CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of December 15, 1998
(this "Agreement"), between InnovaCom, Inc., a Nevada corporation (the
"Company"), and JNC Strategic Fund Ltd., a Cayman Islands company (the
"Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase an aggregate principal amount of $500,000 of the
Company's 7% Secured Convertible Debentures, due December 15, (the
"Debentures"), which are convertible into shares of the Company's common stock,
par value $.001 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and the Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchaser and
the Purchaser shall purchase the Debentures for an aggregate purchase price of
$500,000. The closing of the purchase and sale of the Debentures (the "Closing")
shall take place at the offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
LLP ("▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇"), ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇. The date of the Closing is hereinafter referred to as the "Closing Date."
(ii) At the Closing the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver (1) the Debentures,
registered in the name of the Purchaser, (2) a Common Stock purchase warrant in
the form of Exhibit C (the "Warrant"), registered in the name of the Purchaser,
entitling the holder thereof to acquire, from time to time on the terms set
forth therein, up to 125,000 shares of Common Stock for an exercise price
(subject to adjustment as set forth therein) of $.50 per share, (3) an executed
Amendment (as defined in Section 3.15), and (4) all other executed instruments,
agreements and certificates as are required to be delivered by the Company at
the Closing, including, without limitation, an executed Registration Rights
Agreement, dated as of the Closing Date, between the Purchaser and the Company
in the form of Exhibit B (the "Registration Rights Agreement"); and (B) the
Purchaser shall deliver (1) $500,000 by wire transfer of immediately available
funds to an account designated in writing by the Company for such purpose prior
to the Closing, and (2) all other executed instruments, agreements and
certificates as are required to be delivered by the Purchaser at the Closing,
including without limitation, an executed Registration Rights Agreement and an
executed Amendment.
1.2 Form of Debentures. The Debentures shall be in the form of Exhibit A.
For purposes of this Agreement, "Conversion Price," "Original Issue
Date," "Conversion Date" "Trading Day" and "Per Share Market Value"
shall have the meanings set forth in the Debentures; "Market Price" as
at any date shall mean the average Per Share Market Value for the five
(5) Trading Days immediately preceding such date. "Business Day" shall
mean any day except Saturday, Sunday and any day which shall be a
federal legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other
governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
Nevada, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in Schedule 2.1(a) attached
hereto (collectively, the "Subsidiaries"). Each of the Subsidiaries is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the full power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. Each of the Company and the Subsidiaries is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually or in
the aggregate, (x) adversely affect the legality, validity or enforceability of
this Agreement, the Debentures, the Warrant, the Security Agreement (as defined
in Section 3.15) or the Registration Rights Agreement (collectively, the
"Transaction Documents"), (y) have a material adverse effect on the results of
operations, assets, prospects, or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
Transaction Document (any of the foregoing, a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms thereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective articles
of incorporation, by-laws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding capital stock of
the Company is set forth in Schedule 2.1(c). No shares of Common Stock are
entitled to preemptive or similar rights, nor is any holder of the Common Stock
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 2.1(c), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and Warrant hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any Person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person (as defined below) beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or has the right to acquire by agreement with or
by obligation binding upon the Company, beneficial ownership of in excess of 5%
of the Common Stock. There are no agreements or arrangements under which the
Company or any Subsidiary is obligated to register the sale or resale of any of
their securities under the Securities Act (other than as contemplated in the
Registration Rights Agreement). A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
(d) Issuance of Debentures and Warrant. The Debentures and the Warrant are
duly authorized, and, when issued in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusals of any kind (collectively, "Liens").
Subject to the compliance by the Company to amend its articles of incorporation
to increase the number of authorized and available shares of Common Stock
pursuant to Section 3.5(a) hereof, the Company has and at all times while the
Debentures and the Warrant are outstanding will maintain an adequate reserve of
duly authorized shares of Common Stock to enable it to perform its conversion,
exercise and other obligations under this Agreement, the Warrant and the
Debentures and in no circumstances shall such reserved and available shares of
Common Stock be less than the sum of (i) two times the number of shares of
Common Stock as would be issuable upon conversion in full of the Debentures,
assuming such conversion were effected on the Original Issue Date or the Filing
Date (as defined in the Registration Rights Agreement), whichever yields a lower
Conversion Price, (ii) the number of shares of Common Stock as are issuable as
payment of interest on the Debentures, and (iii) the number of shares of Common
Stock as are issuable upon exercise in full of the Warrant. The shares of Common
Stock issuable upon conversion of the Debentures, as payment of interest in
respect thereof and upon exercise of the Warrant are sometimes referred to
herein as the "Underlying Shares," and the Debentures, Warrant and Underlying
Shares are, collectively, the "Securities." Subject to the compliance by the
Company to amend its articles of incorporation to increase the number of
authorized and available shares of Common Stock pursuant to Section 3.5(a)
hereof, when issued in accordance with the terms of the Debentures and
the Warrant, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) subject to the
compliance by the Company to amend its articles of incorporation to increase the
number of authorized and available shares of Common Stock pursuant to Section
3.5(a) hereof, conflict with or violate any provision of the Company's articles
of incorporation, bylaws or other charter documents (each as amended through the
date hereof) or (ii) subject to obtaining the Required Approvals, conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in Schedule
2.1(f), neither the Company nor any Subsidiary is required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents other than (i) the filing of a
registration statement covering the resale of the Underlying Shares by the
Purchaser (the "Underlying Securities Registration Statement") with the
Securities and Exchange Commission (the "Commission"), which shall be filed in
the time period set forth in the Registration Rights Agreement, (ii) the
application for the listing of the Underlying Shares on or with any national
securities exchange, market or quotation system on which the Common Stock is
hereafter listed for trading, (iii) blue sky securities filings as contemplated
by the Registration Rights Agreement, (iv) the filing of a Form D with the
Commission, (v) the filings necessary to satisfy the Company's obligations under
Section 3.5(a), and (vi) other than, in all other cases, where the failure to
obtain such consent, waiver, authorization or order, or to give or make such
notice or filing, could not have or result in, individually or in the aggregate,
a Material Adverse Effect (together with the consents, waivers, authorizations,
orders, notices and filings referred to in Schedule 2.1(f), the "Required
Approvals").
(g) Litigation; Proceedings. Except as specified in Schedule 2.1(g) or as
specifically disclosed in the Disclosure Materials (as hereinafter defined),
there is no action, suit, notice of violation, proceeding or investigation
pending or, to the best knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity
or enforceability of any of the Transaction Documents or the Securities or (ii)
could, individually or in the aggregate, have or result in a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred which has not
been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations and
warranties of the Purchaser set forth in Section 2.2(b)-(f), the issuance and
sale of the Securities to the Purchaser as contemplated hereby are exempt from
the registration requirements of the Securities Act. Neither the Company nor any
Person acting on its behalf has taken or will take any action which might
subject the offering, issuance or sale of the Securities to the registration
requirements of the Securities Act.
(j) SEC Documents. Except as set forth in Schedule 2.1(j), the Company has
filed all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with the
Schedules to this Agreement furnished by or on behalf of the Company, the
"Disclosure Materials") on a timely basis, or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or by which the property or assets of
the Company is subject have been filed as exhibits to the SEC Documents as
required; the Company is not in breach of any such agreement where such breach
may have or result in a Material Adverse Effect. The financial statements of the
Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles as in effect at the time of filing applied on a consistent
basis during the periods involved, except as may be otherwise indicated in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's Registration Statement on Form SB-2 (SEC File No. 333- 45875) (the
"Registration Statement"), there has been no event, occurrence or development
that has
had a Material Adverse Effect which has not been specifically disclosed in
writing to the Purchaser by the Company. The Company last filed audited
financial statements with the Commission in the Registration Statement, and has
not received any comments from the Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an Affiliate of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(l) Certain Fees. Except for warrants to be issued to Cardinal Capital
Management, Inc. and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, no fees or commissions will be payable
by the Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated hereby. The Purchaser shall
have no obligation with respect to such fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated hereby. The
Company shall indemnify and hold harmless the Purchaser, its respective
employees, officers, directors, agents, and partners, and their respective
Affiliates (as such term is defined under Rule 405 promulgated under the
Securities Act), from and against all claims, losses, damages, costs (including
the costs of preparation and attorney's fees) and expenses suffered in respect
of any such claimed or existing fees.
(m) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the Disclosure Materials and any amendments and supplements thereto
or (ii) solicited any offer to buy or sell the Securities by means of any form
of general solicitation or advertising.
(n) Exclusivity. The Company shall not issue and sell Debentures to any
Person other than the Purchaser.
(o) Listing and Maintenance Requirements Compliance. The Company has not in
the two years preceding the date hereof received written notice from any stock
exchange, market or trading facility on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with the
listing, maintenance or other requirements of such exchange, market, trading or
quotation facility. The Company has no reason to believe that it does not now or
will not in the future meet any such requirements.
(p) Patents and Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and rights which are necessary for use in
connection with its business and which the failure to so have would have a
Material Adverse Effect (collectively, the "Intellectual Property Rights"). To
the best knowledge of the Company, there is no existing infringement of any of
the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the Company set
forth in the Transaction Documents or provided to the Purchaser or its
representatives and counsel in connection with the transactions contemplated
hereby is true and correct in all material respects and does not fail to state
any material fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they were made, not misleading.
The Company confirms that it has not provided to the Purchaser or any of its
agents or counsel any information that constitutes or might constitute material
nonpublic information. The Company understands and confirms that the Purchaser
shall be relying on the foregoing representation in effecting transactions in
securities of the Company.
2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company.
(a) Organization; Authority. The Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities to be acquired hereunder by the Purchaser has been duly authorized by
all necessary action on the part of the Purchaser. Each of this Agreement and
the Registration Rights Agreement has been duly executed and delivered by the
Purchaser and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Securities
to be acquired hereunder by the Purchaser for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof or interest therein, without prejudice, however,
to the Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities laws
or under an exemption from such registration.
(c) Purchaser Status. At the time the Purchaser was offered the
Securities, it was, at the date hereof, it is, and at the Closing Date, it will
be, an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk and the Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment, and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of the Purchaser or its representatives or counsel
shall modify, amend or affect the Purchaser's right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(g) Reliance. The Purchaser understands and acknowledges that (i)
the Securities to be acquired by it hereunder are being offered and sold to it
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements thereof. In connection with any
transfer of any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration under
the Securities Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register any transfer by the Purchaser to an Affiliate of the
Purchaser or to a fund under common investment management with the Purchaser, or
any transfers among any such Affiliates or funds provided that the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act. The Purchaser or Affiliate or other transferee
shall have the rights of the Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above (or any
other legend) if the conversion of Debentures, exercise of the Warrant or other
issuances of Underlying Shares as contemplated hereby, as the case may be,
occurs at any time while an Underlying Securities Registration Statement is
effective under the Securities Act or, in the event there is not an effective
Underlying Securities Registration Statement at such time, if in the opinion of
counsel to the Company such legend is not required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). In the event the legend referenced above
is required pursuant to this Section 3.1(b) at the time of the initial issuance
of Underlying Shares, the Company agrees that it will provide the Purchaser,
upon request, with a certificate or certificates representing Underlying Shares,
free from such legend at such time as such legend is no longer required
hereunder. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section 3.1(b).
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrant may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares in accordance with the Debentures
and the Warrant is unconditional and absolute regardless of the effect of any
such dilution.
3.3 Furnishing of Information. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchaser may resell
all of their Underlying Shares without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act (as determined by counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the benefit of and enforceable by
the Purchaser) the Company is not required to file reports pursuant to such
sections, it will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.
The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
3.4 Integration. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3.5 Increase in Authorized Shares. (a) The Company shall as soon as
possible and, in any event no later than 90 days following the Closing Date,
amend its articles of incorporation in order to increase the number of
authorized and available shares of Common Stock to a minimum of 75,000,000
shares of Common Stock.
(b) At such time as the Company would be, if a notice of
conversion or exercise (as the case may be) were to be delivered on such date,
precluded from (a) converting the full outstanding principal amount of
Debentures (and paying any accrued but unpaid interest in respect thereof in
shares of Common Stock) that remain unconverted at such date or (b) honoring the
exercise in full of the Warrant due to the unavailability of a sufficient number
of shares of authorized but unissued or re-acquired Common Stock, the Board of
Directors of the Company shall promptly (and in any case within 30 Business Days
from such date) prepare and mail to the shareholders of the Company proxy
materials requesting authorization to amend the Company's restated certificate
of incorporation to increase the number of shares of Common Stock which the
Company is authorized to issue to at least such number of shares as reasonably
requested by the Purchaser in order to provide for such number of authorized and
unissued shares of Common Stock to enable the Company to comply with its
conversion, exercise and reservation of shares obligations as set forth in this
Agreement, the Debentures and the Warrant. In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the shareholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within 5 Business Days of obtaining
such shareholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase.
3.6 Listing of Underlying Shares. The Company will use its best efforts
to list the Common Stock for trading on the Nasdaq SmallCap Market or Nasdaq
National Market as soon as possible after the Closing Date. The Purchaser
understands that the Company does not currently meet the requirements for
initial listing of the Common Stock on either the Nasdaq National Market or the
Nasdaq SmallCap Market. If the Common Stock hereafter is listed for trading on
the Nasdaq National Market, Nasdaq SmallCap Market, American Stock Exchange or
New York Stock Exchange (each, a "Subsequent Market"), or any other national
securities market or exchange), then
the Company shall (1) take all necessary steps to list the Underlying Shares
thereon, including the preparation of any required additional listing
applications therefor covering at least the sum of (i) two times the number of
Underlying Shares as would be issuable upon a conversion in full of the then
outstanding principal amount of Debentures (plus all Underlying Shares are
issuable as payment of interest thereon, assuming all such interest were paid in
shares of Common Stock) and upon exercise in full of the then unexercised
portion of the Warrant and (2) provide to the Purchaser evidence of such
listing, and the Company shall thereafter maintain the listing of its Common
Stock on such exchange or market as long as Underling Shares are issuable and/or
outstanding.
3.7 Conversion Procedures. The Conversion Notice (as defined in Exhibit
A) and Notice of Exercise under the Warrant set forth the totality of the
procedures with respect to the conversion of the Debentures and exercise of the
Warrant, as may be reasonably necessary to enable the Purchaser to convert
Debentures and exercise the Warrant as contemplated therein.
3.8 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while the Purchaser (or any assignee thereof) owns any
Securities, the Common Stock is not Actively Traded (as defined herein) then,
notwithstanding anything to the contrary contained in any Transaction Document,
at the Purchaser's option exercisable by written notice to the Company, the
Company shall repay the entire principal amount of then outstanding Debentures
(and all accrued and unpaid interest thereon) and redeem all then outstanding
Underlying Shares then held by the Purchaser, at an aggregate purchase price
equal to the sum of (I) the aggregate outstanding principal amount of Debentures
then held by the Purchaser divided by the Conversion Price on (a) the day prior
to the date of such suspension or delisting, (b) the day of such notice or (c)
the date of payment in full of the repurchase price calculated under this
Section, whichever is less, and multiplied by the Market Price preceding (x) the
day prior to the date of such suspension or delisting, (y) the day of such
notice and (z) the date of payment in full of the repurchase price calculated
under this Section, whichever is greater, (II) the aggregate of all accrued but
unpaid interest and other non-principal amounts (including liquidated damages,
if any) then payable in respect of all Debentures to be repaid, (III) the number
of Underlying Shares then held by the Purchaser multiplied by the Market Price
immediately preceding (x) the day prior to the date of such suspension or
delisting, (y) the date of the notice or (z) the date of payment in full by the
Company of the repurchase price calculated under this Section, whichever is
greater, and (IV) interest on the amounts set forth in I - III above accruing
from the 5th day after such notice until the repurchase price under this Section
is paid in full at the rate of 15% per annum. As used herein, "Actively Traded"
shall mean that (a) the average value of the shares of Common Stock traded on
the OTC Bulletin Board in each week, measured over a four (4) week period, on a
rolling basis, equals or exceeds $50,000 and (b) there are no fewer than ten
(10) market makers actively making a market in the Common Stock.
3.9 Use of Proceeds. The Company shall use all of the net proceeds from
the sale of the Securities for working capital and general corporate purposes
and not for the satisfaction of any Company debt or to redeem Company any equity
or equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
3.10 Notice of Breaches. Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof,
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained in the Transaction
Document to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in any
Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Debentures a copy of any written statement in support of or relating to such
claim or notice.
3.11 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Debentures and exercises of the Warrant and shall
deliver Underlying Shares in accordance with the respective terms and conditions
and time periods set forth in the Debentures and the Warrant.
3.12 Right of First Refusal; Subsequent Registrations; Certain Corporate
Actions. (a) The Company shall not, directly or indirectly, without the prior
written consent of Encore Capital Management, L.L.C. ("Encore"), offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities or any instrument that
permits the holder thereof to acquire Common Stock at any time over the life of
the security or investment at a price that is less than the market price of the
Common Stock at the time of issuance of such security or investment (a
"Subsequent Financing") for a period of 180 days after the later to occur of the
second Subsequent Closing Date or the tenth (10th) day after the date that the
Company is precluded hereunder from delivering a Subsequent Closing Notice,
except (i) the granting of options or warrants to employees, officers and
directors, and the issuance of shares upon exercise of options granted, under
any stock option plan heretofore or hereinafter duly adopted by the Company,
(ii) shares issued upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), and (iii) shares of Common Stock issued upon
conversion of Debentures, as payment of interest thereon, or upon exercise of
the Warrant in accordance with their respective terms, unless (A) the Company
delivers to Encore a written notice (the "Subsequent Financing Notice") of its
intention to effect such Subsequent Financing, which Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing shall be affected, and attached to which
shall be a term sheet or similar document relating thereto and (B) Encore shall
not have notified the Company by 5:00 p.m. (New York City time) on the tenth
(10th) Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to cause the Purchaser to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on
substantially the terms set forth in the Subsequent Financing Notice. If Encore
shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Financing substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Financing Notice; provided, that the
Company shall provide Encore with a second Subsequent Financing Notice, and
Encore shall again have the right of first refusal set forth above in this
paragraph (a), if the Subsequent Financing subject to the initial Subsequent
Financing Notice shall not have been consummated for any reason on the terms set
forth in such Subsequent Financing Notice within thirty (30) Trading Days after
the date of the initial Subsequent Financing Notice with the Person (or an
Affiliate of such Person) identified in the Subsequent Financing Notice.
(b) Except Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, and other than Company
securities to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) through (iii) of this Section (other than the
registration of securities on behalf of investment consultants of the Company),
the Company shall not, without the prior written consent of the Purchaser, (i)
issue or sell any of its or any of its Affiliates' equity or equity-equivalent
securities pursuant to Regulation S promulgated under the Securities Act, or
(ii) register for resale any securities of the Company for a period of not less
than 90 Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that the Purchaser
is unable to sell Underlying Shares under the Underlying Securities Registration
Statement shall be added to such 90 Trading Day period for the purposes of (i)
and (ii) above.
(c) As long as there are Debentures outstanding, the
Company shall not
and shall cause the Subsidiaries not to, without the consent of the holders of
the Debentures, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the holders of
Debentures; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock other than as to the Underlying Shares; or
(iii) enter into any agreement with respect to any of the foregoing.
3.13 Transfer of Intellectual Property Rights. Except in connection with
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of, any Intellectual Property
Rights, or allow the Intellectual Property Rights to become subject to any
Liens, or fail to renew such Intellectual Property Rights (if renewable and
would otherwise expire), without the prior written consent of the Purchaser.
3.14 Certain Securities Laws Disclosures; Publicity. (a) The Company
shall timely file with the Commission a Form D promulgated under the Securities
Act as required under Regulation D promulgated under the Securities Act and
provide a copy thereof to the Purchaser promptly after the filing thereof. The
Company shall (i) issue a press release acceptable to the Purchaser disclosing
the transactions contemplated hereby within three (3) Business Days after the
Closing Date and (ii) file a Report on Form 8-K disclosing this Agreement and
the transactions contemplated hereby within ten (10) Business Days after the
Closing Date.
(b) In furtherance and in addition to the obligation of the
Company set forth in Section 3.14(a) above, the Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
3.15 Security Documents. Simultaneously with the execution of this
Agreement, the Company and the Purchaser shall amend (the "Amendment") the
Security Agreement, dated as of June 29, 1998, as amended on August 28, 1998, by
and between the Company and the Purchaser (the "Security Agreement") to provide
that the obligations of the Company pursuant to the Transaction Documents will
be deemed to be part of the Obligations (as defined in such Security Agreement)
of the Company thereunder. Promptly after the Closing Date, the Company shall
file all UCC Financing Statements and other evidences of the Obligations (as so
amended) as the Purchaser shall reasonably request.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. The Company shall pay the Purchaser at the
Closing, $5,000 for its legal fees and disbursements in connection with the
preparation and negotiation of the Transaction Documents and for its due
diligence expenses and disbursements in connection therewith. Other than the
amounts contemplated by the immediately preceding sentence, and except as set
forth in the Registration Rights Agreement, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
issuance of the Debentures pursuant hereto. The Purchaser shall be responsible
for its own respective tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, the Debentures, the Security Agreement, the
Registration Rights Agreement and the Warrant contain the entire understanding
of the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in the Purchase Agreement later than 7:00 p.m. (New York City time) on
any date and earlier than 11:59 p.m. (New York City time) on such date, (iii)
the Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: InnovaCom, Inc.
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If to Purchaser: JNC Strategic Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
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Attn: Director
With copies to: Encore Capital Management, L.L.C.
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Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: Managing Member
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or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), the Purchaser may not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Company. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to permitted assignees under Section 4.6,
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
4.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrant.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.
4.11 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
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SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized persons as of the date first indicated above.
INNOVACOM, INC.
By:___________________________
Name:
Title:
JNC STRATEGIC FUND LTD.
By:___________________________
Name:
Title: