SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
October 3, 2003, is made by and among P-Com, Inc., a corporation organized under
the laws of the State of Delaware (the "COMPANY"), each of the purchasers
(individually, a "PURCHASER" and collectively the "PURCHASERS") set forth on the
execution pages hereof (each, an "EXECUTION PAGE" and collectively the
"EXECUTION PAGES"), and, solely with respect to Section 8 hereof, Drinker ▇▇▇▇▇▇
& ▇▇▇▇▇ LLP, a Pennsylvania limited liability partnership ("ESCROW AGENT") with
its principal place of business in Philadelphia, Pennsylvania.
BACKGROUND
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. Upon the terms and conditions stated in this Agreement, the Company
desires to issue and sell to the Purchasers, and the Purchasers desire to
purchase, an aggregate of Ten Thousand (10,000) units (the "UNITS"), each Unit
consisting of (i) one share of the Company's Series C Convertible Preferred
Stock, par value $0.0001 per share (the "PREFERRED STOCK"), which Preferred
Stock shall have the rights, preferences and privileges set forth in the form of
Certificate of Designation, Preferences and Rights attached hereto as Exhibit A
(the "CERTIFICATE OF DESIGNATION") and shall initially be convertible into
17,500 shares of the Company's common stock, par value $0.0001 per share (the
"COMMON STOCK"), per share of Preferred Stock, (ii) a warrant, in the form
attached hereto as Exhibit B (the "SERIES C-1 WARRANT"), to acquire initially
7,000 shares of Common Stock, and (iii) a warrant, in the form attached hereto
as Exhibit C (the "SERIES C-2 WARRANT," and, together with the Series C-1
Warrant, the "WARRANTS") to acquire initially 7,000 shares of Common Stock. The
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Preferred Stock are referred to herein as the "CONVERSION SHARES" and the shares
of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants
are referred to herein as the "WARRANT SHARES." The Preferred Stock, the
Warrants, the Conversion Shares and the Warrant Shares are collectively
referenced herein as the "SECURITIES" and each of them may individually be
referred to herein as a "SECURITY."
C. In connection with the Closing pursuant to this Agreement, the
parties hereto will execute and deliver a Registration Rights Agreement, in the
form attached hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws. This Agreement, the Certificate of
Designation, the Warrants and the Registration Rights Agreement are collectively
referred to herein as the "TRANSACTION DOCUMENTS."
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
(a) Purchase and Sale of Securities. Subject to the terms and
conditions hereof, at the Closing (as defined in Section 1(b) below), the
Company shall issue and sell to each Purchaser, and each Purchaser, severally
and not jointly, shall purchase from the Company, such number of Units as is set
forth on such Purchaser's Execution Page, for a purchase price (as to each
Purchaser, the "PURCHASE PRICE") per Unit equal to One Thousand Seven Hundred
Fifty Dollars ($1,750).
(b) The Closing. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the closing of the transactions
contemplated hereby (the "CLOSING") shall take place at the offices of Drinker
▇▇▇▇▇▇ & ▇▇▇▇▇ LLP at One ▇▇▇▇▇ Square, ▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 12:00 noon, Philadelphia, Pennsylvania time, on the date
hereof, or such other time or place as the Company and the Purchasers may
mutually agree (the "CLOSING DATE"). In the event that the Company does not
issue and sell all of the Units at the Closing, the Company shall be entitled to
issue and sell such number of units (the "ADDITIONAL UNITS") equal to the number
of unsold Units to additional Purchasers at one or more additional closings
consummated prior to the filing of the Registration Statement pursuant to the
Registration Rights Agreement, in each case pursuant to terms of this Agreement
and provided that each such additional Purchaser executes an Execution Page
hereto and to each of the other Transaction Documents to which the other
Purchasers are a party, and thereby agrees to be bound by and subject to the
terms and conditions hereof and thereof. All references herein to Units shall
include any Additional Units issued at any additional closing held pursuant to
this Section 1(b).
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Each Purchaser severally, but not jointly, represents and warrants to
the Company as follows:
(a) Purchase for Own Account, Etc. Such Purchaser is purchasing the
Securities for such Purchaser's own account for investment purposes only and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales that are exempt from the registration requirements of the
Securities Act and/or sales registered under the Securities Act. The Purchaser
has substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company.
Such Purchaser understands that such Purchaser must bear the economic risk of
this investment indefinitely, unless the Securities are registered pursuant to
the Securities Act and any applicable state securities or blue sky laws or an
exemption from such registration is available, and that the Company has no
present intention of registering the resale of any such Securities other than as
contemplated by the Registration Rights Agreement. Notwithstanding anything in
this Section 2(a) to the contrary, by making the representations herein, such
Purchaser does not agree to hold the Securities for any minimum or other
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specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption from the
registration requirements under the Securities Act.
(b) Accredited Investor Status. Such Purchaser is an "Accredited
Investor" as that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Purchaser understands that the
Securities are being offered and sold to such Purchaser in reliance upon
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Securities.
(d) Information. All materials relating to the business, finances and
operations of the Company (including the Company's most recent Annual Report on
Form 10-K and most recent Quarterly Report on Form 10-Q) and materials relating
to the offer and sale of the Securities which have been specifically requested
by such Purchaser or its counsel have been made available to such Purchaser and
its counsel, if any. Neither such inquiries nor any other investigation
conducted by such Purchaser or its counsel or any of its representatives shall
modify, amend or affect such Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Such Purchaser
understands that such Purchaser's investment in the Securities involves a high
degree of risk, including the risk of loss of its entire investment in the
Securities.
(e) Governmental Review. Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
(f) Transfer or Resale. Such Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(A) the transfer is made pursuant to and as set forth in an effective
registration statement under the Securities Act covering the Securities; or (B)
such Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (C) sold under and in compliance with Rule 144 promulgated
under the Securities Act (including any successor rule, "RULE 144"); or (D) sold
or transferred to an affiliate of such Purchaser that agrees to sell or
otherwise transfer the Securities only in accordance with the provisions of this
Section 2(f) and that is an Accredited Investor; and (ii) neither the Company
nor any other person is under any obligation to register such Securities under
the Securities Act or any state securities laws (other than pursuant to the
terms of the Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
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arrangement, provided such pledge is consistent with applicable laws, rules and
regulations.
(g) Legends. Such Purchaser understands that the Preferred Stock and
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the Securities Act (including registration pursuant to
Rule 416 thereunder) as contemplated by the Registration Rights Agreement or
otherwise may be sold by such Purchaser under Rule 144, the certificates for the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state of the United States or in
any other jurisdiction. The securities represented hereby may
not be offered, sold or transferred in the absence of an
effective registration statement for the securities under
applicable securities laws unless offered, sold or transferred
pursuant to an available exemption from the registration
requirements of those laws.
The Company shall, within three business days after any registration
statement covering the Securities (including, without limitation, the
Registration Statement contemplated by the Registration Rights Agreement) is
declared effective, deliver to its transfer agent an opinion letter of counsel,
opining that at any time such registration statement is effective, the transfer
agent shall issue, in connection with the issuance of the Conversion Shares and
Warrant Shares, certificates representing such Conversion Shares and Warrant
Shares without the restrictive legend above, provided such Conversion Shares and
Warrant Shares are to be sold pursuant to the prospectus contained in such
registration statement. Upon receipt of such opinion, the Company shall cause
the transfer agent to confirm, for the benefit of the holders, that no further
opinion of counsel is required at the time of transfer in order to issue such
shares without such restrictive legend.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (i) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder); (ii) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the Securities Act; or
(iii) such holder provides the Company with reasonable assurances that such
Security can be sold under Rule 144. In the event the above legend is removed
from any Security and thereafter the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance written notice to such Purchaser the Company may require that
the above legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or under Rule 144 and such
Purchaser shall cooperate in the replacement of such legend. Such legend shall
thereafter be removed when such Security may again be sold pursuant to an
effective registration statement or under Rule 144.
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(h) Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Purchaser and are valid and binding agreements of such
Purchaser enforceable against such Purchaser in accordance with their terms.
(i) Residency. Such Purchaser is a resident of the jurisdiction set
forth under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.
Each Purchaser's representations and warranties made in this Article 2
are made solely for the purpose of permitting the Company to make a
determination that the offer and sale of the Securities pursuant to this
Agreement comply with applicable U.S. federal and state securities laws and not
for any other purpose. Accordingly, the Company may not rely on such
representations and warranties for any other purpose.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on a Disclosure Schedule executed and delivered by
the Company to each Purchaser (the "DISCLOSURE SCHEDULE"), the Company
represents and warrants to each Purchaser as follows:
(a) Organization and Qualification. The Company and each of its direct
and indirect subsidiaries (collectively, the "SUBSIDIARIES") is a corporation
duly organized and existing in good standing under the laws of the jurisdiction
in which it is incorporated or organized, and has the requisite corporate power
to own its properties and to carry on its business as now being conducted. The
Company and each of its Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect. For purposes of this
Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i)
the Securities, (ii) the ability of the Company to perform its obligations under
this Agreement or the other Transaction Documents or (iii) the business,
operations, properties, prospects, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the other Transaction Documents, to issue and sell the Units
in accordance with the terms hereof, to issue the Conversion Shares upon
conversion of the Preferred Stock in accordance with the terms thereof and to
issue the Warrant Shares upon exercise of the Warrants in accordance with the
terms thereof; (ii) the execution, delivery and performance of this Agreement
and the other Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Units and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, or any committee of the Board of Directors is required, and
(iii) this Agreement constitutes, and, upon execution and delivery by the
Company of the other Transaction Documents, such Transaction Documents will
constitute, valid and binding obligations of the Company enforceable against the
5
Company in accordance with their terms. Neither the execution, delivery or
performance by the Company of its obligations under this Agreement or the other
Transaction Documents, nor the consummation by it of the transactions
contemplated hereby or thereby (including, without limitation, the issuance of
the Units or the issuance or reservation for issuance of the Conversion Shares
or Warrant Shares) requires any consent or authorization of the Company's
stockholders.
(c) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Stock and the
Warrants) exercisable or exchangeable for, or convertible into, any shares of
capital stock and the number of shares to be reserved for issuance upon
conversion of the Preferred Stock and exercise of the Warrants is set forth in
Section 3(c) of the Disclosure Schedule. All of such outstanding shares of
capital stock have been, or upon issuance in accordance with the terms of any
such exercisable, exchangeable or convertible securities will be, validly
issued, fully paid and non-assessable. No shares of capital stock of the Company
(including the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as set forth in
Section 3(c) of the Disclosure Schedule, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, nor are any such issuances or arrangements
contemplated, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the Securities Act (except the Registration Rights
Agreement); (iii) there are no outstanding securities or instruments of the
Company which contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to redeem any security of the Company; and (iv) the Company
does not have any shareholder rights plan, "poison pill" or other anti-takeover
plans or similar arrangements. Section 3(c) of the Disclosure Schedule sets
forth all of the securities or instruments issued by the Company or any of its
Subsidiaries that contain anti-dilution or similar provisions that will be
triggered by, and all of the resulting adjustments that will be made to such
securities and instruments as a result of, the issuance of the Securities in
accordance with the terms of this Agreement, the Preferred Stock or the
Warrants. The Company has furnished to ▇▇▇▇▇▇▇ ▇▇▇▇ Partners LLC, placement
agent for the Securities, true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof ("CERTIFICATE OF
INCORPORATION"), the Company's Bylaws as in effect on the date hereof (the
"BYLAWS"), and all other instruments and agreements governing securities
convertible into or exercisable or exchangeable for capital stock of the
Company. The Company or one of its Subsidiaries has the unrestricted right to
vote, and (subject to limitations imposed by applicable law) to receive
dividends and distributions on, all capital securities of its Subsidiaries as
owned by the Company or any such Subsidiary.
(d) Issuance of Securities. The Units are duly authorized and, upon
issuance in accordance with the terms of this Agreement, (i) will be validly
issued and free from all taxes, liens, claims and encumbrances (other than
6
restrictions on transfer contained in this Agreement or the Certificate of
Designation or Warrants), (ii) will not be subject to preemptive rights, rights
of first refusal or other similar rights of stockholders of the Company or any
other person and (iii) will not impose personal liability on the holder thereof.
The Conversion Shares and Warrant Shares are duly authorized and reserved for
issuance, and, upon conversion of the Preferred Stock and exercise of the
Warrants in accordance with the terms thereof, (I) will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
(other than restrictions on transfer contained in this Agreement), (II) will not
be subject to preemptive rights, rights of first refusal or other similar rights
of stockholders of the Company or any other person and (III) will not impose
personal liability upon the holder thereof.
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Units and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares) will not
(i) result in a violation of the Certificate of Incorporation or Bylaws, (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment (including, without limitation, the triggering of any
anti-dilution provisions), acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including United States federal and state securities laws,
rules and regulations and rules and regulations of any self-regulatory
organizations to which either the Company or its securities are subject)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected (except,
with respect to clauses (ii) and (iii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not, individually or in the aggregate, have a Material Adverse Effect).
(f) Compliance. Neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation, Bylaws or other organizational
documents, and neither the Company nor any of its Subsidiaries is in default
(and no event has occurred that with notice or lapse of time or both would put
the Company or any of its Subsidiaries in default) under, nor has there occurred
any event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party. The businesses of the Company and its Subsidiaries are not being
conducted, and shall not be conducted so long as any Purchasers (or any of their
respective affiliates) own any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the aggregate have not
had and would not have a Material Adverse Effect. Neither the Company, nor any
of its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity, made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds,
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee. The Company and its Subsidiaries possess all certificates,
7
authorizations and permits issued by the appropriate federal, state, provincial
or foreign regulatory authorities that are material to the conduct to its
business, and neither the Company nor any of its Subsidiaries has received any
notice of proceeding relating to the revocation or modification of any such
certificate, authorization or permit.
(g) SEC Documents, Financial Statements. Since December 31, 1998, 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 SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, the "SEC
Documents"). The Company has delivered or made available to each Purchaser true
and complete copies of 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, 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, 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 as may be otherwise indicated in such financial statements or
the notes thereto or, 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 and its consolidated Subsidiaries 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 Select SEC Documents (as defined below), 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 and (ii) 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) and (ii), individually or in the aggregate, are not material to the
financial condition or operating results of the Company. For purposes of this
Agreement, "SELECT SEC DOCUMENTS" means the Company's (A) Proxy Statement for
its 2003 Annual Meeting, (B) Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 (C) Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 2003 and June 30, 2003 and (D) all Current Reports on
Form 8-K filed since December 31, 2002.
(h) Absence of Certain Changes. Since December 31, 2002, there has been
no material adverse change and no material adverse development in the business,
8
properties, operations, prospects, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole. The Company has not taken
any steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy or receivership law, nor does the Company or any of
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings with respect to the
Company or any of its Subsidiaries.
(i) Transactions With Affiliates. None of the officers, directors, or
employees of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services solely in their capacity as officers, directors or employees),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or any corporation, partnership, trust or other
entity in which any such officer, director, or employee has an ownership
interest of five percent or more or is an officer, director, trustee or partner.
(j) Absence of Litigation. Except as disclosed in the Select SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body (including, without limitation, the SEC) pending or affecting the
Company, any of its subsidiaries, or any of their respective directors or
officers in their capacities as such.. To the knowledge of the Company or any of
its subsidiaries, there are no actions, suits, proceedings, inquiries or
investigations before or by any court, public board, government agency,
self-regulatory organization or body (including, without limitation, the SEC)
threatened against the Company, any of its subsidiaries, or any of their
respective directors or officers in their capacities as such, which, if
determined adversely, could, either individually or in the aggregate, have a
Material Adverse Effect. There are no facts which, if known by a potential
claimant or governmental authority, could give rise to a claim or proceeding
which, if asserted or conducted with results unfavorable to the Company or any
of its subsidiaries, could reasonably be expected to have a Material Adverse
Effect.
(k) Intellectual Property. Each of the Company and its Subsidiaries
owns or is duly licensed (and, in such event, has the unfettered right to grant
sublicenses) to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, inventions, discoveries, processes, scientific, technical,
engineering and marketing data, object and source codes, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTELLECTUAL PROPERTY") necessary for the
conduct of its business as now being conducted and as presently contemplated to
be conducted in the future (collectively, the "COMPANY INTELLECTUAL PROPERTY").
Section 3(k) of the Disclosure Schedule sets forth a list of all material
Company Intellectual Property owned and/or used by the Company in its business.
Neither the Company nor any Subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any third party
Intellectual Property. Neither the Company nor any of its Subsidiaries has
received written notice of any pending conflict with or infringement upon any
third party Intellectual Property. Neither the Company nor any of its
Subsidiaries has entered into any consent agreement, indemnification agreement,
forbearance to ▇▇▇ or settlement agreement with respect to the validity of the
Company's or its Subsidiaries' ownership of or right to use its Company
Intellectual Property and there is no reasonable basis for any such claim to be
9
successful. The Company Intellectual Property are valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. The Company and its
Subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Company Intellectual
Property used pursuant to licenses. No person is infringing on or violating the
Company Intellectual Property owned or used by the Company or its Subsidiaries.
(l) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and merchantable title to all
personal property owned by them that is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
(m) Tax Status. Except as set forth in the Select SEC Documents, the
Company and each of its Subsidiaries has made or filed all foreign, U.S.
federal, state, provincial 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 and each of its Subsidiaries 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 that are material in amount, 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. There are no unpaid taxes in any material amount 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 foreign, federal, state, provincial or local tax. None of the
Company's tax returns is presently being audited by any taxing authority.
(n) Key Employees. Each of the Company's directors and officers and any
Key Employee (as defined below) is currently serving the Company in the capacity
disclosed in the Select SEC Documents. No Key Employee is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its Subsidiaries to any material liability with respect to any
of the foregoing matters. No Key Employee has, to the knowledge of the Company
and its Subsidiaries, any intention to terminate or limit his employment with,
or services to, the Company or any of its Subsidiaries, nor is any such Key
Employee subject to any constraints which would cause such employee to be unable
to devote his full time and attention to such employment or services. For
purposes of this Agreement, "KEY EMPLOYEE" means the persons listed in Section
3(n) of the Disclosure Schedule and any individual who assumes or performs any
of the duties of a Key Employee.
10
(o) Employee Relations. (i) No application or petition for
certification of a collective bargaining agent is pending and none of the
employees of Company or any of its Subsidiaries are or have been represented by
any union or other bargaining representative and no union has attempted to
organize any group of the Company's employees, and no group of the Company's
employees has sought to organize themselves into a union or similar organization
for the purpose of collective bargaining. The Company and its Subsidiaries
believe that their relations with their employees are good; (ii) no executive
officer (as defined in Rule 501(f) of the Securities Act) has notified the
Company that such officer intends to leave the Company or otherwise terminate
such officer's employment with the Company; and (iii) the Company and its
Subsidiaries are in compliance with all federal, state and local laws and
regulations and, to the Company's knowledge, all foreign laws and regulations,
in each case respecting employment and employment practices, terms and
conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, result in a
Material Adverse Effect.
(p) Insurance. The Company and each of its Subsidiaries has in force
fire, casualty, product liability and other insurance policies, with extended
coverage, sufficient in amount to allow it to replace any of its material
properties or assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company may reasonably become subject, and such types
and amounts of other insurance with respect to its business and properties, on
both a per occurrence and an aggregate basis, as are customarily carried by
persons engaged in the same or similar business as the Company. No default or
event has occurred that could give rise to a default under any such policy.
(q) Environmental Matters. There is no environmental litigation or
other environmental proceeding pending or threatened by any governmental
regulatory authority or others with respect to the current or any former
business of the Company or any of its Subsidiaries or any partnership or joint
venture currently or at any time affiliated with the Company or any of its
Subsidiaries. No state of facts exists as to environmental matters or Hazardous
Substances (as defined below) that involves the reasonable likelihood of a
material capital expenditure by the Company or any of its Subsidiaries that may
otherwise have a Material Adverse Effect. No Hazardous Substances have been
treated, stored or disposed of, or otherwise deposited, in or on the properties
owned or leased by the Company or any of its Subsidiaries or by any partnership
or joint venture currently or at any time affiliated with the Company or any of
its Subsidiaries in violation of any applicable environmental laws. The
environmental compliance programs of the Company and each of its Subsidiaries
comply in all respects with all environmental laws, whether foreign, federal,
state, provincial or local, currently in effect. For purposes of this Agreement,
"HAZARDOUS SUBSTANCES" means any substance, waste, contaminant, pollutant or
material that has been determined by any governmental authority to be capable of
posing a risk of injury to health, safety, property or the environment.
(r) Listing. The Company is not in violation of the listing
requirements of the OTC Electronic Bulletin Board (the "BULLETIN BOARD") on
which it trades, does not reasonably anticipate that the Common Stock will be
delisted by the Bulletin Board for the foreseeable future, and has not received
any notice regarding the possible delisting of the Common Stock from the
11
Bulletin Board. The Company has secured the listing of the Conversion Shares and
Warrant Shares upon each national securities exchange, automated quotation
system or over-the-counter market upon which shares of Common Stock are
currently listed (subject to official notice of issuance).
(s) [Intentionally Omitted.]
(t) Anti-Takeover Provisions. The Company and its board of directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under its Certificate of Incorporation or the laws of the state of its
incorporation which is or could become applicable to any Purchaser as a result
of the transactions contemplated by this Agreement, including without
limitation, the Company's issuance of the Securities and any and all Purchaser's
ownership of the Securities. Except as specifically contemplated by this
Agreement, the Company is not required to obtain any consent, approval,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency or other third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement or any of the other Transaction Documents, in each case in
accordance with the terms hereof or thereof.
(u) Acknowledgment Regarding Each Purchaser's Purchase of the
Securities. The Company acknowledges and agrees that each Purchaser is acting
solely in the capacity of arm's length purchaser with respect to this Agreement
and the other Transaction Documents and the transactions contemplated hereby and
thereby, and that no Purchaser is (i) an officer or director of the Company,
(ii) an "affiliate" of the Company (as defined in Rule 144) or (iii) a
"beneficial owner" of more than 5% of the Common Stock (as defined for purposes
of Rule 13d-3 of the Exchange Act). The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement or the other Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Purchaser or any of its representatives or agents in connection with
this Agreement or the other Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Purchaser's
purchase of the Securities. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(v) No General Solicitation or Integrated Offering. Neither the Company
nor any distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation" (as such term is defined
in Regulation D) with respect to any of the Securities being offered hereby.
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 Securities being offered hereby under the
Securities Act or cause this offering of Securities to be integrated with any
prior offering of securities of the Company for purposes of the Securities Act,
which result of such integration would require registration under the Securities
Act, or any applicable stockholder approval provisions.
12
(w) No Brokers. The Company has taken no action that would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby.
(x) Acknowledgment Regarding Securities. The number of Conversion
Shares issuable upon conversion of the Preferred Stock and the number of Warrant
Shares issuable upon exercise of the Warrants may increase in certain
circumstances. The Company's directors and executive officers have studied and
fully understand the nature of the Securities being sold hereunder. The Company
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Stock in accordance with the terms thereof and the Warrant Shares
upon the exercise of the Warrants in accordance with the terms thereof is
absolute and unconditional, regardless of the dilution that such issuance may
have on the ownership interests of other stockholders and the availability of
remedies provided for in any of the Transaction Documents relating to a failure
or refusal to issue Conversion Shares or Warrant Shares. Taking the foregoing
into account, the Company's Board of Directors has determined in its good faith
business judgment that the issuance of the Units hereunder and the consummation
of the other transactions contemplated hereby are in the best interests of the
Company and its stockholders.
(y) Disclosure. All information relating to or concerning the Company
and/or any of its Subsidiaries set forth in this Agreement or provided to the
Purchasers pursuant to Section 2(d) hereof or otherwise by 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, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, 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 a primary issuance of the Company's
securities.
4. COVENANTS.
(a) Best Efforts. The parties shall use their respective best efforts
timely to satisfy each of the conditions described in Sections 6 and 7 of this
Agreement.
(b) Form D: Blue Sky Laws. The Company shall file with the SEC a Form D
with respect to the Securities as required under Regulation D and provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to each Purchaser
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to each Purchaser on or prior to the
Closing Date. The Company shall issue a press release describing the material
terms of the transactions contemplated hereby (the "PRESS RELEASE") as soon as
practicable after the Closing, but in no event later than the commencement of
the first trading day following the Closing Date. The Press Release shall be
subject to prior review and comment by the Purchasers. Within two days after the
Closing Date, the Company shall file a Form 8-K with the SEC concerning this
Agreement and the transactions contemplated hereby, which Form 8-K shall attach
13
this Agreement and its Exhibits as exhibits to such Form ▇-▇ (▇▇▇ "▇-▇ ▇▇▇▇▇▇").
From and after the 8-K Filing, the Company hereby acknowledges that no Purchaser
shall be in possession of any material nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the Company or any
of its Subsidiaries from and after the 8-K Filing without the express written
consent of such Purchaser; provided, however, that a Purchaser that exercises
its rights under Section 4(o) hereof shall be deemed to have given such express
written consent. In the event of a breach of the foregoing covenant by the
Company, any of its Subsidiaries or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the other Transaction Documents, a Purchaser shall have the right to make
a public disclosure, in the form of a press release, public advertisement or
otherwise, of such material nonpublic information without the prior approval by
the Company, its Subsidiaries or any of its or their respective officers,
directors, employees or agents. No Purchaser shall have any liability to the
Company, its Subsidiaries or any of its or their respective officers, directors,
employees, shareholders or agents for any such disclosure. Subject to the
foregoing, neither the Company nor any Purchaser shall issue any other press
releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or other
public disclosure with respect to such transactions as is required by applicable
law and regulations (provided that any such press release or other public
disclosure shall be subject to prior review and comment by the Purchasers).
(c) Reporting Status. So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination. In addition, the
Company shall take all actions necessary to meet the "registrant eligibility"
requirements set forth in the general instructions to Form S-1 or any successor
form thereto, to continue to be eligible to register the resale of its Common
Stock on a registration statement on Form S-1 under the Securities Act.
(d) Use of Proceeds. The Company shall use the proceeds from the sale
and issuance of the Units for general corporate purposes and working capital.
Such remaining proceeds shall not be used to (i) pay dividends; (ii) pay for any
increase in executive compensation or make any loan or other advance to any
officer, employee, shareholder, director or other affiliate of the Company,
without the express approval of the Board of Directors acting in accordance with
past practice; (iii) purchase debt or equity securities of any entity (including
redeeming the Company's own securities), except for (A) loans in an aggregate
amount not exceeding $1,000,000 to SPEEDCOM Wireless Corporation, (B) evidences
of indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition, (C)
14
certificates of deposit, notes, acceptances and repurchase agreements having a
maturity of not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided profits of
at least $500,000,000, (D) the highest-rated commercial paper having a maturity
of not more than one year from the date of acquisition, and (E) "Money Market"
fund shares, or money market accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial institutions,
provided that the investments consist principally of the types of investments
described in clauses (B), (C), or (D) above; or (iv) make any investment not
directly related to the current business of the Company.
(e) Participation Right; Exchange Right. Subject to the terms and
conditions specified in this Section 4(e), the Purchasers shall have a right to
participate with respect to the issuance or possible issuance of (i) equity or
equity-linked securities, or (ii) debt which is convertible into equity or in
which there is an equity component ("ADDITIONAL SECURITIES") on the same terms
and conditions as offered by the Company to the other purchasers of such
Additional Securities. Each time the Company proposes to offer any Additional
Securities, the Company shall make an offering of such Additional Securities to
each Purchaser in accordance with the following provisions:
(i) the Company shall deliver a notice (the "NOTICE") to the
Purchasers stating (A) its bona fide intention to offer such Additional
Securities, (B) the number of such Additional Securities to be offered, (C) the
price and terms, if any, upon which it proposes to offer such Additional
Securities, and (D) the anticipated closing date of the sale of such Additional
Securities;
(ii) until the first anniversary of the Closing Date, by
written notification received by the Company within five (5) trading days after
giving of the Notice, any Purchaser may elect to purchase or obtain, at the
price and on the terms specified in the Notice, up to that portion of such
Additional Securities that have a total purchase price equal to one half of the
Purchase Price paid by such Purchaser for Preferred Stock in accordance with the
terms hereof. The Company shall promptly, in writing, inform each Purchaser that
elects to purchase all of the Additional Shares available to it
("FULLY-EXERCISING PURCHASER") of any other Purchaser's failure to do likewise.
During the five (5) trading day period commencing after such information is
given, each Fully-Exercising Purchaser shall be entitled to obtain that portion
of the Additional Securities for which the Purchasers were entitled to subscribe
but that were not subscribed for by the Purchasers that is equal to the
proportion that the Purchase Price paid for Preferred Stock by such
Fully-Exercising Purchaser in accordance with the terms hereof bears to the
total Purchase Price paid for Preferred Stock by all Purchasers in accordance
with the terms hereof;
(iii) notwithstanding the provisions of subsection 4(e)(ii)
hereof, at any time after the Closing Date, by written notification received by
the Company within five (5) trading days after giving of the Notice, any
Purchaser may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Additional Securities that
have a total purchase price equal to the Purchase Price paid by such Purchaser
for Preferred Stock in accordance with the terms hereof; provided, however, that
any Purchaser who elects to purchase Additional Securities pursuant to this
Section 4(e)(iii) shall be required to surrender to the Company Preferred Stock
(or Conversion Shares issued on the conversion of such Preferred Stock) for
which the Purchase Price paid by such Purchaser pursuant to the terms hereof
15
(plus any accrued but unpaid dividends on such Preferred Stock) equals the total
purchase price of the Additional Securities to be acquired by such Purchaser,
and the Company shall accept such Preferred Stock (or Conversion Shares) as
payment in full for such Additional Securities. The provisions of this
subsection 4(e)(iii) shall be of no further force or effect upon the
consummation of any transaction (other than those transactions contemplated by
this Agreement) resulting in the issuance of the Company's Common Stock in
connection with a bona fide offering at an offering price per share (prior to
any underwriter's commissions and discounts) of not less than $0.12 (as adjusted
to reflect any stock dividends, distributions, combinations, reclassifications
and other similar transactions effected by the Company in respect to its Common
Stock) that results in total net proceeds to the Company of at least $5,000,000;
(iv) if all Additional Securities which the Purchasers are
entitled to obtain pursuant to subsection 4(e)(ii) or 4(e)(iii) are not elected
to be obtained as provided in subsection 4(e)(ii) or 4(e)(iii) hereof, the
Company may, during the 75-day period following the expiration of the period
provided in subsection 4(e)(ii) or 4(e)(iii) hereof, offer the remaining
unsubscribed portion of such Additional Securities to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than, those
specified in the Notice. If the Company does not consummate the sale of such
Additional Securities within such period, the right provided hereunder shall be
deemed to be revived and such Additional Securities shall not be offered or sold
unless first reoffered to the Purchasers in accordance herewith;
(v) the participation right in this Section 4(e) shall not be
applicable to (A) the issuance or sale of shares of Common Stock (or options
therefor) to employees, officers, directors, or consultants of the Company for
the primary purpose of soliciting or retaining their employment or service
pursuant to a stock option plan (or similar equity incentive plan) approved in
good faith by the Board of Directors, (B) the issuance of Common Stock in
connection with a bona fide underwritten public offering at an offering price
per share (prior to underwriter's commissions and discounts) of not less than
$0.20 (as adjusted to reflect any stock dividends, distributions, combinations,
reclassifications and other similar transactions effected by the Company in
respect to its Common Stock) that results in total proceeds to the Company of at
least $25,000,000, (C) the issuance or sale of the Preferred Stock, (D) the
issuance of securities in connection with mergers, acquisitions, strategic
business partnerships or joint ventures approved by the Board of Directors and
the primary purpose of which, in the reasonable judgment of the Board of
Directors, is not to raise additional capital or (E) any issuance of securities
as to which the holders of a majority of the then outstanding Preferred Stock
shall have executed a written waiver of the rights contained in this Section
4(e); and
(vi) the participation right set forth in this Section 4(e)
may not be assigned or transferred, except that such right is assignable by each
Purchaser to any wholly-owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Securities Act, controlling,
controlled by or under common control with, any such Purchaser.
(f) Financial Information. The Company shall send (via electronic
transmission or otherwise) the following reports (or notification of their
availability to the public) to the Purchasers until the Purchasers transfer,
assign or sell all of their Securities: (i) within ten days after the filing
with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, its proxy statements and any Current Reports on Form 8-K; and (ii)
within one day after release, copies of all press releases issued by the Company
or any of its Subsidiaries.
16
(g) Reservation of Shares. The Company shall, at and after such time as
the Company's stockholders have approved an amendment to its Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 69,000,000 to at least 600,000,000 shares (the "AMENDMENT"),
but in no event later than ninety (90) days following the Closing; provided,
however, that in the event the SEC conducts a full review of the preliminary
proxy statement filed in connection with the Company soliciting proxies to
approve the Amendment, such period may be extended, if reasonably necessary, by
an additional thirty (30) days (the "AMENDMENT DATE"), reserve such number of
shares of its authorized but unissued shares of Common Stock to provide for full
conversion of the Preferred Stock and the issuance of the Conversion Shares in
connection therewith, the full exercise of the Warrants and the issuance of the
Warrant Shares in connection therewith and as otherwise required by the
Preferred Stock, the Warrants and the Registration Rights Agreement
(collectively, the "ISSUANCE OBLIGATIONS") that is equal to (i) the aggregate
number of shares of Common Stock issuable in satisfaction of the Issuance
Obligations immediately following the consummation of the transactions
contemplated by this Agreement, as adjusted to provide for Issuance Obligations
relating to any subsequent issuances of Additional Units after the Closing Date
but prior to the filing of the Registration Statement pursuant to the
Registration Rights Agreement, multiplied by (ii) 125%. In the event such number
of shares becomes insufficient to satisfy the Issuance Obligations, the Company
shall take all necessary action to authorize and reserve such additional shares
of Common Stock necessary to satisfy the Issuance Obligations; provided,
however, that in the event the Company's stockholders shall not have approved
the Amendment by the Amendment Date, then the Company shall pay to each
Purchaser an amount equal to the product of (i) the number of shares of
Preferred Stock then held by such Purchaser multiplied by the per share purchase
price, multiplied by (ii) two percent (2.0%) for each 30 day period (or portion
thereof) after the Amendment Date and prior to the approval of the Amendment by
the Company's stockholders. Each Purchaser hereby agrees that it shall not
request any Optional Conversion of the Series C Preferred Stock pursuant to
Article IV of the Certificate of Designation prior to the approval of the
Amendment by the Company's stockholders, and any failure of the Company to
satisfy an Optional Conversion request prior to the approval of the Amendment by
the Company's stockholders shall not be deemed a Conversion Default under
Article VI of the Certificate of Designation.
(h) Price Adjustment Approval. The Company shall seek the approval of
its stockholders of the anti-dilution and other conversion/exercise price
adjustments contained in the Series C Preferred Stock and the Warrants, as
required by Article VII, Section 8 of the Company's Bylaws (such approval, the
"PRICE ADJUSTMENT APPROVAL"). In the event the Company's stockholders shall not
have given the Price Adjustment Approval within ninety (90) days following the
Closing Date; provided, however, that in the event the SEC conducts a full
review of the preliminary proxy statement filed in connection with the Company
soliciting proxies to approve the Price Adjustment Approval, the such period may
be extended, if reasonably necessary, by an additional thirty (30) days (the
"ADJUSTMENT APPROVAL DATE"), then the Company shall pay to each Purchaser an
amount equal to the product of (i) the number of shares of Preferred Stock then
held by such Purchaser multiplied by the per share purchase price, multiplied by
(ii) two percent (2.0%) for each 30 day period (or portion thereof) after the
Adjustment Approval Date and prior to the Company's stockholders granting the
Price Adjustment Approval. For the avoidance of doubt, any amounts payable under
this Section 4(h) shall be in addition to, and not in lieu of, any amounts
payable under any other Section of this Agreement.
17
(i) Listing. The Company shall maintain, so long as any Purchasers (or
any of their respective affiliates) beneficially own any Securities, the listing
of all Conversion Shares and Warrant Shares from time to time issuable upon
conversion of the Preferred Stock and exercise of the Warrants on each national
securities exchange, automated quotation system or electronic bulletin board on
which shares of Common Stock are currently listed. The Company will use its best
efforts to continue the listing and trading of its Common Stock on the Bulletin
Board or the Nasdaq National Market (the "NATIONAL MARKET"), the New York Stock
Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") and will
comply in all respects with the reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers, Inc. (the
"NASD"), such exchanges, or such electronic system, as applicable. The Company
shall promptly provide to each Purchaser copies of any notices it receives
regarding the continued eligibility of the Common Stock for trading on the
Bulletin Board or on any securities exchange or automated quotation system on
which securities of the same class or series issued by the Company are then
listed or quoted, if any.
(j) Corporate Existence. So long as any Purchasers (or any of their
respective affiliates) beneficially own any Securities, the Company shall
maintain its corporate existence, and in the event of a merger, consolidation or
sale of all or substantially all of the Company's assets, the Company shall
ensure that the surviving or successor entity in such transaction and, if an
entity different from the successor or acquiring entity, the entity whose
securities into which the Common Stock shall become convertible or exchangeable
in such transaction (i) assumes the Company's obligations under this Agreement
and the other Transaction Documents and the agreements and instruments entered
into in connection herewith and therewith regardless of whether or not the
Company would have had a sufficient number of shares of Common Stock authorized
and available for issuance in order to effect the conversion of all the
Preferred Stock and exercise in full of all Warrants outstanding as of the date
of such transaction and (ii) except in the event of a merger, consolidation of
the Company into any other corporation, or the sale or conveyance of all or
substantially all of the assets of the Company where the consideration consists
solely of cash, the surviving or successor entity and, if an entity different
from the successor or acquiring entity, the entity whose securities into which
the Common Stock shall become convertible or exchangeable in such transaction,
is a publicly traded corporation whose common stock is listed for trading on the
National Market, the NYSE or the AMEX.
(k) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
(l) Legal Compliance. The Company shall conduct its business and the
business of its Subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
18
(m) Redemptions and Dividends. So long as any Purchasers (or any of
their respective affiliates) beneficially own any Securities, the Company shall
not, without first obtaining the written approval of the Purchasers holding a
majority of the shares of Preferred Stock then outstanding, repurchase or
redeem, declare or pay any cash dividend or distribution on, or otherwise repay
or prepay on account of, any shares of capital stock or other outstanding
indebtedness of the Company, other than the Preferred Stock (collectively,
"RESTRICTED PAYMENTS"). Notwithstanding the foregoing, so long as the Company
has not defaulted on its obligations to any Purchaser under this Agreement or
any of the other Transaction Documents, and no default would result from the
payment of such Restricted Payments, the Company may make Restricted Payments
without the written approval of the Purchasers holding a majority of the shares
of Preferred Stock then outstanding; provided, however, that the aggregate
amount of Restricted Payments made without such approval shall not exceed, in
the aggregate, $2,500,000
(n) Information. So long as a Purchaser whose total Purchase Price paid
for Units under this Agreement equals or exceeds $100,000 beneficially owns any
Securities, the Company shall furnish to such Purchaser:
(i) concurrently with the filing with the SEC of its annual
reports on Form 10-K, a certificate of the President, a Vice President or a
senior financial officer of the Company stating that, based upon such
examination or investigation and review of this Agreement as in the opinion of
the signer is necessary to enable the signer to express an informed opinion with
respect thereto, neither the Company nor any of its Subsidiaries is or has
during such period been in default in the performance or observance of any of
the terms, covenants or conditions hereof, or, if the Company or any of its
Subsidiaries shall be or shall have been in default, specifying all such
defaults, and the nature and period of existence thereof, and what action the
Company or such Subsidiary has taken, is taking or proposes to take with respect
thereto; and
(ii) the information the Company must deliver to any holder or
to any prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the SEC or any similar rule
then in effect.
The Company shall keep at its principal executive office a true copy of this
Agreement (as at the time in effect), and cause the same to be available for
inspection at such office during normal business hours by any holder of
Securities or any prospective transferee of Securities designated by a holder
thereof.
(o) Inspection of Properties and Books. So long as any Purchaser
beneficially owns any Securities, such Purchaser and its representatives and
agents (collectively, the "INSPECTORS") shall have the right, at such
Purchaser's expense, to visit and inspect any of the properties of the Company
and of its Subsidiaries, to examine the books of account and records of the
Company and of its Subsidiaries, to make or be provided with copies and extracts
therefrom, to discuss the affairs, finances and accounts of the Company and of
its Subsidiaries with, and to be advised as to the same by, its and their
officers, employees and independent public accountants (and by this provision
the Company authorizes such accountants to discuss such affairs, finances and
accounts, whether or not a representative of the Company is present) all at such
reasonable times and intervals and to such reasonable extent as the Purchasers
may desire; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to such Purchaser) of any such information
19
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (i) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement filed pursuant to the Registration Rights Agreement, (ii)
the release of such information is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or (iii) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. Each Purchaser agrees
that it shall, upon learning that disclosure of such information 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
protective order for, the information deemed confidential.
(p) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by any Purchaser in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document. The Company shall execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.
(q) Variable Securities. The Company shall not, in any manner, issue or
sell any rights, warrants or options to subscribe for or purchase Common Stock,
or any other securities directly or indirectly convertible into or exchangeable
or exercisable for Common Stock, at an effective conversion, exchange or
exercise price that varies or may vary with the market price of the Common
Stock, including by way of one or more reset(s) to any fixed price.
(r) Expenses. At the Closing, the Company shall pay to SDS Capital
Partners ("SDS CAPITAL"), as representative of the lead investors in the
transactions contemplated by this Agreement, reimbursement for the out-of-pocket
expenses reasonably incurred by SDS Capital, its affiliates and its or their
advisors in connection with the negotiation, preparation, execution and delivery
of this Agreement and the other Transaction Documents and the consummation of
the transactions contemplated hereby and thereby, including, without limitation,
SDS Capital's and its affiliates' and advisors' reasonable due diligence and
attorneys' fees and expenses (the "EXPENSES"), up to an aggregate amount not to
exceed $90,000; provided, however, that the Purchasers affiliated with SDS
Capital shall be permitted, in their discretion, to deduct an aggregate amount
equal to such Expenses from the Purchase Price payable by such Purchasers
hereunder and use such amounts so deducted to reimburse SDS Capital for such
Expenses. In addition, from time to time thereafter, upon SDS Capital's written
request and to the extent that the Company has not already reimbursed SDS
Capital for Expenses aggregating $90,000 pursuant to this Section 4(r), the
Company shall pay to SDS Capital such additional Expenses, if any, not covered
by such payment, in each case to the extent reasonably incurred by SDS Capital,
its affiliates or its or their advisors in connection with the negotiation,
preparation, execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby.
20
5. TRANSFER AGENT INSTRUCTIONS.
(a) Upon conversion of the Preferred Stock or exercise of the Warrants
by any person, (i) if the DTC Transfer Conditions (as defined below) are
satisfied, the Company shall cause its transfer agent to electronically transmit
all Conversion Shares and Warrant Shares by crediting the account of such person
or its nominee with the Depository Trust Company ("DTC") through its Deposit
Withdrawal Agent Commission system; or (ii) if the DTC Transfer Conditions are
not satisfied, the Company shall issue and deliver, or instruct its transfer
agent to issue and deliver, certificates (subject to the legend and other
applicable provisions hereof and the Certificate of Designation and Warrants),
registered in the name of such person its nominee, physical certificates
representing the Conversion Shares and Warrant Shares, as applicable. Even if
the DTC Transfer Conditions are satisfied, any person effecting a conversion of
Preferred Stock or exercising Warrants may instruct the Company to deliver to
such person or its nominee physical certificates representing the Conversion
Shares and Warrant Shares, as applicable, in lieu of delivering such shares by
way of DTC Transfer. For purposes of this Agreement, "DTC TRANSFER CONDITIONS"
means that (A) the Company's transfer agent is participating in the DTC Fast
Automated Securities Transfer program and (B) the certificates for the
Conversion Shares or Warrant Shares required to be delivered do not bear a
legend and the person effecting such conversion or exercise is not then required
to return such certificate for the placement of a legend thereon.
(b) The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the transfer of the Conversion
Shares or Warrant Shares prior to registration of the Conversion Shares and
Warrant Shares under the Securities Act or without an exemption therefrom, shall
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement. Nothing in this Section shall affect
in any way the Purchasers' obligations and agreement set forth in Section 2(g)
hereof to resell the Securities pursuant to an effective registration statement
or under an exemption from the registration requirements of applicable
securities law.
(c) If any Purchaser provides the Company and the transfer agent with
an opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or any Purchaser provides the
Company with reasonable assurances that such Securities may be sold under Rule
144, the Company shall permit the transfer and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Purchasers.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to
each Purchaser hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions as to such Purchaser, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion:
21
(a) Each Purchaser shall have executed such Purchaser's Execution Page
to this Agreement and each other Transaction Document to which such Purchaser is
a party and delivered the same to the Company.
(b) Each Purchaser shall have delivered the full amount of such
Purchaser's Purchase Price in accordance with Section 8 hereof.
(c) The representations and warranties of each Purchaser shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and such Purchaser shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Closing Date.
(d) No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
22
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder (which obligations shall be
several, and not joint) to purchase the Units for which it is subscribing from
the Company hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that such conditions are for
each Purchaser's individual and sole benefit and may be waived by any Purchaser
as to such Purchaser at any time in such Purchaser's sole discretion:
(a) The Company shall have executed such Purchaser's Execution Page to
this Agreement and each other Transaction Document to which the Company is a
party and delivered executed originals of the same to such Purchaser.
(b) The Certificate of Designation shall have been filed and accepted
for filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of the State of Delaware shall have
been delivered to such Purchaser.
(c) The Company shall have delivered to such Purchaser duly executed
certificates representing the Preferred Stock and Warrants for the number of
Units being purchased by such Purchaser (each in such denominations as such
Purchaser shall request), registered in such Purchaser's name.
(d) The Common Stock shall be authorized for quotation and listed on
the Bulletin Board and trading in the Common Stock (or on the Bulletin Board
generally) shall not have been suspended by the SEC or the Bulletin Board.
(e) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. Such Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company after reasonable investigation,
dated as of the Closing Date to the foregoing effect and as to such other
matters as may reasonably be requested by such Purchaser.
(f) No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, challenges or prohibits the consummation
of, any of the transactions contemplated by this Agreement.
(g) Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in the form attached hereto as Exhibit E.
(h) There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations, prospects,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, since the date hereof, and no information that
is materially adverse to the Company and of which such Purchaser is not
currently aware shall come to the attention of such Purchaser.
(i) Such Purchaser shall have received a copy of resolutions, duly
adopted by the Board of Directors of the Company, which shall be in full force
and effect at the time of the Closing, authorizing the execution, delivery and
performance by the Company of this Agreement and the other Transaction Documents
and the consummation by the Company of the transactions contemplated hereby and
thereby, certified as such by the Secretary or Assistant Secretary of the
Company, and such other documents they reasonably request in connection with the
Closing.
8. ESCROW PROVISIONS.
(a) Appointment of Escrow Agent. The Company and each Purchaser hereby
jointly appoint Escrow Agent as escrow agent to hold the Purchase Price
deposited into escrow with it pursuant to this Agreement (the "ESCROW DEPOSIT"),
and Escrow Agent hereby agrees to hold the Escrow Deposit in escrow in
accordance with the terms hereof and to perform its other duties hereunder. The
Company and each Purchaser acknowledge that Escrow Agent is legal counsel to SDS
Capital and intends to continue to serve in that capacity in connection with any
matter related to this Agreement, to the arrangements and dealings between the
Company, SDS Capital and each other Purchaser and otherwise. The Company and
each Purchaser hereby consents to such continued representation, including in
matters adverse to them, and waive any claims they may have that such
representation will result in a conflict of interest or otherwise. Nothing
contained herein shall in any way require termination of or otherwise affect
Escrow Agent's relationship with SDS Capital or adversely affect, in any manner,
the attorney-client privilege between Escrow Agent and SDS Capital with respect
to Escrow Agent's representation of SDS Capital.
23
(b) Deposit of Escrow Deposit. On or before the date hereof, each
Purchaser shall transmit the Escrow Deposit to Escrow Agent by federal wire
transfer of immediately available U.S. funds. Subject to Section 8(d) hereof,
and until all of the Escrow Deposit shall have been disbursed as provided in
this Agreement, Escrow Agent shall hold the Escrow Deposit in an interest
bearing account entitled "Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP as escrow agent." All
income earned on and other proceeds of the Escrow Deposit shall be added to the
amount thereof and distributed in accordance with the terms hereof. Upon
distribution to the Company, such income shall be treated as income of the
Company for income tax purposes. Whenever required by this Agreement to disburse
any of the Escrow Deposit, Escrow Agent shall liquidate sufficient investments
to permit such disbursement to be made.
(c) Disposition of Escrow Deposit. As soon as reasonably practicable
following receipt of written instructions from the Company and ▇▇▇▇▇▇▇ Hill
Partners LLC, placement agent for the Securities, along with duly executed and
delivered copies of each Purchaser's Execution Page to this Agreement and each
other Transaction Document to which such Purchaser is a party, Escrow Agent
shall (a) deliver the Escrow Deposit to the Company by federal wire transfer of
immediately available U.S. funds in accordance with wire instructions provided
by the Company and (b) subject to payment of Escrow Agent's expenses and fees
pursuant to Section 8(f) hereof, deliver all interest accrued on the Escrow
Deposit to the Company by federal wire transfer of immediately available U.S.
funds in accordance with wire instructions provided by the Company, and, upon
such deliveries, Escrow Agent shall be fully discharged from any and all
obligations hereunder. If written instructions regarding the disposition of the
Escrow Deposit and duly executed and delivered copies of each Purchaser's
Execution Page to this Agreement and each other Transaction Document to which
such Purchaser is a party are not received by Escrow Agent within five (5)
business days of the date hereof, the Escrow Agent shall return the applicable
portion of the Escrow Deposit to each Purchaser, along with such Purchaser's pro
rata share of any accrued interest thereon and, upon such delivery, Escrow Agent
shall be fully discharged from any and all obligations hereunder.
(d) Resignation or Removal of Escrow Agent. Escrow Agent may resign at
any time upon 10 days' prior notice to the Company and may be removed by the
mutual consent of the Company and each Purchaser upon 10 days' prior notice to
Escrow Agent. Prior to the effective date of the resignation or removal of
Escrow Agent or any successor escrow agent, the Company and the Purchasers shall
jointly appoint a successor escrow agent to hold the Escrow Deposit and any such
successor escrow agent shall execute and deliver to the predecessor escrow agent
an instrument accepting such appointment and the terms of this Agreement.
Thereafter, upon receipt of the Escrow Deposit from the predecessor agent, such
successor agent shall, without further act, become vested with all of the
rights, powers and duties of the predecessor escrow agent as if originally named
herein, and such predecessor escrow agent shall be released from all obligations
and liability hereunder. If no successor escrow agent is appointed prior to the
effective date of the termination or resignation of the Escrow Agent, Escrow
Agent may: (i) file an interpleader action in any court of competent
jurisdiction and deposit the Escrow Deposit with the clerk of such court, or
(ii) deliver the Escrow Deposit to a bank with capital in excess of $100 million
which executes and delivers to the predecessor escrow agent an instrument
24
accepting such appointment and the terms of this Agreement. Thereafter, upon
receipt of the Escrow Deposit from the predecessor agent, such successor agent
shall, without further act, become vested with all of the rights, powers and
duties of the predecessor escrow agent as if originally named herein, and such
predecessor escrow agent shall be released from all obligations and liability
hereunder.
(e) Liability of Escrow Agent.
(i) The duties of Escrow Agent hereunder are entirely
administrative and not discretionary. Escrow Agent is obligated to act only in
accordance with this Agreement, is authorized hereby to comply with any orders,
judgments or decrees of any court or arbitration panel (whether or not any
appeal thereof is pending) and shall not incur any liability as a result of its
compliance with such instructions, orders, judgments or decrees. Escrow Agent
may assume the due execution, validity and effectiveness of, and the truth and
accuracy of any information contained in, any instrument or other document
presented to it and shall not have any obligation to inquire into the
authenticity or authorization thereof.
(ii) Escrow Agent shall have no liability under, or duty to
inquire into, the terms and provisions of any other agreement between any of the
parties hereto. If any of the terms and provisions of any other agreement
conflict or are inconsistent with any of the terms and provisions of this
Agreement, the terms and provisions of this Agreement in respect of Escrow
Agent's rights and duties shall govern and control in all respects.
(iii) If Escrow Agent shall be uncertain as to its rights or
duties hereunder, it shall be entitled to refrain from taking any action other
than to keep all property held in escrow pursuant hereto until it shall be
directed otherwise in a writing signed by the Company and each Purchaser or by
an order of a court of competent jurisdiction. Alternatively, in such situation,
Escrow Agent may in its sole discretion, deliver and interplead the Escrow
Deposit, together with any interest thereon, into a court of competent
jurisdiction, and, upon such delivery and interpleading, Escrow Agent shall be
fully discharged from any and all obligations and liability hereunder. Escrow
Agent may consult with counsel of its choice, and shall not be liable for any
action taken, suffered, or omitted by it in accordance with the advice of such
counsel. Escrow Agent shall not be required to institute legal proceedings of
any kind and shall not be required to defend any legal proceedings which may be
instituted against it in respect of the subject matter of this Agreement unless
requested to do so by another party hereto and indemnified to its satisfaction
against the costs and expenses of such defense.
(iv) The Company and each Purchaser hereby irrevocably waive
and covenant not to bring any suit, claim, demand or cause of action of any kind
which any or all may have to assert against Escrow Agent (or any partner or
employee of Escrow Agent) arising out of or relating to the execution or
performance by Escrow Agent of this Agreement now or in the future, unless such
suit, claim, demand or cause of action is based upon the willful misconduct of
Escrow Agent or Escrow Agent's gross negligence in its failure to perform an
express obligation hereunder. Escrow Agent shall be indemnified and held
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by Escrow Agent in the
performance of this Escrow Agreement except as a result of its willful
misconduct or gross negligence in its failure to perform an express obligation
hereunder. All such reimbursements and indemnifications shall be the joint and
several obligation of the Company and each Purchaser.
25
(f) Expenses of Escrow Agent. Escrow Agent's expenses and fees shall be
deducted from any interest accrued on the Escrow Deposit prior to the
distribution of such accrued interest to the Company in accordance with this
Section 8. Any expenses and fees of Escrow Agent in excess of the accrued
interest on the Escrow Deposit shall be the responsibility of the Company and
shall be paid promptly upon receipt of an invoice from Escrow Agent.
9. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and
each Purchaser irrevocably consent to the exclusive jurisdiction of the United
States federal courts and the state courts located in the County of New Castle,
State of Delaware, in any suit or proceeding based on or arising under this
Agreement and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
right of any Purchaser to serve process in any other manner permitted by law.
The Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which 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. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed execution page(s)
hereof to be physically delivered to the other party within five days of the
execution hereof, provided that the failure to so deliver any manually executed
execution page shall not affect the validity or enforceability of this
Agreement.
(c) Construction. Whenever the context requires, the gender of any word
used in this Agreement includes the masculine, feminine or neuter, and the
number of any word includes the singular or plural. Unless the context otherwise
requires, all references to articles and sections refer to articles and sections
of this Agreement, and all references to schedules are to schedules attached
hereto, each of which is made a part hereof for all purposes. The descriptive
headings of the several articles and sections of this Agreement are inserted for
purposes of reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
26
(e) Entire Agreement; Amendments. This Agreement and the other
Transaction Documents (including any schedules and exhibits hereto and thereto)
contain the entire understanding of the Purchasers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchasers make any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement, and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and each
Purchaser. No consideration shall be paid to a Purchaser by the Company in
connection with an amendment hereto unless each Purchaser similarly affected by
such amendment receives a pro rata amount of consideration from the Company,
and, unless a Purchaser agrees otherwise, each amendment hereto shall similarly
affect each Purchaser.
(f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally, by responsible overnight carrier or
by confirmed facsimile, and shall be effective five days after being placed in
the mail, if mailed, or upon receipt or refusal of receipt, if delivered
personally or by responsible overnight carrier or confirmed facsimile, in each
case addressed to a party. The initial addresses for such communications shall
be as follows, and each party shall provide notice to the other parties of any
change in such party's address:
(i) If to the Company:
P-Com, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
with a copy simultaneously transmitted by like
means (which transmittal shall not
constitute notice hereunder) to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
(ii) If to any Purchasers, to the address set forth under such
Purchaser's name on the Execution Page hereto executed by such Purchaser.
(iii) If to Escrow Agent:
27
Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Square
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Chief Financial Officer
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Partner
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein, the Company shall not assign this Agreement or any rights or
obligations hereunder. Any Purchaser may assign or transfer the Securities
pursuant to the terms of this Agreement and of such Securities, or assign such
Purchaser's rights hereunder or thereunder to any other person or entity, except
for direct competitors of the Company or persons or entities that have publicly
announced plans to compete directly with the Company. In addition, and
notwithstanding anything to the contrary contained in this Agreement or the
other Transaction Documents, the Securities may be pledged and all rights of any
Purchaser under this Agreement or any other Transaction Document may be
assigned, without further consent of the Company, to a bona fide pledgee in
connection with such Purchaser's margin or brokerage account.
(h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person; provided, however, that Section 4(r) may be enforced by
SDS Capital.
(i) Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof shall
survive the Closing notwithstanding any due diligence investigation conducted by
or on behalf of any Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies any Purchaser may have under applicable U.S. federal or state
securities laws.
(j) Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC or, to the extent applicable,
NASD filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of the Purchasers, to make any press release or SEC
or, to the extent applicable, NASD filings with respect to such transactions as
is required by applicable law and regulations (although the Purchasers shall be
consulted by the Company in connection with any such press release and filing
prior to its release and shall be provided with a copy thereof and must provide
specific consent to the use of their name in connection therewith).
(k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
28
(l) Indemnification. In consideration of each Purchaser's execution and
delivery of this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the Company's other
obligations under this Agreement and the other Transaction Documents, from and
after the Closing, the Company shall defend, protect, indemnify and hold
harmless each Purchaser and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement, collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (i)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
breach of any covenant, agreement or obligation of the Company contained in this
Agreement, any other Transaction Document or any other certificate, instrument
or document contemplated hereby or thereby or (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party (including for
these purposes a derivative action brought on behalf of the Company) and arising
out of or resulting from (A) the execution, delivery, performance or enforcement
of this Agreement, any other Transaction Document or any other certificate,
instrument or document contemplated hereby or thereby, (B) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance and sale of the Securities, (C) any disclosure made by
such Purchaser pursuant to Section 4(b) or 4(o) hereof, or (D) the status of
such Purchaser or holder of the Securities as an investor in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(l)
shall be the same as those set forth in Section 6(c) of the Registration Rights
Agreement.
(m) Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or pursuant to any of the other
Transaction Documents or any Purchaser enforces or exercises its rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
29
(n) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and therein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
(o) Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchasers by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that each
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer
of the Securities, without the necessity of showing economic loss and without
any bond or other security being required.
(p) Knowledge. As used in this Agreement, the term "knowledge" of any
person or entity shall mean and include (i) actual knowledge of any of the
Company's officers or directors and (ii) that knowledge which a reasonably
prudent business person could have obtained in the management of his or her
business affairs after making due inquiry and exercising due diligence which a
prudent business person should have made or exercised, as applicable, with
respect thereto.
(q) Exculpation Among Purchasers. The Company acknowledges that the
obligations of each Purchaser under this Agreement and each of the other
Transaction Documents are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the Transaction
Documents. Each Purchaser acknowledges that it has independently evaluated the
merits of the transactions contemplated by this Agreement and the other
Transaction Documents, that it has independently determined to enter into the
transactions contemplated hereby and thereby, that it is not relying on any
advice from or evaluation by any other Purchaser, and that it is not acting in
concert with any other Purchaser in making its purchase of securities hereunder
or in monitoring its investment in the Company. The Purchasers and, to its
knowledge, the Company agree that the no action taken by any Purchaser pursuant
hereto or to the other Transaction Documents, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or would deem such Purchasers to be members of a "group" for purposes of
Section 13(d) of the Exchange Act, and the Purchasers have not agreed to act
together for the purpose of acquiring, holding, voting or disposing of equity
securities of the Company. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers. The
Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Purchasers are in any way
acting in concert or as a "group" for purposes of Section 13(d) of the Exchange
30
Act with respect to the Transaction Documents or the transactions contemplated
hereby or thereby. Each Purchaser acknowledges that it has been represented by
its own separate legal counsel in their review and negotiation of the
Transaction Documents. Each Purchaser further acknowledges that SDS Capital has
retained Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP to act as its counsel in connection with the
transactions contemplated by this Agreement and the other Transaction Documents
and that Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP has not acted as counsel for any of the
other Purchasers in connection therewith and none of the other Purchasers have
the status of a client of Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP for conflict of interest or
other purposes as a result thereof.
(r) Business Days and Trading Days. For purposes of this Agreement, the
term "business day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law, regulation or executive order to close, and the term "trading day" means
any day on which the Bulletin Board or, if the Common Stock is not then traded
on the Bulletin Board, the principal national securities exchange, automated
quotation system or other trading market where the Common Stock is then listed,
quoted or traded, is open for trading.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
31
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
P-COM, INC.
By:
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Name:
Title:
PURCHASER:
(Print or Type Name of Purchaser)
By:
Name:
Title:
RESIDENCE:
------------------------------------------
ADDRESS:
--------------------------------------------
Telephone:
--------------------------------
Facsimile:
--------------------------------
Attention:
--------------------------------
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Units:
------------------------------------
Purchase Price ($______ per Unit):
------------------
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
ESCROW AGENT:
DRINKER ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
By:
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, a Partner