchaser or such transferee or prospective transferee holds (or will
hold immediately following such transfer) no less than 25% of the Shares
issuable upon conversion of the Convertible Debenture or exercise of the Warrant
purchased by Purchaser pursuant to this Agreement and unless, in the case of a
transferee or prospective transferee, such transferee or prospective transferee
shall have agreed in writing to be bound by the provisions of Section 7.3.
7.4 INSPECTION. The Company shall permit Purchaser to visit
and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by Purchaser upon
reasonable notice to the Company; provided, however, that the Company shall not
be obligated pursuant to this Section 7.4 to provide access to any information
which it reasonably considers to constitute a trade secret or to contain
similarly confidential information and disclosure of which might violate
Regulation FD.
7.5 CONFIDENTIALITY OF INFORMATION. Purchaser agrees to
maintain the confidentiality of any information obtained by Purchaser pursuant
to Sections 7.3 or 7.4 or otherwise in connection with the Agreement which may
be proprietary to the Company or otherwise confidential and which has not been
made available by the Company to the public or to any other third party on a
non-confidential basis. Purchaser further agrees to use such proprietary and
confidential information only to benefit the Company or to monitor such
Purchaser's investment in the Company and to make no disclosure thereof to a
third party (other than his or its general or limited partners, staff and legal
and other professional advisers or in connection with furnishing of sample
reports to prospective general or limited partners or other sources of capital)
without the Company's prior written consent (which may be conditioned upon
receipt of a similar undertaking by the third party but otherwise shall not be
unreasonably withheld).
7.6 USE OF PROCEEDS. The Company will use the proceeds from
the sale of the Convertible Debenture hereunder for working capital purposes
and/or other transactions
19
approved by the Board. The Company shall not use said proceeds to satisfy any of
the obligations in connection with the litigation matters set forth on SCHEDULE
B.
7.7 FILING OF FORM 8-K. Within fifteen (15) days after the
Closing, the Company shall file a Current Report on Form 8-K with the SEC
describing the terms of the transactions contemplated by this Agreement in the
form required by the Exchange Act.
7.8 CREDIT LINE BALANCE. For as long as the Convertible
Debenture is outstanding, the Company shall cause the outstanding balance under
the Alliance Financing Agreement not to exceed $3,000,000, provided that the
Company's Chief Financial Officer shall notify the Purchaser if the outstanding
balance under the Alliance Financing Agreement exceeds $1,500,000, and shall
report weekly to the Purchaser during such time that the outstanding balance
remains in excess of $1,500,000.
7.9 KEY PERSON LIFE INSURANCE. As soon as practicable after
the date hereof, the Company shall use its best efforts to secure, and shall at
all times thereafter maintain in force the policies of life insurance, naming
the Company as beneficiary on the life of the Chief Executive Officer in the
face amount of $500,000.
7.10 CERTAIN TRANSACTIONS. The Company agrees that it will not
enter into any transaction or agreement (other than normal compensation
arrangements), including without limitation any lease or other rental or
purchase agreement or any agreement providing for loans or extensions of credit
by or to the Company, or any modification of any of the foregoing, (for purposes
of this Section 7.10, a "contract") with any Associate as defined in Section
3.15(a), or with respect to which any such person or entity has or is to have a
direct or indirect material interest, unless such contract has been approved by
no less than a majority of the number of directors constituting the whole Board
(excluding, if a director, any such person associated with the Company and
having such an interest in the contract in question) or unless such contract was
in effect or contemplated on the date hereof and disclosed to the Purchaser in
this Agreement (including the Schedules and Exhibits hereto) or unless such
contract is non-material and in the ordinary course of business. For purposes
hereof, a contract shall be deemed to be non-material if it and all other
contracts (excluding, for this purpose, compensation under employment contracts
and other compensation arrangements) between the Company and the person or
entity
20
in question do not involve payment by or to the Company during any fiscal year
of more than $25,000.
7.11 DIRECTOR'S FEES. Commencing on the Closing Date, if
annual directors' fees are paid to any other member of the Board, the Company
will pay to any Purchaser-affiliated director or such director's designee an
annual director's fee in an amount equal to the highest annual fee so paid. The
Company will also promptly reimburse all reasonable out-of-pocket expenses
consistent with Company policy and incurred by any such Purchaser-affiliated
director in connection with attending meetings of the Board.
7.12 NON-COMPETITION OF CERTAIN KEY EMPLOYEES. Unless
otherwise determined in a particular case by the Board, the Company will use its
best efforts to cause each present and future key employee of the Company or any
subsidiary of the Company, including without limitation the Company's chairman
of the board, chief executive officer, president, chief operating officer, chief
financial officer, treasurer, vice president of sales and marketing, vice
president (or similar position) of research and development, and regional sales
managers, (referred to herein as "KEY EMPLOYEES") to enter into an agreement
with the Company containing covenants substantially similar to those contained
in EXHIBIT D, subject to any modifications deemed appropriate by the Company's
counsel to comply with local law.
7.13 INDEMNIFICATION. The Certificate of Incorporation or
By-Laws shall at all times during which any affiliate of Purchaser serves as a
member of the Board provide for limitations on the liability of the directors
and indemnification of the directors to the fullest extent permitted under
applicable law.
7.14 CAPITAL EXPENDITURES. The Company will not, without the
approval of the Board, make any expenditures for software or software licenses
from third parties or for fixed or capital assets, or make any commitments for
such expenditures, exceeding an amount of $250,000 for any one such expenditure
or series of related expenditures.
7.15 FORM D: BLUE SKY LAWS. The Company agrees to file a Form
D with respect to the Convertible Debenture and Warrant as required under
Regulation D and to provide a copy thereof to the Purchaser promptly after such
filing. The Company shall, on or within ten days of the date of the Closing,
take such action as the Company shall reasonably determine is necessary to
qualify the Convertible Debenture and Warrant under applicable securities laws
or
21
obtain exemption therefrom, and shall provide evidence of any such action so
taken to the Purchaser on or prior to the date of the Closing.
7.16 INTERNATIONAL INVESTMENT. The Company shall prepare and
file (and, to the extent necessary, furnish) all required reporting
documentation under the International Investment and Trade in Services ▇▇▇▇▇▇
▇▇▇, ▇▇ U.S.C., sec. 3101 ET SEQ., to the extent applicable.
7.17 TERMINATION OF COVENANTS. The covenants set forth in this
Section 7 (other than those in Sections 7.13) shall terminate upon the earlier
of (i) the effectiveness of the registration, pursuant to Section 8, covering
the offer and sale by the Company of all the Shares issued to Purchaser upon the
conversion of the Convertible Debenture and the exercise of the Warrant, or (ii)
10 years from the Closing Date.
8. REGISTRATION RIGHTS.
8.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "HOLDER" shall mean the Purchaser and any transferee of
the Purchaser so long as such transferee holds at least 1% of the outstanding
capital stock of the Company or acquired at least 10% of Shares issuable or
issued to Purchaser under the Convertible Debenture and Warrant, and provided
such transferee agrees in writing with the Company to hold such stock subject to
all the restrictions of this Agreement.
(b) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the SEC.
(c) "REGISTRABLE SECURITIES" means the Shares issuable upon
the conversion of the Convertible Debenture (including all accrued but unpaid
interest therein, assuming conversion of the Convertible Debenture immediately
prior to its expiration date), and the Shares issued or issuable upon exercise
of, or otherwise with respect to, the Warrant and any shares of
22
capital stock issued or issuable, from time to time (with any adjustments), as a
distribution on or in exchange for or otherwise with respect to any of the
foregoing.
(d) "REGISTRATION STATEMENT" means a registration statement of
the Company under the Securities Act.
8.2 REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and, as
soon as practicable, but not later than the thirtieth (30th) day after the date
of the filing of the Company's fiscal year 2001 financial results (the "FILING
DATE") or July 31, 2001, whichever comes first, file with the SEC a first
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of all of the Registrable Securities required to be included in
such Registration Statement on or before the sixtieth (60th) day following the
filing of the Company's fiscal year 2001 financial results, but in no case later
than August 31, 2001) covering the resale of the Registrable Securities issued
or issuable pursuant to conversion of the Convertible Debenture and exercise of
the Warrant, assuming conversion of one million five hundred thousand dollars
($1,500,000) in principal and all of the accrued interest on the Convertible
Debenture as of the Filing Date. The number of Registrable Securities that the
Company shall include in this first Registration Statement shall cover the
number of Shares that would be issuable to Holder if interest were to accrue on
the entire principal balance of the Convertible Debenture from the initial
Filing Date until June 1, 2006. On or before the date that is one year after the
initial Filing Date, the Company shall prepare and file a second Registration
Statement covering the resale of the Registrable Securities issued or issuable
upon conversion of the Convertible Debenture and exercise of the Warrant,
assuming conversion of one million five hundred thousand dollars ($1,500,000) in
principal and all of the interest that would accrue on the Convertible Debenture
from the Filing Date of the first Registration Statement until June 1, 2006,
assuming that the entire principal amount remained outstanding for that period.
The Registration Statements filed hereunder, to the extent allowable under the
Securities Act and the Rules promulgated thereunder (including Rule 416), shall
state that such Registration Statements also cover such indeterminate number of
additional shares of Common Stock as may become issuable upon the conversion of
the Convertible Debenture and the exercise of the Warrant to prevent dilution
resulting from stock splits, stock
23
dividends or similar recapitalizations. The Registrable Securities included in
any Registration Statement filed hereunder shall be allocated to the Holders as
set forth in Section 8.12 hereof. The Registration Statements filed hereunder
(and each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to review by) the
Holder and Holder's counsel prior to its filing or other submission, provided
that no such review shall affect the Holder's rights under Section 8.6 hereof.
Such Registration Statements may not include other shares of stock as registered
by the Company or by any other stockholder of the Company, provided however,
that the Company may include shares held by Zanett Securities Corporation,
provided further that if a Registration Statement filed in connection with an
underwritten public offering is subject to an underwriter's cut-back, such
cut-back should be distributed pro rata between the Holders and Zanett
Securities Corporation.
(b) PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC 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 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), the Company shall
send to each Holder who is entitled to registration rights under this Section
8.2(b) written notice of such determination and, if within five (5) business
days after the date of such notice, 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, except that if, in
connection with any underwritten public offering, the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Holder has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Holders seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Holders; provided, however, that the
24
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities in accordance
with agreements predating the date hereof, and provided, further that, after
giving effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of mandatory registration rights. No right to
registration of Registrable Securities under this Section 8.2(b) shall be
construed to limit any registration required under Section 8.2(a) hereof. If an
offering in connection with which a Holder is entitled to registration under
this Section 8.2(b) is an underwritten offering, then each Holder whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Section 8, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
8.3 OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall have the following
obligations:
(a) The Company shall prepare and file with the SEC the
Registration Statements required by Section 8.2(a) (but in no event later than
the applicable Filing Date with respect thereto), and use reasonable best
efforts to cause such Registration Statements relating to Registrable Securities
to become effective as soon as practicable after such filing, and keep such
Registration Statements effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Holders) may be
immediately sold to the public without registration or restriction pursuant to
Rule 144(k) under the Securities Act or any successor provision (the
"REGISTRATION PERIOD"), which Registration Statements (including any amendments
or supplements thereto and prospectuses contained therein and all documents
incorporated by reference therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
25
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statements until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statements.
(c) The Company shall furnish to each Holder whose Registrable
Securities are included in any Registration Statement (i) promptly after the
same is prepared and publicly distributed, filed with the SEC, or received by
the Company, one copy of each such Registration Statement and any amendment
thereto, each preliminary prospectus and prospectus and each amendment or
supplement thereto, and, in the case of any Registration Statement referred to
in Section 8.2(a), each letter written by or on behalf of the Company to the SEC
or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of any Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to any such Registration Statement (other than any
portion, if any, thereof which contains information for which the Company has
sought confidential treatment), (ii) on the date of effectiveness of any
Registration Statement or any amendment thereto, a notice stating that such
Registration Statement or amendment has been declared effective, and (iii) such
number of copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as such Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Holder.
(d) The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by each Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Holder who holds Registrable Securities being offered reasonably
requests (but in no event shall the Company be required to make such
registration and qualification in more than 10 states), (ii) prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements to such
26
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 8.3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
(e) In the event the Holders who hold a majority in interest
of the Registrable Securities which are initially requested to be offered in an
offering select underwriters for the offering, the Company shall enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
(f) As promptly as practicable after becoming aware of such
event, the Company shall notify each Holder of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
a Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission within thirty (30) days, and deliver
such number of copies of such supplement or amendment to each Holder as such
Holder may reasonably request.
(g) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to use its best efforts
to obtain the withdrawal of such order at the earliest practicable moment
(including in each case by amending or supplementing such Registration
Statement) and to notify each Holder who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance of such order and the
27
resolution thereof (and if such Registration Statement is supplemented or
amended, deliver such number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request).
(h) The Company shall permit a single firm of counsel
designated by the Holders to review each Registration Statement (at the Holders'
expense) and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, and shall not file any document which
contains information relating to such Holders in a form as to such counsel
reasonably objects.
(i) The Company shall make available for inspection by any
underwriter participating in any disposition pursuant to a Registration
Statement, one firm of attorneys retained by all such underwriters
(collectively, the "INSPECTORS") at such Inspectors' expense all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary and customary in similar transactions by each Inspector to enable each
Inspector to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; provided, however,
that each Inspector shall agree to hold in confidence and shall not make any
disclosure (except to a Holder) of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto. Each Holder agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a
28
protective order for, the Records deemed confidential. Nothing herein shall be
deemed to limit the Holders' ability to sell Registrable Securities in a manner
which is otherwise consistent with applicable laws and regulations.
(j) The Company shall hold in confidence and not make any
disclosure of information concerning a Holder provided to the Company unless:
(i) disclosure of such information is necessary to comply with federal or state
securities laws (as determined in good faith by the Company upon advice of
outside legal counsel), (ii) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, (v) such Holder consents
to the form and content of any such disclosure or (vi) such information is
required by the SEC; provided that such Holder shall have an opportunity to
request confidential treatment thereof. The Company agrees that it shall, upon
learning that disclosure of such information concerning a Holder is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Holder prior to making such disclosure, and
allow the Holder, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
(k) The Company shall use its best efforts to promptly either
(i) cause all of the Registrable Securities covered by any Registration
Statement to be reported on or listed on the Bulletin Board (if required by
applicable rules and regulations), NYSE or the AMEX or another national
securities exchange and on each additional national securities exchange on which
securities of the same class or series issued by the Company are then listed, if
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) secure the designation and quotation of all of
the Registrable Securities covered by any Registration Statement on the Bulletin
Board, NNM or SmallCap and, without limiting the generality of the foregoing, to
arrange for or maintain at least two market makers to register with the National
Association of Securities Dealers, Inc. as such with respect to such Registrable
Securities.
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(l) The Company shall continue to provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of any Registration Statement.
(m) The Company shall cooperate with the Holders who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to any Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Holders may reasonably
request (at the underwriters' or Holders' cost and expense) and registered in
such names as the managing underwriter or underwriters, if any, or the Holders
may request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Holders whose Registrable Securities are included in such Registration
Statement) an opinion of such counsel in a form reasonably acceptable to Holder.
(n) At the request of any Holder, (and at the Underwriter's or
Holder's cost and expense) the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
(o) The Company and any managing underwriter or underwriters,
and any Holder shall comply with all applicable laws related to a Registration
Statement and offering and sale of securities and all applicable rules and
regulations of governmental authorities in connection therewith (including,
without limitation, the Securities Act and the Exchange Act, as amended, and the
rules and regulations promulgated by the SEC.)
(p) The Company shall take all such other actions as any
Holder or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Registrable Securities pursuant to the terms
of the Registration Statement; provided that any such additional actions shall
be at the sole cost and expense of the person requesting same.
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8.4 OBLIGATIONS OF THE HOLDERS. In connection with the
registration of the Registrable Securities, the Holders shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Section 8 with respect
to the Registrable Securities of a particular Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify the Holders of the information the Company
requires from each such Holder.
(b) Each Holder, by such Holder's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of each
Registration Statement hereunder, unless such Holder has notified the Company in
writing of such Holder's election to exclude all of such Holder's Registrable
Securities from such Registration Statement.
(c) In the event Holders holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Holder agrees to enter into and perform such Holder's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Holder has notified the
Company in writing of such Holder's election not to participate in such
underwritten distribution.
(d) Each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Sections
8.3(f) or 8.3(g), such Holder will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Sections 8.3(f) or 8.3(g)
and, if so directed by the Company, such Holder shall deliver to the Company (at
the expense of the
31
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
(e) No Holder may participate in any underwritten distribution
hereunder unless such Holder (i) agrees to sell such Holder's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 8.5 below.
8.5 EXPENSES OF REGISTRATION. All reasonable expenses, other
than underwriting discounts and commissions, and expenses of any underwritter
and its counsel, incurred in connection with registrations, filings or
qualifications pursuant to Sections 8.2 and 8.3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the Company shall be borne by the
Company.
8.6 INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Holder who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, legal counsel,
employees, agents and each person who controls any Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act , as amended,
if any, (each, an "INDEMNIFIED PERSON"), against any joint or several losses,
claims, damages, liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, in respect thereof, "CLAIMS") to which any of
them may become subject insofar as such Claims arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein
not misleading, (ii) any untrue
32
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation by the
Company of the Securities Act, the Exchange Act, any other applicable securities
law, including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
8.6(c) with respect to the number of legal counsel, the Company shall reimburse
the Holders and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 8.6(a): (i) shall not apply
to a Claim arising out of or based upon a Violation which occurs in reliance
upon information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto or in any filings required by any state's securities laws;
(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company (which
consent shall be unreasonably withheld); and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 8.3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive any permissible transfer of the Registrable
Securities by the Holders pursuant to Section 8.9 hereof.
33
(b) In connection with any Registration Statement in which a
Holder is participating, each such Holder agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 8.6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such Registration
Statement; and subject to Section 8.6(c) such Holder will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 8.6(b)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Holder (which consent shall
not be unreasonably withheld); provided, further, however, that the Holder shall
be liable under this Section 8 (including this Section 8.6(b) and Section 8.7)
for only that amount as does not exceed the net proceeds actually received by
such Holder as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Holders
pursuant to Section 8.9 hereof. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 8.6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, and the Indemnified Party failed to utilize
such corrected prospectus.
34
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 8.6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 8.6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Holders holding a majority-in-interest of the Registrable Securities included in
the Registration Statement to which the Claim relates, if the Holders are
entitled to indemnification hereunder, or by the Company, if the Company is
entitled to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 8.6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section 8.6
shall be made
35
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
8.7 CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 8.6 to the fullest extent permitted by
law; provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 8.6, (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation, and (iii)
contribution (together with any indemnification or other obligations under this
Agreement) by any seller of Registrable Securities shall be limited in amount to
the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8.8 REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit the Holders to sell securities of the Company to the public
without registration ("RULE 144"), the Company agrees to:
(a) file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements and the filing and availability of such reports and other
documents is required for the applicable provisions of Rule 144; and
(b) furnish to each Holder so long as such Holder owns the
Convertible Debenture, Warrant, or Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act, and
(ii) such other information as may be reasonably requested to permit the Holder
to sell such securities under Rule 144 without registration, assuming Holder is
qualified to do so.
8.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the
Holders hereunder, including the right to have the Company register Registrable
Securities pursuant to this Section 8, shall be automatically assignable by each
Holder to any permitted transferee (as such term is
36
defined in Section 12.2 herein) of all or any portion of the Convertible
Debenture, the Warrant or the Registrable Securities if: (i) the Holder agrees
in writing with such transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company after such assignment, (ii) the
Company is furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (iv) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (v) such transfer shall have been made in accordance with the applicable
requirements of this Agreement.
8.10 AMENDMENT OF REGISTRATION RIGHTS. Provisions of this
Section 8 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company and Holders who hold a
majority in interest of the Registrable Securities; provided, however, that no
amendment hereto which restricts the ability of a Holder to elect not to
participate in an underwritten offering shall be effective against a Holder
which does not consent in writing to such amendment; provided, further, however,
that no consideration shall be paid to a Holder by the Company in connection
with an amendment hereto unless Holder similarly affected by such amendment
receives a pro rata amount of consideration from the Company. Unless a Holder
otherwise agrees, each amendment hereto must similarly affect each Holder. Any
amendment or waiver effected in accordance with this Section 8.10 shall be
binding upon each Holder and the Company.
8.11 PERSONS DEEMED TO BE A HOLDER. A person or entity is
deemed to be a holder of Registrable Securities whenever such person or entity
owns of record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Registrable Securities, the Company shall act upon the basis
of instructions, notice or election received from the registered owner of such
Registrable Securities.
8.12 ALLOCATION OF REGISTRABLE SECURITIES. The initial number
of Registrable Securities included on any Registration Statement and each
increase (if any) to the number of
37
Registrable Securities included thereon shall be allocated pro rata among the
Holders based on the number of Registrable Securities held by each Holder at the
time of such establishment or increase, as the case may be. In the event a
Holder shall sell or otherwise transfer any of such holder's Registrable
Securities, each transferee shall be allocated a pro rata portion of the number
of Registrable Securities included on a Registration Statement for such
transferor. Any shares of Common Stock included on a Registration Statement and
which remain allocated to any person or entity which does not hold any
Registrable Securities shall be allocated to the remaining Holders, pro rata
based on the number of shares of Registrable Securities then held by such
Holders. For the avoidance of doubt, the number of Registrable Securities held
by any Holder shall be determined as if all Shares issuable upon conversion of
the Convertible Debenture and upon exercise of the Warrant were then Registrable
Securities.
9. TRANSFER OF THE CONVERTIBLE DEBENTURE OR SHARES.
9.1 PROCEDURES. Transfer of the Convertible Debenture or
Warrant issued pursuant to this Agreement, or the Shares issued upon conversion
of the Convertible Debenture or upon exercise of the Warrant, shall be made only
on the books of the Company, by the holder of record, or by its legal
representatives who shall furnish proper evidence of authority to transfer, or
by its attorney thereunto authorized by power of attorney duly executed and
filed with the secretary of the Company, subject to the restrictions, if any,
set forth in the By-Laws and Section 9.2 hereof. The Holder in whose name the
Convertible Debenture, the Warrant, or the Shares stands on the books of the
Company shall be deemed by the Company to be owner thereof for all purposes.
9.2 RESTRICTIVE LEGENDS. Each certificate evidencing Shares
issued or sold upon the conversion of the Convertible Debenture or upon exercise
of the Warrant, shall contain or otherwise be imprinted with suitable legends in
substantially the following form:
"This security has not been registered under the Securities Act of 1933
or any state securities act, and has been acquired for investment and
not with view to, or for sale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933, as amended.
38
This security is subject to transfer restrictions contained in a
certain Debenture Purchase & Security Agreement dated as of May 22,
2001, and no transfer of the security shall be made unless the
conditions specified in said Agreement have been fulfilled. A copy of
said Agreement is on file and available for inspection at the principal
offices of the Company."
The Company is hereby authorized to place "stop transfer" instructions
on its records or to instruct any transfer agent to prevent the transfer of
Shares except in conformity with this Agreement.
9.3 SECURITIES LAW COMPLIANCE. No Holder shall transfer any
Shares until such Holder has first given written notice to the Company
describing briefly the manner of any such proposed transfer and until (i) the
Company has received from the Holder's counsel an opinion (reasonably
satisfactory in form and substance to the Company's counsel) that such transfer
can be made without compliance with the registration provisions of the
Securities Act or any state securities act and without the necessity of
perfection of an exemption pursuant to Regulation A adopted pursuant to said
Securities Act; (ii) the Company and the Holder shall have complied with SEC
Rule 144 and applicable state securities act requirements; or (iii) a
registration statement filed by the Company is declared effective by the SEC and
governing state securities act authorities or steps necessary to perfect
exemptions from such registration are completed.
10. ELECTION OF DIRECTORS; BOARD ATTENDANCE RIGHTS. The Company, the
Purchaser, and the Chief Executive Officer hereby agree as follows. The Company,
the Purchaser, and the Chief Executive Officer are sometimes collectively
referred to in this Section 10 as the "PARTIES." If Purchaser chooses to
exercise its right under Section 5.4, each of the Parties agrees to use such
Party's best efforts (including without limitation the voting of a sufficient
number of shares of capital stock of the Company, if any, held by such Party) to
cause one person designated from time to time by Purchaser to be elected to
serve on the Company's Board, and to be nominated to chair the Board's Audit
Committee, at all times from the date of this Agreement until the provisions of
this Section 10 terminate as provided below, provided however that such director
must be qualified to serve on the Audit Committee under applicable SEC
regulations. Each of the Parties further agrees to take no action, as
stockholder or otherwise, to cause the number of
39
members of the Board to exceed six. The provisions of this Section 10 shall
terminate on the earlier to occur of (i) the effectiveness of the registration,
pursuant to Section 8, covering the offer and sale by the Company of all the
Shares issued to the Purchaser upon conversion of the Convertible Debenture and
the exercise of the Warrant, or (ii) ten years from Closing Date.
11. GRANT OF SECURITY INTERESTS.
11.1 COLLATERAL. For purposes of this Section 11, the term
"COLLATERAL" shall mean all property and property interests of the Company, real
or personal, tangible or intangible, whether now existing or hereafter acquired,
and any and all additions, accessions, replacements and substitutions thereto or
therefor, guaranties and securities thereon, and products thereof, including,
without limitation:
(a) All machinery, equipment, furniture and fixtures, now
owned or hereafter acquired, together with all replacements thereof, all
attachments, accessories, parts, equipment and tools belonging thereto or for
use in connection therewith.
(b) All inventory, raw materials, work in process and supplies
now owned or hereafter acquired.
(c) All accounts and accounts receivable now existent or
hereafter created.
(d) All general intangibles, now existent or hereafter
created, including but not limited to all Intellectual Property, as defined
below.
(e) All automotive equipment, now owned or hereafter acquired,
together with all replacements thereof, all attachments, accessories, parts,
equipment and tools belonging thereto or for use in connection therewith.
(f) All property of the same type or description as that
listed herein, acquired after the date hereof; the Company's interest in all
property consigned to the Company now or in the future, whether equipment,
inventory, or otherwise; all replacements, additions, improvement, and
accessions with respect to the foregoing collateral; all products of the
foregoing collateral; all proceeds of the foregoing collateral; and all payments
with respect to insurance covering the foregoing collateral, which are hereby
assigned to the Purchaser; and all records, books, and books of account with
respect to the foregoing collateral.
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(g) For purposes of this Section 11, the term "INTELLECTUAL
PROPERTY" shall mean all rights with respect to trademarks, service marks, trade
names, trade styles, patents, copyrights (and any applications for any of the
foregoing), mask works, trade-secrets information, other proprietary rights and
rights to prevent others from doing acts that constitute unfair competition with
the Company or misappropriation of its property, including without limitation
any sums (net of expenses) that the Company may receive arising out of any claim
for infringement of its rights in any of the foregoing; all rights of the
Company under contracts to enjoy performance by others or to be entitled to
enjoy rights granted by others, including without limitation any licenses; and
any goodwill associated with any of the foregoing.
(h) The Collateral shall secure all obligations of the Company
to the Purchaser, whether now existing or subsequently arising.
11.2 SECURITY INTEREST TO THE PURCHASER. Subject to the
Alliance Financing Agreement, as security for the payment and performance of any
and all liabilities and obligations (direct or indirect, absolute or contingent,
sole, joint, several, secured or unsecured, now existing or hereafter arising)
of the Company to the Purchaser, including, without limitation, all obligations
of the Company to the Purchaser arising under the Convertible Debenture sold by
the Company to the Purchaser and all obligations arising under the this
Agreement between the Company and the Purchaser. The Company hereby grants to
the Purchaser a continuing security interest in the Collateral.
11.3 SUBORDINATION. The security interest granted hereby is
expressly junior and subordinate to the prior payment in full of all Senior
Indebtedness of the Company. "SENIOR INDEBTEDNESS" means the principal of, and
premium, if any, and interest on (i) all indebtedness of the Company under the
Alliance Financing Agreement, and to successors and assigns thereunder and (ii)
any other indebtedness of the Company which the Company and the Purchaser
hereafter from time to time expressly and specifically agree in writing shall
constitute Senior Indebtedness.
(a) The Purchaser agrees to execute from time to time any
subordination agreement(s) the Company and the holders of Senior Indebtedness
may request to better reflect the aforesaid subordination of the Convertible
Debenture and this Agreement to any Senior Indebtedness incurred by the Company.
Notwithstanding the foregoing, the Company may make
41
payments of the principal of, and any interest on, the Convertible Debenture as
set forth in Section 1 thereunder, if at the time of payment, and immediately
after giving effect thereto, (i) there exists no default in any payment with
respect to any Senior Indebtedness and (ii) there shall not have occurred an
event of default with respect to any Senior Indebtedness, as defined in the
instrument under which the same is outstanding, permitting the holders thereof
to accelerate the maturity thereof, other than an event of default which shall
have been cured or waived or shall have ceased to exist.
(b) The Purchaser agrees that the subordination effected
hereby is for the benefit of the holders of Senior Indebtedness from time to
time, and that each holder of Senior Indebtedness, whether now outstanding or
hereafter created, incurred, assumed or guaranteed shall be deemed to have
acquired Senior Indebtedness in reliance upon the covenants and provisions
contained herein. The subordination effected hereby shall be enforceable by each
holder of Senior Indebtedness from time to time. Subject to the rights of the
holders of Senior Indebtedness under this Section 11.3, nothing contained in
this Section 11.3 shall impair, as between the Company and the Purchaser the
obligations of the Company, subject to the terms and conditions hereof, to pay
the Purchaser the principal and interest on the Convertible Debenture as and
when the same becomes due and payable, or shall prevent the Purchaser, upon
default hereunder, from exercising all rights, powers and remedies otherwise
provided herein or by applicable law.
11.4 DEPOSITS, ETC. Any deposits or other sums at any time
credited by or due from the Purchaser to the Company and any property (including
securities and other instruments) of the Company which at any time may be in the
possession of the Purchaser may at all times be held and treated as additional
Collateral hereunder. The Purchaser shall have the same powers of sale or
disposition in respect of any such property as are provided below with respect
to the Collateral and may at any time after an Event of Default apply any such
deposits or other sums, in the manner provided below, to the payment of any and
all liabilities and obligations of the Company to the Purchaser.
11.5 FINANCING STATEMENTS AND OTHER ACTION. The Company agrees
to do all actions which the Purchaser reasonably deems necessary or desirable to
protect the security interests granted herein or to otherwise carry out the
provisions of this Section 11, including but
42
not limited to the execution of financing, continuation, amendment and
termination statements under the UCC, the execution and filing of the
Conditional Assignment Agreement for Trademarks, Service Marks and Tradenames
(the "CONDITIONAL ASSIGNMENT AGREEMENT"), attached hereto as EXHIBIT H, with the
United States Trademark Office and similar instruments, and the procurement of
waivers and disclaimers of interest in the Collateral by the owners of any real
estate (including lessors and mortgagees) on which the Collateral is located.
The Company shall pay all costs of filing any and all financing, continuation,
amendment or termination statements with respect to the security interests
created by this Section 11. The Company hereby appoints the Purchaser as its
attorney in fact irrevocably to do all acts and things which the Company may be
required to do under this Section 11 or which the Purchaser may reasonably deem
necessary to perfect and continue perfected the security interests created by
this Section 11. This power, being coupled with an interest, is irrevocable as
long as the Company is indebted to the Purchaser. The Company will at the
request of the Purchaser execute and deliver any and all documents and
instruments and take any and all action as the Purchaser may reasonably require
more completely to vest in and assure to the Purchaser its rights hereunder or
in any of the Collateral.
11.6 THE COMPANY'S PRINCIPAL PLACE OF BUSINESS & NAME.
(a) The Company represents and warrants to the Purchaser that
the Company's chief executive office is located at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇. The Company covenants to give the Purchaser prior written notice of
any change in the information contained in this Section 11.6(a).
(b) The Company represents and warrants to the Purchaser that
the Company will not change its name, identity or corporate structure without
giving the Purchaser at least thirty (30) days prior written notice thereof and,
in connection with any such change, the Company will execute and deliver, or
cause to be executed and delivered, to the Purchaser all such additional
security agreements, financing statements and other documents as the Purchaser
shall reasonably request. This provision shall not be deemed to constitute
consent to any change of identity or corporate structure otherwise prohibited in
any agreement between the Company and the Purchaser.
43
11.7 ENCUMBRANCES. The Company represents and warrants to the
Purchaser that the Company has good title to the Collateral and that there are
no liens, security interests or other encumbrances against the Collateral other
than those of the Purchaser and those of any holder of Senior Indebtedness. The
Company covenants to notify promptly the Purchaser of any claim, lien, security
interest or other encumbrance made against the Collateral and shall defend the
Collateral against any claim, lien, security interest or other encumbrance
adverse to the Purchaser.
11.8 MAINTENANCE OF COLLATERAL AND RECORDS. The Purchaser may
examine and inspect the Collateral at any reasonable time and for that purpose
may enter upon any premises where the Collateral may be located. The Company
shall pay when due all taxes, assessments and other charges lawfully levied or
assessed upon the Collateral, other than those which are being contested in good
faith.
11.9 SALES: OTHER SECURITY INTERESTS: FINANCING STATEMENTS.
The Company will not:
(a) except as disclosed in SCHEDULE B, sell, lease, transfer
or otherwise dispose of the Collateral or any interest therein, except in the
ordinary course of business, without the prior written consent of the Purchaser;
or
(b) mortgage, or create a security interest in or lien upon,
the Collateral in favor of any person other than the Purchaser, or suffer to
exist a security interest in or lien upon the Collateral in favor of any person
other than the Purchaser or any holder of Senior Indebtedness, or permit
anything to be done that may impair the value of the Collateral or the security
intended to be afforded by this Section 11.
11.10 DEFAULT. For purposes of this Section 11, each of the
following events shall be deemed an "EVENT OF DEFAULT":
(a) The Company shall have failed to pay as and when due and
payable interest on or principal of or other sums payable under the Convertible
Debenture;
(b) The Company shall be in default in any material respect
hereunder or under any other liability or obligation to the Purchaser;
(c) The Company shall be in breach of any covenant
contained in this Section 11, elsewhere in this Agreement or in the Convertible
Debenture;
44
(d) Any representation, warranty or statement contained in
Sections 3 or 11, in this Agreement or in the Convertible Debenture or in any
certificate, report or document furnished in writing by the Company to the
Purchaser proves not to have been true and complete in any material respect as
of the time it was made or furnished;
(e) The Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition for bankruptcy, or shall file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting the
material allegations of a petition filed against the Company in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Company, or of all or any substantial
part of the properties of the Company, or the Company or its respective
directors or majority shareholders shall take any action looking to the
dissolution or liquidation of the Company; or
(f) Within thirty (30) days after the commencement of any
proceeding against the Company seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed or, within thirty (30) days after the appointment without the
consent or acquiescence of the Company of any trustee, receiver or liquidator of
the Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated.
11.11 RIGHTS ON DEFAULT.
(a) If an Event of Default shall occur, the Purchaser may,
subject to the rights of the holders of Senior Indebtedness,:
(i) without notice or demand to the Company declare
all obligations of the Company to the Purchaser to be immediately due and
payable;
(ii) exercise the rights and remedies accorded to a
secured party under the UCC or other law or under any instrument or document
securing the obligations of the Company to the Purchaser (including without
limitation thereto the right to take immediate possession of the Collateral);
45
(iii) perform any warranty, covenant or agreement
which the Company has failed to perform under this Agreement; and
(iv) take any other action which the Purchaser deems
necessary or desirable to protect the Collateral or the security interests
granted herein.
(b) No course of dealing or delay in accelerating any
obligation of the Company to the Purchaser or in taking or failing to take any
other action with respect to any Event of Default shall affect the right of the
Purchaser to take such action at a later time. No waiver as to any one Event of
Default shall affect the rights of the Purchaser upon any other Event of
Default.
(c) The Purchaser may exercise any or all of its rights or
remedies after an Event of Default concurrently with, or independently of, and
without regard to, the provisions of any other security agreement or other
instrument which secures any obligation of the Company to the Purchaser.
(d) After an Event of Default, the Company, upon demand by the
Purchaser, shall assemble the Collateral at the Company's cost and make it
available to the Purchaser at a place to be reasonably designated by the
Purchaser.
(e) The requirement of the UCC that the Purchaser give the
Company reasonable notice of any proposed sale or disposition of the Collateral
shall be met if such notice is given at least seven (7) days before the time of
such sale or disposition.
(f) The reasonable expenses of retaking, holding, preparing
for sale, selling and the like incurred by the Purchaser shall be paid by the
Company to the Purchaser and shall include, but not be limited to, reasonable
fees of attorneys and legal expenses incurred by the Purchaser and the payment
thereof shall be secured by this Section 11.
11.12 COSTS AND EXPENSES. Any reasonable payment made or
expense incurred by the Purchaser (including reasonable attorneys' fees and
disbursements) in connection with the preparation of any documents and
instruments executed in connection with this Section 11, or in connection with
the exercise by the Purchaser of any right upon the happening of any Event of
Default or the threatened happening of an Event of Default, shall be added to
the indebtedness of the Company to the Purchaser, shall earn interest at the
rate set forth in the Convertible Note, shall be payable upon demand, and shall
be secured by the security interests granted hereunder
46
and under any other instrument securing indebtedness of the Company to the
Purchaser. In addition, at the option of the Purchaser, upon the happening of
any Event of Default, the Purchaser may pay for insurance on the Collateral, may
pay for the maintenance and repair of the Collateral, may pay any taxes,
assessments or other charges upon the Collateral which it in good faith has
determined to be due, and may discharge any other security interest in or lien
upon the Collateral and the amount of such expenditures shall be added to the
indebtedness of the Company to the Purchaser, shall earn interest at the rate
set forth in the Convertible Note, shall be payable on demand, and shall be
secured by the security interests granted herein and under any other instrument
securing indebtedness of the Company to the Purchaser. The Purchaser shall have
no obligation to the Company to make any such expenditures nor shall the making
thereof relieve the Company of any Event of Default.
11.13 TERMINATION OF SECURITY INTEREST. The obligations of the
Company set forth in this Section 11 shall terminate when all obligations of the
Company to the Purchaser have been paid and performed in full or when the entire
balance of principal and interest under the Convertible Debenture has been paid
or converted.
11.14 WAIVERS. The Company hereby waives demand, notice,
protest, notice of acceptance of this Section 11, notice of Collateral received
or delivered or other action taken in reliance hereon and all other demands and
notices of any description. With respect both to obligations of the Company to
the Purchaser and with respect to the Collateral, the Company assents to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of Collateral, to the addition or release of
any party or person primarily or secondarily liable to the acceptance of partial
payment thereof and the settlement, compromising or adjusting of any thereof,
all in such manner and at such time or times as the Purchaser may deem
advisable. The Purchaser may exercise its rights with respect to the Collateral
without resorting to and without regard to other collateral or sources for
reimbursement for liability. The Purchaser shall not be deemed to have waived
any of its rights upon or under any obligation of the Company to the Purchaser
or the Collateral unless such waiver is in writing and signed by the Purchaser.
No delay or omission on the part of the Purchaser in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right on any future
47
occasion. All rights and remedies of the Purchaser with respect to obligations
of the Company to the Purchaser or the Collateral, whether evidenced hereby or
by any other instrument or document, shall be cumulative and may be exercised
separately or concurrently.
12. MISCELLANEOUS.
12.1 COSTS AND EXPENSES. In connection with this Agreement and
the transactions described herein, the Company agrees to pay Purchaser for its
reasonable legal fees and expenses with respect to this transaction (including
legal fees and expenses incurred in connection with the First Advance made on
May 8, 2001), and with respect to a one-time Exchange Act filing ON Schedule 13D
required to be completed by the Purchaser in connection with this transaction.
12.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement made by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of such parties. Except as provided herein,
neither the Company or Purchaser shall assign this Agreement, the Convertible
Debenture, the Warrant or any rights or obligations hereunder or thereunder.
Notwithstanding the foregoing, the Purchaser may assign its rights hereunder to
any of its "AFFILIATES" (as that term is defined under the Exchange Act)
directors, officers, employees or immediate family members thereof who are
Accredited Investors without the consent of the Company (provided such assignees
agree to be bound by all of the terms and conditions hereof) (each, a "PERMITTED
TRANSFEREE"), or to any other person or entity with the consent of the Company,
which consent shall not be unreasonably withheld. This provision shall not limit
Purchaser's right to transfer the Shares pursuant to the terms of the
Convertible Debenture or Warrant, and this Agreement or to assign Purchaser's
rights hereunder and/or thereunder to any such transferee.
12.3 GOVERNING LAW. The internal laws of The Commonwealth of
Virginia (regardless of conflict of laws principles) shall govern all issues
concerning the construction, validity and interpretation of this Agreement.
12.4 SURVIVAL. The representations and warranties of the
Company contained in Section 3 of this Agreement shall survive the Closing for a
period of two years, and thereafter no
48
action, suit or claim shall be brought by any Purchaser alleging any
misrepresentation or untruthfulness based upon the subject matter of such
representations or warranties, and any such action, suit or claim shall be
forever barred; provided, however, that any action based upon fraud shall not be
barred and may be brought notwithstanding the provisions of this Section 12.4.
12.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto or contemplated hereby constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written instrument signed
by both the Company and the Purchaser.
12.6 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be made by hand
delivery, first-class mail (registered or certified, return receipt requested),
telecopier, or overnight air courier guaranteeing next day delivery, addressed
as follows: (a) if to Purchaser, at Purchaser's address shown on Schedule A
hereto, with a copy to counsel to the Purchaser, (b) if to any other Holder, at
such address as such Holder shall have furnished to the Company in writing, or,
until any such Holder so furnishes an address to the Company, then to and at the
address of the last Holder of such Shares who has so furnished an address to the
Company, and (c) if to the Company, at the address stated in or pursuant to
Section 11.6(a), with a copy to the Company's counsel, or to such other address
as the party receiving such notice shall have properly designated to the other
party hereto in writing. Each such notice shall be deemed given at the time
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if
telecopied; and the next business day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
12.7 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any holder of the Convertible Debenture,
Warrant, or Shares upon any breach or default of the Company under this
Agreement, shall impair any such right, power or remedy of such holder, nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereunder
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default
49
theretofore or thereafter occurring. All remedies, either under this Agreement,
or by law or otherwise afforded to any holder, shall be cumulative and not
alternative.
12.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, some of which may have signature pages differing as to
form, each of which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one instrument.
12.9 SEVERABILITY. If any provision of this Agreement, or its
application to any person or circumstances, is invalid or unenforceable, then
the remainder of this Agreement or the application of such provision to other
persons or circumstances, shall not be affected thereby. Further, if any
provision or application hereof is invalid or unenforceable then a suitable and
equitable provision shall be substituted therefor in order to carry out so far
as may be valid or enforceable the intent and purposes of the invalid and
unenforceable provision.
12.10 CAPTIONS. Captions and headings used herein are for
convenience of reference only and shall not limit or control the meaning of any
provisions hereof.
12.11 FURTHER ASSURANCES. The parties hereto will from time to
time execute and deliver such further documents and instruments and do all such
further acts and things as may be required effectively to carry out or better
evidence or perfect the full intent and purposes of the transactions
contemplated by this Agreement.
50
The foregoing Agreement is hereby executed under seal as of the date
first above written.
The Company:
FASTCOMM COMMUNICATIONS CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chief Executive Officer
The Purchaser:
▇▇▇▇▇▇ ▇▇▇▇▇▇ CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇, Vice President
51
TABLE OF CONTENTS
PAGE #
1. PURCHASE OF CONVERTIBLE SUBORDINATED SECURED PROMISSORY NOTE..... I
2. CLOSING DATE..................................................... II
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... II
3.1 ORGANIZATION AND STANDING.................................. II
3.2 CORPORATE POWER; AUTHORIZATION............................. II
3.3 SUBSIDIARIES............................................... III
3.4 CAPITALIZATION............................................. III
3.5 SEC DOCUMENTS, FINANCIAL STATEMENTS........................ IV
3.6 CHANGES.................................................... V
3.7 TITLE TO PROPERTIES AND ASSETS; LIENS...................... V
3.8 COMMITMENTS................................................ VI
3.9 INTELLECTUAL PROPERTIES.................................... VI
3.10 COMPLIANCE WITH OTHER INSTRUMENTS.......................... VII
3.11 LITIGATION................................................. VII
3.12 INSURANCE.................................................. VIII
3.13 GOVERNMENTAL CONSENT....................................... VIII
3.14 DISCLOSURE................................................. VIII
3.15 AGREEMENTS; CHANGES........................................ IX
3.16 TAX STATUS................................................. IX
3.17 EMPLOYEES.................................................. X
3.18 RETIREMENT OBLIGATIONS..................................... X
3.19 BOOKS AND RECORDS.......................................... X
3.20 BROKERS.................................................... X
3.21 NO GENERAL SOLICITATION.................................... X
3.22 ENVIRONMENTAL LIABILITIES.................................. XI
3.23 FOREIGN CORRUPT PRACTICES ACT.............................. XI
3.24 KNOWLEDGE QUALIFICATION.................................... XI
3.25 ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF THE
CONVERTIBLE DEBENTURE & WARRANT........................... XI
3.26 NO INTEGRATED OFFERING..................................... XII
3.27 REGULATORY PERMITS......................................... XII
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................. xiii
4.1 AUTHORITY.................................................. XIII
4.2 INVESTMENT REPRESENTATIONS................................. XIII
4.3 BROKERS.................................................... XIV
5. CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT CLOSING............. xiv
5.1 REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS............................................... XIV
5.2 OPINION OF COUNSEL......................................... XIV
5.3 QUALIFICATIONS............................................. XIV
5.4 DIRECTORS.................................................. XIV
5.5 CHIEF EXECUTIVE OFFICER CERTIFICATE........................ XV
5.6 WARRANT TO PURCHASE COMMON STOCK........................... XV
5.7 PRE-APPROVAL OF PRESS RELEASE.............................. XV
5.8 PROCEEDINGS AND DOCUMENTS.................................. XV
52
6. CONDITIONS TO OBLIGATIONS OF THE COMPANY......................... xv
6.1 REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS............................................... XV
6.2 QUALIFICATIONS............................................. XVI
7. COVENANTS OF THE COMPANY OR THE PURCHASER........................ xvi
7.1 PAYMENTS OF PRINCIPAL AND INTEREST......................... XVI
7.2 PLEDGE OF ASSETS........................................... XVI
7.3 FINANCIAL INFORMATION...................................... XVI
(a) Annual Financial Statements................................ xvi
(b) Audit Reports.............................................. xvi
(c) Quarterly Financial Statements............................. xvii
(d) Regulatory Filings......................................... xvii
(e) Litigation................................................. xvii
(f) Unbudgeted Costs........................................... xvii
(g) Other Information.......................................... xvii
7.4 INSPECTION................................................. XVIII
7.5 CONFIDENTIALITY OF INFORMATION............................. XVIII
7.6 USE OF PROCEEDS............................................ XVIII
7.7 FILING OF FORM 8-K......................................... XIX
7.8 CREDIT LINE BALANCE........................................ XIX
7.9 KEY PERSON LIFE INSURANCE.................................. XIX
7.10 CERTAIN TRANSACTIONS....................................... XIX
7.11 DIRECTOR'S FEES............................................ XX
7.12 NON-COMPETITION OF CERTAIN KEY EMPLOYEES................... XX
7.13 INDEMNIFICATION............................................ XX
7.14 CAPITAL EXPENDITURES....................................... XX
7.15 FORM D: BLUE SKY LAWS...................................... XX
7.16 INTERNATIONAL INVESTMENT................................... XXI
7.17 TERMINATION OF COVENANTS................................... XXI
8. REGISTRATION RIGHTS.............................................. xxi
8.1 DEFINITIONS................................................ XXI
8.2 REGISTRATION............................................... XXII
8.3 OBLIGATIONS OF THE COMPANY................................. XXIV6
8.4 OBLIGATIONS OF THE HOLDERS................................. XXX
8.5 EXPENSES OF REGISTRATION................................... XXXI
8.6 INDEMNIFICATION............................................ XXXI
8.7 CONTRIBUTION............................................... XXXV
8.8 REPORTS UNDER THE EXCHANGE ACT............................. XXXV
8.9 ASSIGNMENT OF REGISTRATION RIGHTS.......................... XXXV
8.10 AMENDMENT OF REGISTRATION RIGHTS........................... XXXVI
8.11 PERSONS DEEMED TO BE A HOLDER.............................. XXXVI
8.12 ALLOCATION OF REGISTRABLE SECURITIES....................... XXXVI
9. TRANSFER OF THE CONVERTIBLE NOTE OR SHARES....................... xxxvii
9.1 PROCEDURES................................................. XXXVII
9.2 RESTRICTIVE LEGENDS........................................ XXXVII
9.3 SECURITIES LAW COMPLIANCE.................................. XXXVIII
10. Election of Directors; Board Attendance Rights................... xxxviii
11. GRANT OF SECURITY INTERESTS...................................... xxxix
11.1 COLLATERAL................................................. XXXIX
53
11.2 SECURITY INTEREST TO THE PURCHASER......................... XL
11.3 SUBORDINATION.............................................. XL
11.4 DEPOSITS, ETC.............................................. XLI
11.5 FINANCING STATEMENTS AND OTHER ACTION...................... XLI
11.6 THE COMPANY'S PRINCIPAL PLACE OF BUSINESS & NAME........... XLII
11.7 ENCUMBRANCES............................................... XLIII
11.8 MAINTENANCE OF COLLATERAL AND RECORDS...................... XLIII
11.9 SALES: OTHER SECURITY INTERESTS: FINANCING STATEMENTS...... XLIII
11.10 DEFAULT.................................................... XLIII
11.11 RIGHTS ON DEFAULT.......................................... XLIV
11.12 COSTS AND EXPENSES......................................... XLV
11.13 TERMINATION OF SECURITY INTEREST........................... XLVI
11.14 WAIVERS.................................................... XLVI
12. MISCELLANEOUS.................................................... xlvii
12.1 COSTS AND EXPENSES......................................... XLVII
12.2 SUCCESSORS AND ASSIGNS..................................... XLVII
12.3 GOVERNING LAW.............................................. XLVII
12.4 SURVIVAL................................................... XLVII
12.5 ENTIRE AGREEMENT; AMENDMENT................................ XLVIII
12.6 NOTICES, ETC............................................... XLVIII
12.7 DELAYS OR OMISSIONS........................................ XLVIII
12.8 COUNTERPARTS............................................... XLIX
12.9 SEVERABILITY............................................... XLIX
12.10 CAPTIONS................................................... XLIX
12.11 FURTHER ASSURANCES......................................... XLIX
54
INDEX OF SCHEDULES AND EXHIBITS
Schedule A Purchaser
Schedule B Exceptions
Schedule C Capitalization Table
Exhibit A Certificate of Incorporation of FastComm Communications
Corporation
Exhibit B By-Laws
Exhibit C Commitments
Exhibit D Non-Competition of Key Employees
Exhibit E Press Release
Exhibit F Certificate of Chief Executive Officer
Exhibit G Warrant to Purchase Common Stock
Exhibit H Assignment Agreement
55
FASTCOMM COMMUNICATIONS CORPORATION
DEBENTURE PURCHASE & Security Agreement
May 22, 2001
56
INDEX OF DEFINED TERMS
TERM SECTION
Affiliates 12.2
Agreement Preamble, Exhibit F
Assignment Agreement 11.5
Associate 3.15(a)
Board 10
By-Laws 3.1
Chief Executive Officer 3.24
Certificate of Incorporation 3.1
Claims 8.6(a)
Closing 2
Closing Date 2
Collateral 11.1
Commitments 3.8
Common Stock 3.4
Company Preamble, Exhibit F
contract 7.10
Convertible Debenture 1
Employee Reserved Shares 3.4
Environmental Laws 3.22(b)
Event of Default 11.10
Exchange Act 3.5
February Registration Rights Agreement 3.4
Filing Date 8.2 (a)
Financing Documents 1
First Advance 1
GAAP 3.5
Holder 8.1(a)
Indemnified Party 8.6(b)
Indemnified Person 8.6(a)
Initial Debenture 1
Inspectors 8.3(j)
Intellectual Properties 3.9
Intellectual Property 11.1(g)
Key Employees 7.13
Most Recent Financials Date 3.6
NASD 3.2
Parties 10
permitted transferee 12.2
Purchaser Preamble, Exhibit F
Purchaser Reserved Shares 3.4
Records 8.3(j)
57
Register 8.1(b)
Registered 8.1(b)
Registrable Securities 8.1(c)
Registration 8.1(b)
Registration Period 8.3(a)
Registration Statement 8.1(d)
Rule 144 8.8
Rule 415 8.1(b)
Schedule of Exceptions 3
SEC 8.1(b)
SEC Documents 3.5
Second Advance 1
Securities Act 3.5
Senior Indebtedness 11.3
Shares 1
Subsidiary 3.3
Third Advance 1
Violations 8.6(a)
Warrant 5.6
Warrant Shares 3.4