CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of June 29, 1998
(this "Agreement"), between InnovaCom, Inc., a Nevada corporation (the
"Company"), and JNC Strategic Fund Ltd., a Cayman Islands company (the
"Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase an aggregate principal amount of $2,000,000 of the
Company's 7% Convertible Debentures, due June 29, 2003 (the "Debentures"), which
are convertible into shares of the Company's common stock, par value $.001 per
share (the "Common Stock");
WHEREAS, on June 15, 1998, the Purchaser made a loan to the Company in
the amount of $500,000 (the "Loan");
WHEREAS, the Loan is evidenced by that certain promissory Note (the
"Note") dated June 15, 1998, executed by the Company and payable to the order of
the purchaser in the original principal amount of $500,000; and
WHEREAS, in accordance with the terms of the Note, the Purchaser desires
to convert the Note into Debentures which are convertible into shares of Common
Stock.
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchaser and
the Purchaser shall purchase the Debentures for an aggregate purchase price of
$2,000,000, which purchase price shall include the conversion of the Note into
Debentures. The closing of the purchase and sale of the Debentures (the
"Closing") shall take place at the offices of Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx
& Xxxxxx LLP (the "Escrow Agent"), 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
(ii) Prior to the Closing, the parties shall deliver or
shall cause to be delivered to the Escrow Agent such items as are required to be
delivered by them in accordance with and subject to the terms and conditions of
the Escrow Agreement, dated as of the date hereof, by and among the Company, the
Purchaser and the Escrow Agent in the form of Exhibit E annexed hereto (the
"Escrow Agreement"), including the following: (A) the Company shall deliver (1)
Debentures, registered in the name of the Purchaser, with an aggregate principal
amount of $2,000,000, (2) a Common Stock Purchase Warrant in the form of Exhibit
D attached hereto (the "Warrant"), registered in the name of the Purchaser, (3)
the Security Agreement, dated as of the date hereof, between the Company and the
Purchaser in the form of Exhibit G annexed hereto (the "Security Agreement"),
and (4) the legal opinion of Xxxxxx Eng Linn & Xxxxxxxx, substantially in the
form of Exhibit C ("Legal Opinion"); (B) the Purchaser shall deliver (1)
$1,500,000 and (2) the original Note marked canceled; and (C) each party hereto
shall deliver all other executed instruments, agreements and certificates as are
required to be delivered hereunder by or on their behalf at the Closing.
1.2 Form of Debentures. The Debentures shall be in the form of
Exhibit A.
For purposes of this Agreement, "Conversion Price," "Original
Issue Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall
have the meanings set forth in the Debentures; "Market Price" as at any date
shall mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date, and "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
Nevada, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in Schedule 2.1(a) attached
hereto (collectively, the "Subsidiaries"). Each of the Subsidiaries is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the full power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. Each of the Company and the Subsidiaries is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes
such qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not, individually or in the aggregate,
(x) adversely affect the legality, validity or enforceability of this Agreement,
the Escrow Agreement, the Debentures, the Warrants, the Security Agreement or
the Registration Rights Agreement, dated the date hereof, between the Company
and the Purchaser (the "Registration Rights Agreement" and, together with this
Agreement, the Escrow Agreement, the Debentures, Security Agreement and the
Warrants, the "Transaction Documents"), (y) have a material adverse effect on
the results of operations, assets, prospects, or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document (any of the foregoing, a "Material
Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms thereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective articles of incorporation, by-laws or other
charter documents.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures and Warrants hereunder, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company, except as specifically disclosed in the SEC Documents (as defined
below) or Schedule 2.1(c), no Person (as defined below) beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation
binding upon the Company, beneficial ownership of in excess of 5% of the Common
Stock. There are no agreements or arrangements under which the Company or any
Subsidiary is obligated to register the sale or resale of any of their
securities under the Securities Act (other than as contemplated in the
Registration Rights Agreement). A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
(d) Issuance of Debentures and Warrants. The Debentures and the
Warrants are duly authorized, and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusals of any kind (collectively,
"Liens"). The Company has and at all times while the Debentures and the Warrants
are outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock to enable it to perform its conversion, exercise and other
obligations under this Agreement, the Warrants and the Debentures and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) two times the number of shares of Common Stock as would be
issuable upon conversion in full of the Debentures, assuming such conversion
were effected on the Original Issue Date or the Filing Date (as defined in the
Registration Rights Agreement), whichever yields a lower Conversion Price, (ii)
the number of shares of Common Stock as are issuable as payment of interest on
the Debentures, and (iii) the number of shares of Common Stock as are issuable
upon exercise in full of the Warrants. The shares of Common Stock issuable upon
conversion of the Debentures, as payment of interest in respect thereof and upon
exercise of the Warrants are sometimes referred to herein as the "Underlying
Shares," and the Debentures, Warrants and Underlying Shares are, collectively,
the "Securities." When issued in accordance with the terms of the Debentures and
the Warrants, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's articles of incorporation, bylaws or
other charter documents (each as amended through the date hereof) or (ii)
subject to obtaining the consents referred to in Section 2.1(f), conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other than
(i) the filing of a registration statement covering the resale of the Underlying
Shares by the Purchaser (the "Underlying Securities Registration Statement")
with the Securities and Exchange Commission (the "Commission"), which shall be
filed in the time period set forth in the Registration Rights Agreement, (ii)
the application for the listing of the Underlying Shares on or with any national
securities exchange, market or quotation system on which the Common Stock is
hereafter listed for trading, (iii) blue sky securities filings as contemplated
by Section 3.5, (iv) the filing of a Form D with the Commission and (v) other
than, in all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, could not have
or result in, individually or in the aggregate, a Material Adverse Effect
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in
the Disclosure Materials (as hereinafter defined), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or in
the aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in Section 2.2(b)-(f),
the issuance and sale of the Securities to the Purchaser as contemplated hereby
are exempt from the registration
requirements of the Securities Act. Neither the Company nor any Person acting on
its behalf has taken or will take any action which might subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act.
(j) SEC Documents. Other than the Form 10-QSB for the quarter
ended March 31, 1998, the Company has filed all reports required to be filed by
it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
since December 12, 1997 (the foregoing materials being collectively referred to
herein as the "SEC Documents" and, together with the Schedules to this Agreement
furnished by or on behalf of the Company, the "Disclosure Materials") on a
timely basis, or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All material agreements to which the Company is
a party or by which the property or assets of the Company is subject have been
filed as exhibits to the SEC Documents as required; the Company is not in breach
of any such agreement where such breach may have or result in a Material Adverse
Effect. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles as in effect at the
time of filing applied on a consistent basis during the periods involved, except
as may be otherwise indicated in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal year-end audit adjustments. Since the date of the financial statements
included in the Company's Registration Statement on Form SB-2 (SEC File No.
333-45875) (the "Registration Statement"), there has been no event, occurrence
or development that has had a Material Adverse Effect which has not been
specifically disclosed in writing to the Purchaser by the Company. The Company
last filed audited financial statements with the Commission in the Registration
Statement, and has not received any comments from the Commission in respect
thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(l) Certain Fees. Except for warrants to be issued to Cardinal
Capital Management, Inc. and Xxxxxxxxx Xxxxxxxx, no fees or commissions will be
payable by the Company to any broker, financial advisor, finder, investment
banker, or bank with respect to
the transactions contemplated hereby. The Purchaser shall have no obligation
with respect to such fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless the Purchaser, its respective employees, officers,
directors, agents, and partners, and their respective Affiliates (as such term
is defined under Rule 405 promulgated under the Securities Act), from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees.
(m) Solicitation Materials. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(n) Exclusivity. The Company shall not issue and sell Debentures
to any Person other than the Purchaser.
(o) Listing and Maintenance Requirements Compliance. The Company
has not in the two years preceding the date hereof received written notice from
any stock exchange, market or trading facility on which the Common Stock is or
has been listed or quoted to the effect that the Company is not in compliance
with the listing, maintenance or other requirements of such exchange, market,
trading or quotation facility. The Company has no reason to believe that it does
not now or will not in the future meet any such requirements.
(p) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are necessary
for use in connection with its business and which the failure to so have would
have a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). To the best knowledge of the Company, there is no existing
infringement of any of the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser or
its representatives and counsel in connection with the transactions contemplated
hereby is true and correct in all material respects and does not fail to state
any material fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they were made, not misleading. The
Company confirms that it has not provided to the Purchaser or any of its agents
or counsel any information that constitutes or might constitute material
nonpublic information. The Company understands and confirms that the Purchaser
shall be relying on the foregoing representation in effecting transactions in
securities of the Company.
2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company.
(a) Organization; Authority. The Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities to be acquired hereunder by the Purchaser has been duly authorized by
all necessary action on the part of the Purchaser. Each of this Agreement, the
Registration Rights Agreement and the Escrow Agreement has been duly executed
and delivered by the Purchaser and constitutes the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Securities
to be acquired hereunder by the Purchaser for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof or interest therein, without prejudice, however,
to the Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities laws
or under an exemption from such registration.
(c) Purchaser Status. At the time the Purchaser was offered the
Securities, it was, at the date hereof, it is, and at the Closing Date, it will
be, an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk and the Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment, and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment and to verify the accuracy
and completeness of the information contained in the Disclosure Materials.
Neither such inquiries nor any other investigation conducted by or on behalf of
the Purchaser or its representatives or counsel shall modify, amend or affect
the Purchaser's right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company's representations and warranties contained
in the Transaction Documents.
(g) Reliance. The Purchaser understands and acknowledges that (i)
the Securities to be acquired by it hereunder are being offered and sold to it
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements thereof. In connection with any
transfer of any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration under
the Securities Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register any transfer by the Purchaser to an Affiliate of the
Purchaser, or any transfers among any such Affiliates provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. The Purchaser or Affiliate
transferee shall have the rights of the Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS
ON CONVERSION SET FORTH IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE
PURCHASE AGREEMENT, DATED AS OF JUNE 29, 1998, BETWEEN INNOVACOM, INC.
(THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above if
the conversion of Debentures, exercise of Warrants or other issuances of
Underlying Shares as contemplated hereby, as the case may be, occurs at any time
while an Underlying Securities Registration Statement is effective under the
Securities Act or, in the event there is not an effective Underlying Securities
Registration Statement at such time, if in the opinion of counsel to the Company
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). In the event the legend referenced above is required pursuant
to this Section 3.1(b) at the time of the initial issuance of Underlying Shares,
the Company agrees that it will provide the Purchaser, upon request, with a
certificate or certificates representing Underlying Shares, free from such
legend at such time as such legend is no longer required hereunder. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company which enlarge the restrictions of transfer set forth in
this Section 3.1(b).
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares in accordance with the Debentures
and the Warrants is unconditional and absolute regardless of the effect of any
such dilution.
3.3 Furnishing of Information. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on
which the Purchaser may resell all of their Underlying Shares without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as
determined by counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent for the
benefit of and enforceable by the Purchaser) the Company is not required to file
reports pursuant to such sections, it will prepare and furnish to the Purchaser
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including the legal
opinion referenced above in this Section. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Use of Disclosure Materials. The Company consents to the use of the
Disclosure Materials and any information provided by or on behalf of the Company
pursuant to Section 3.3, and any amendments and supplements thereto, in
connection with resales of the Securities other than pursuant to an effective
registration statement.
3.5 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchaser may request and shall continue such
qualification at all times until the Purchaser notifies the Company in writing
that it no longer own Securities; provided, however, that neither the Company
nor its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.6 Integration. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3.7 Increase in Authorized Shares. At such time as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) converting the full outstanding principal
amount of Debentures (and paying any accrued but unpaid interest in respect
thereof in shares of Common Stock) that remain unconverted at such date or (b)
honoring the exercise in full of the Warrants due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall promptly
(and in any case within 30 Business Days from such date) prepare and mail to the
shareholders of the Company proxy materials requesting authorization to amend
the Company's restated certificate of incorporation to increase the number of
shares of Common Stock which the Company is authorized to issue to at least such
number of shares as reasonably requested by the Purchaser in order to provide
for such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its conversion, exercise and reservation of shares
obligations as set forth in this Agreement, the Debentures and the Warrants. In
connection therewith, the Board of Directors shall (a) adopt proper resolutions
authorizing such increase, (b) recommend to and otherwise use its best efforts
to promptly and duly obtain stockholder approval to carry out such resolutions
(and hold a special meeting of the shareholders no later than the 60th day after
delivery of the proxy materials relating to such meeting) and (c) within 5
Business Days of obtaining such shareholder authorization, file an appropriate
amendment to the Company's certificate of incorporation to evidence such
increase.
3.8 Purchaser Ownership of Common Stock. The Purchaser shall not convert
Debentures or exercise its Warrant to the extent such conversion or exercise
would result in it beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act and the rules thereunder) in excess of 4.999% of the
then issued and outstanding shares of Common Stock, including shares issuable
upon conversion of the Debentures held by it after application of this Section.
To the extent that the limitation contained in this Section applies, the
determination of whether Debentures are convertible (in relation to other
securities owned by the Purchaser) and of which portion of the principal amount
of such Debentures are convertible shall be in the sole discretion of the
Purchaser, and the submission of Debentures for conversion shall be deemed to be
the Purchaser's determination of whether such Debentures are convertible (in
relation to other securities owned by the Purchaser) and of which portion of
such Debentures are convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of the Purchaser to convert Debentures at such time
as such conversion will not violate the provisions of this Section. The
provisions of this Section may be waived by the Purchaser upon not less than 75
days prior notice to the Company, and the provisions of this Section shall
continue to apply until such 75th day (or later, if stated in the notice of
waiver).
3.9 Listing of Underlying Shares. The Company will use its best efforts
to list the Common Stock for trading on the Nasdaq SmallCap Market or Nasdaq
National Market as soon as possible after the Closing Date. If the Common Stock
hereafter is listed for trading on the Nasdaq National Market, Nasdaq SmallCap
Market (or on the American Stock Exchange or New York Stock Exchange, or any
other national securities market or exchange), then the Company shall (1) take
all necessary steps to list the Underlying Shares thereon, including the
preparation of any required additional listing applications therefor covering at
least the sum of (i) two times the number of Underlying Shares as would be
issuable upon a conversion in full
of the then outstanding principal amount of Debentures (plus all Underlying
Shares are issuable as payment of interest thereon, assuming all such interest
were paid in shares of Common Stock) and upon exercise in full of the then
unexercised portion of the Warrants and (2) provide to the Purchaser evidence of
such listing, and the Company shall thereafter maintain the listing of its
Common Stock on such exchange or market as long as Underling Shares are issuable
and/or outstanding.
3.10 Conversion Procedures. Exhibit F sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchaser to exercise its right of conversion smoothly and
expeditiously.
3.11 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while the Purchaser (or any assignee thereof) owns any
Securities, the average value of shares of Common Stock traded on the OTC
Bulletin Board in each week, measured over a four week period, on a rolling
basis, is less than $750,000 or there are fewer than ten (10) market makers
actively making a market in the Common Stock (or, if after the Closing Date the
Common Stock is listed for trading on any of the exchanges, markets or trading
facilities contemplated in Section 3.9, if the Common Stock is delisted or
suspended from trading on such exchange, market or trading facility, other than
as a result of the suspension of trading in securities on such market or
exchange generally, or temporary suspensions pending the release of material
information) for more than three (3) Trading Days, then, notwithstanding
anything to the contrary contained in any Transaction Document, at the
Purchaser's option exercisable by written notice to the Company, the Company
shall repay the entire principal amount of then outstanding Debentures (and all
accrued and unpaid interest thereon) and redeem all then outstanding Underlying
Shares then held by the Purchaser, at an aggregate purchase price equal to the
sum of (I) the aggregate outstanding principal amount of Debentures then held by
the Purchaser divided by the Conversion Price on (a) the day prior to the date
of such suspension or delisting, (b) the day of such notice or (c) the date of
payment in full of the repurchase price calculated under this Section, whichever
is less, and multiplied by the Market Price preceding (x) the day prior to the
date of such suspension or delisting, (y) the day of such notice and (z) the
date of payment in full of the repurchase price calculated under this Section,
whichever is greater, (II) the aggregate of all accrued but unpaid interest and
other non-principal amounts (including liquidated damages, if any) then payable
in respect of all Debentures to be repaid, (III) the number of Underlying Shares
then held by the Purchaser multiplied by the Market Price immediately preceding
(x) the day prior to the date of such suspension or delisting, (y) the date of
the notice or (z) the date of payment in full by the Company of the repurchase
price calculated under this Section, whichever is greater, and (IV) interest on
the amounts set forth in I - III above accruing from the 5th day after such
notice until the repurchase price under this Section is paid in full at the rate
of 15% per annum.
3.12 Use of Proceeds. The Company shall use all of the net proceeds from
the sale of the Securities for working capital and general corporate purposes
and not for the satisfaction of any Company debt (except for reductions of the
Company's indebtedness up to a maximum of $500,000) or to redeem Company any
equity or equity-equivalent securities. Pending application of the proceeds of
this placement in the manner permitted hereby the Company will invest such
proceeds in interest bearing accounts and/or short-term, investment grade
interest bearing securities.
3.13 Notice of Breaches. Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof,
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained in the Transaction
Document to be incorrect or breached as of such Closing Date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in any
Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Debentures a copy of any written statement in support of or relating to such
claim or notice.
3.14 Conversion Obligations of the Company. The Company shall honor
conversions of the Debentures and exercises of the Warrants and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrants.
3.15 Right of First Refusal; Subsequent Registrations; Certain Corporate
Actions. (a) The Company shall not, directly or indirectly, without the prior
written consent of Encore Capital Management, L.L.C. ("Encore"), offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities or any instrument that
permits the holder thereof to acquire Common Stock at any time over the life of
the security or investment at a price that is less than the market price of the
Common Stock at the time of issuance of such security or investment (a
"Subsequent Financing") for a period of 180 days after the Closing Date, except
(i) the granting of options or warrants to employees, officers and directors,
and the issuance of shares upon exercise of options granted, under any stock
option plan heretofore or hereinafter duly adopted by the Company, (ii) shares
issued upon exercise of any currently outstanding warrants and upon conversion
of any currently outstanding convertible preferred stock in each case disclosed
in Schedule 3.1(c), and (iii)
shares of Common Stock issued upon conversion of Debentures, as payment of
interest thereon, or upon exercise of the Warrants in accordance with their
respective terms, unless (A) the Company delivers to Encore a written notice
(the "Subsequent Financing Notice") of its intention to effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing shall be
affected, and attached to which shall be a term sheet or similar document
relating thereto and (B) Encore shall not have notified the Company by 5:00 p.m.
(New York City time) on the tenth (10th) Trading Day after its receipt of the
Subsequent Financing Notice of its willingness to cause the Purchaser to provide
(or to cause its sole designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on substantially the terms
set forth in the Subsequent Financing Notice. If Encore shall fail to notify the
Company of its intention to enter into such negotiations within such time
period, the Company may effect the Subsequent Financing substantially upon the
terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Financing Notice; provided, that the Company shall provide Encore
with a second Subsequent Financing Notice, and Encore shall again have the right
of first refusal set forth above in this paragraph (a), if the Subsequent
Financing subject to the initial Subsequent Financing Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within thirty (30) Trading Days after the date of the initial Subsequent
Financing Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Financing Notice.
(b) Except Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, and other than Company
securities to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) through (iii) of this Section (other than the
registration of securities on behalf of investment consultants of the Company),
the Company shall not, without the prior written consent of the Purchaser, (i)
issue or sell any of its or any of its Affiliates' equity or equity-equivalent
securities pursuant to Regulation S promulgated under the Securities Act, or
(ii) register for resale any securities of the Company for a period of not less
than 90 Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that the Purchaser
is unable to sell Underlying Shares under the Underlying Securities Registration
Statement shall be added to such 90 Trading Day period for the purposes of (i)
and (ii) above.
(c) As long as there are Debentures outstanding, the
Company shall
not and shall cause the Subsidiaries not to, without the consent of the holders
of the Debentures, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the holders of
Debentures; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock other than as to the Underlying Shares; or
(iii) enter into any agreement with respect to any of the foregoing.
-15-
3.16 Transfer of Intellectual Property Rights. Except in connection with
the sale of all or substantially all of the assets of the Company that are
covered under the Debentures, the Company shall not transfer, sell or otherwise
dispose of, any Intellectual Property Rights, or allow the Intellectual Property
Rights to become subject to any Liens, or fail to renew such Intellectual
Property Rights (if renewable and would otherwise expire), without the prior
written consent of the Purchaser.
3.17 Certain Securities Laws Disclosures; Publicity. (a) The Company
shall timely file with the Commission a Form D promulgated under the Securities
Act as required under Regulation D promulgated under the Securities Act and
provide a copy thereof to the Purchaser promptly after the filing thereof. The
Company shall (i) issue a press release acceptable to the Purchaser disclosing
the transactions contemplated hereby within three (3) Business Days after the
Closing Date and (ii) file a Report on Form 8-K disclosing this Agreement and
the transactions contemplated hereby within ten (10) Business Days after the
Closing Date.
(b) In furtherance and in addition to the obligation of the
Company set forth in Section 3.17(a) above, the Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
3.18 Security Documents. Simultaneously with the execution of this
Agreement, the Company and the Purchaser shall enter into the Security Agreement
pursuant to which the Company will pledge Collateral (as defined in the Security
Agreement) as security for the Obligations (as defined in the Security
Agreement).
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. The Company shall pay the Purchaser at the
Closing $7,500.00 for their legal fees and disbursements in connection with the
preparation and negotiation of the Transaction Documents and for their due
diligence expenses and disbursements in connection with the transactions
contemplated hereby. Other than the amounts contemplated by the immediately
preceding sentence, and except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection
-16-
with the issuance of the Debentures pursuant hereto. The Purchaser shall be
responsible for its own respective tax liability that may arise as a result of
the investment hereunder or the transactions contemplated by this Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, the Debentures, the Security Agreement, the
Registration Rights Agreement and the Warrants contain the entire understanding
of the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: InnovaCom, Inc.
0000 Xxxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx Xxxxxxx
With copies to: Xxxxxx Eng Xxxx & Xxxxxxxx
000 Xxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx Xxxxxx
If to Purchaser: JNC Strategic Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Xxxxxxxx Xxxxx, 00 Xxxx Xxxxxx
Xxxxxxxx XX00, Xxxxxxx
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxxx
With copies to: Encore Capital Management, L.L.C.
00000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxx
-and-
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforce ment of any such waiver is sought. No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), the Purchaser may assign this Agreement or any rights
or obligations hereunder without the prior written consent of the Company. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to permitted assignees under Section 4.6,
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
-18-
4.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrants.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Debenture
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
INNOVACOM, INC.
By:___________________________
Name:
Title:
JNC STRATEGIC FUND LTD.
By:___________________________
Name:
Title:
