EXHIBIT 10.13
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of August 1,
2001, by and among Sorrento Networks Corporation, a New Jersey corporation, with
headquarters located at 0000 Xxxx Xxx Xxxx, Xxx Xxxxx, XX 00000 (the "Company"),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
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 "1933 Act") and Section 4(2) promulgated under the 1933 Act.
B. The Company has authorized the issuance of $32.2 million principal
amount of its 9.75% Senior Convertible Debentures due August 2, 2004
(collectively, the "Debentures"), which shall be convertible in accordance with
the terms of the Debentures into: (i) shares of (x) the Company's common stock,
par value $0.30 per share (the "Common Stock"), or (ii) shares of the Company's
Series F Preferred Stock, par value $.01 per share (the "Preferred Shares") (to
the extent Preferred Shares are issuable in lieu of Common Stock pursuant to the
terms of the Debentures) (as converted into Common Stock or Preferred Shares,
the "Conversion Shares"), all in accordance with the terms of the Debentures.
C. The Buyers severally wish to purchase, upon the terms and conditions
stated in this Agreement (i) in the case of all Buyers except Crescent
International Ltd. ("Crescent"), such Debentures in the form attached hereto as
Exhibit A-1 in the respective amounts set forth opposite each Buyer's name on
the Schedule of Buyers, and in the case of Crescent, such Debentures in the form
attached hereto as Exhibit A-2 in the amount set forth opposite Crescent's name
on the Schedule of Buyers, and (ii) warrants (the "Warrants") to purchase (i) up
to one (1) share of Common Stock for each $9.61 principal amount of
Debentures purchased by such Buyer on the Closing Date or (to the extent
Preferred Shares are issuable in lieu of Common Stock pursuant to the terms of
the Warrants) (ii) one-tenth (1/10th) of a Preferred Share for each share of
Common Stock (to the extent Preferred Shares are issuable in lieu of Common
Stock pursuant to the terms of the Warrants) (as exercised collectively, the
"Warrant Shares"), such Warrants to be in the form attached hereto as Exhibit B.
D. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
E. The location of defined terms in this Agreement is set forth on the
Index of Terms attached hereto.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. Purchase of Debentures and Warrants. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally agrees to purchase
from the Company, the respective principal amount of Debentures, together with
the related Warrants, set forth opposite such Buyer's name on the Schedule of
Buyers (the "Closing"). Notwithstanding the foregoing, in the event that at any
time following the first anniversary of the Closing Date, the Conditions to
Cancellation of Right to Exercise Warrants (as defined below) are satisfied,
then the Company shall have the right to send a written notice (the "Warrant
Cancellation Notice") to the Buyers on the Business Day (as defined below)
immediately after the Measuring Period (as defined below) indicating that the
right of the Buyers to further exercise their Warrant will terminate on the
twentieth (20th) trading day (the "Warrant Cancellation Date") following receipt
of such written notice as to the Warrant for which the Buyer has not delivered
an Exercise Notice (as defined in the Warrants) as of such termination date.
"Conditions to Cancellation of Right to Exercise Warrants" means the following
conditions: (i) the Registration Statement shall have been declared effective on
or prior to the Effectiveness Deadline (as defined in the Registration Rights
Agreement) and on each day during the period beginning on the effectiveness of
the registration statement filed pursuant to Section 2(a) of the Registration
Rights Agreement (the "Registration Statement") and ending on and including the
Warrant Cancellation Date, the Registration Statement shall be effective and
available for the sale of all of the Registrable Securities (as defined in the
Registration Rights Agreement) required to be included in such Registration
Statement and there shall not have been any Grace Periods (as such term is
defined in the Registration Rights Agreement); (ii) on each day during the
period beginning on the Closing Date and ending on the Warrant Cancellation
Date, the Common Stock is designated for quotation on the Nasdaq National Market
("NASDAQ") or The New York Stock Exchange, Inc. (the "NYSE") and shall not have
been suspended from trading on such market or exchange (other than suspensions
of not more than one day and occurring prior to the Warrant Cancellation Date
due to business announcements by the Company) nor shall delisting or suspension
by such market or exchange been threatened or pending either (A) in writing by
such market or exchange or (B) by falling below the minimum listing maintenance
requirements of such market or exchange; (iii) during the period beginning on
the Closing Date and ending on and including the Warrant Cancellation Date,
there shall not have occurred (A) an event constituting a Triggering Event (as
defined in the Debentures) or Event of Default (as defined in the Debentures),
(B) an event that with the passage of time and without being cured would
constitute a Triggering Event, or (C) the public announcement of a pending,
proposed or intended Change of Control (as defined in the Debentures), unless
such pending, proposed or intended Change of Control has been terminated,
abandoned or consummated and the Company has publicly announced such
termination, abandonment or consummation of such Change of Control; (iv) during
the period beginning on the Closing Date and ending on and including the Warrant
Cancellation Date, the Company shall have delivered Conversion Shares upon
conversion of the Debentures and Warrant Shares upon exercise of the Warrants to
the holders on a timely basis as set forth in the
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Debentures and Section 2(a) and 2(b) of the Warrants, respectively; (v) unless
the NASD Approval (as defined in the Debentures) has been obtained on or prior
to the NASD Deadline (as defined in the Debentures), on the earlier to occur of
(A) the Stockholder Meeting Deadline and (B) the next meeting of the
stockholders, the Company shall have received the Shareholder Approval; (vi) the
Company shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due, whether as interest, fees or penalty
payments, pursuant to this Agreement, the Debentures, the Registration Rights
Agreement or the Warrants; and (vii) the Closing Sale Price (as defined in the
Debentures) on each of any twenty (20) consecutive trading days (the "Measuring
Period") following the first anniversary of the Closing Date and ending within
five (5) Business Days of the delivery of the Warrant Cancellation Notice is
equal to or greater than 175% of the Conversion Price (as defined in the
Debentures) for the Debentures on the Closing Date (subject to adjustment for
stock splits, stock dividends, recapitalizations, combinations, reverse stock
splits or other similar events). "Business Day" means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed. The purchase price (the
"Purchase Price") for the Debentures and the related Warrants being acquired by
each Buyer shall be the principal amount of the Debentures.
b. The Closing. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m., New York City time, on August 2, 2001 (or such later date
as is mutually agreed to by the Company and the Buyers) subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7. The
Closing shall occur on the Closing Date at the offices of Xxxxxxx Xxxx LLP, 000
Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
c. Form of Payment. On the Closing Date, (A) each Buyer shall pay the
Company for the Debentures and the related Warrants to be issued and sold to
such Buyer on the Closing Date, by wire transfer of immediately available funds
in accordance with the Company's written wire instructions provided to the
Buyers at least two (2) days prior to the Closing Date, less (1) the amount
transferred by such Buyer as set forth on the Schedule of Buyers to an account
(the "Escrow Account") maintained with the Bank of New York (the "Escrow Agent")
pursuant to the terms of the Escrow Agreement dated August 1, 2001 among the
Company, the Buyer and the Escrow Agent (the "Escrow Agreement") in the form
attached hereto as Exhibit F and (2) any amount withheld at the Closing for
expenses pursuant to Section 4(k), and (B) the Company shall deliver to each
Buyer Debentures (in the denominations as such Buyer shall request) representing
the principal amount of Debentures which such Buyer is then purchasing
hereunder, along with warrants representing the related Warrants, in each case,
duly executed on behalf of the Company and registered in the name of such Buyer.
d. Escrow. Amounts held in the Escrow Account shall be released to the
Company or the Buyers, as the case may be, as set forth in the Debentures and
the Escrow Agreement.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
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a. Investment Purpose. Such Buyer (i) is acquiring the Debentures and
the Warrants, (ii) upon conversion of the Debentures owned by it, will acquire
the Conversion Shares then issuable and (iii) upon exercise of the Warrants held
by it, will acquire the Warrant Shares issuable upon exercise thereof (the
Debentures, the Conversion Shares, the Interest Payment Shares (as defined in
those certain Debentures held by any Buyer other than Crescent), the Commitment
Fee Payment Shares (as defined in those certain Debentures held by Crescent) the
Warrants and the Warrant Shares collectively are referred to herein as the
"Securities") for its own account for investment only and not with a present
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time, provided
further, however, that such disposition shall be in accordance with or pursuant
to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D under the 1933 Act.
c. Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of the United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and such Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire the
Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in this Agreement.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable
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assurance that such Securities can be sold, assigned or transferred pursuant to
Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule
144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder. The Securities
may be pledged in connection with a bona fide margin account or other loan
secured by the Securities.
g. Legends. Such Buyer understands that the Debentures and Warrants
and, until such time as the sale of the Conversion Shares and the Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares and
the Warrant Shares, except as set forth below, shall bear a restrictive legend
in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY THE SECURITIES.
The legend set forth above shall be removed, and the Company shall reissue the
relevant securities without such legend to the holder of the Securities upon
which it is stamped, if, (i) such Securities are registered for resale under the
1933 Act, (ii) in connection with a sale transaction, such holder provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances that the Securities can be sold pursuant to
Rule 144(k).
h. Authorization; Enforcement; Validity. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of
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equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country or state
specified in its address on the Schedule of Buyers.
j. Series A Preferred Stock. The Buyers acknowledge that they are
aware that the Company's Subsidiary, Sorrento Networks, Inc., a Delaware
corporation (the "Sorrento Subsidiary") has outstanding a class of Series A
Preferred Stock (the "Series A") and that certain holders of the Series A have
exercised their right to put the Series A shares to the Sorrento Subsidiary
pursuant to an Investors Rights Agreement dated March 3, 2000 among the Sorrento
Subsidiary and all such holders.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns 25% or more of the capital stock or other equity or
similar interests or owns capital stock or holds an equity or similar interest
which ownership entitles the Company to elect 25% or more of the board of
directors or similar governing body of such entity) are corporations or limited
liability companies duly organized and validly existing in good standing under
the laws of the jurisdiction in which they are incorporated or organized, and
have the requisite corporate or other power and authorization to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation or
limited liability company to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, "Material Adverse Effect" means any
material adverse effect on the business, properties, assets, operations, results
of operations, prospects or condition (financial or otherwise) of the Company,
individually, or of the Company and its Subsidiaries, if any, taken as a whole,
or on the transactions contemplated hereby or by the agreements and instruments
to be entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below). A complete list of entities in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest is
disclosed in the Company's 10K filing.
b. Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
the Irrevocable Transfer Agent Instructions (as defined in Section 5) and each
of the other agreements entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and the
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consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Debentures, the reservation
for issuance and the issuance of the Conversion Shares issuable upon conversion
thereof, the issuance of the Warrants and the reservation for issuance and the
issuance of the Warrant Shares issuable upon exercise of the Warrants, have been
duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders. The Transaction Documents have been duly executed and delivered by
the Company. The Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the capitalization of the
Company, including its authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
Company's stock plans and the number of shares issuable and reserved for
issuance pursuant to the securities exercisable for, or convertible into or
exchangeable for, any shares of Common Stock is set forth in Schedule 3(c)
hereto. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable, except for certain option
exercises for which consideration has not yet been received as disclosed on the
Company's 10-K as of January 31, 2001. Except as disclosed in Schedule 3(c), (A)
no shares of the Company's capital stock are subject to preemptive rights or any
other similar rights (arising under New Jersey law, California law, the
Company's Certificate of Incorporation or By-laws or any agreement or instrument
to which the Company is a party) or any liens or encumbrances granted or created
by the Company; (B) 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, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings 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 or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries; (C) there are no outstanding material debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing indebtedness of the Company or any of its subsidiaries or
by which the Company or any of its subsidiaries is or may become bound except as
reported in the Company's annual report on Form 10K for the year ended January
31, 2001 and quarterly report on form 10Q for the quarter ended April 30, 2001;
(D) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except the Registration Rights Agreement); (E) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries except for the put right of the Series A shares in the
Sorrento Subsidiary which has been exercised and is solely the obligation of the
Sorrento Subsidiary; (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; (G) the Company does not have
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any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement and (H) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents (as
defined herein) but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
businesses since January 31, 2001 and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. The Company has furnished to each Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable or
exchangeable for Common Stock and the material rights of the holders thereof in
respect thereto except for stock options granted under any benefit plan or stock
option plan of the Company approved by the Board of Directors of the Company.
The Company specifically represents, warrants and agrees that, in accordance
with the Company's Rights Agreement which has been authorized by its Board of
Directors but not yet implemented (the "Rights Plan"), regardless of the number
of Conversion Shares and Warrant Shares of which each Buyer is deemed the
Beneficial Owner (as defined in the Rights Plan), none of the Buyers is intended
to be or will be deemed to be an Acquiring Person within the meaning of the
Rights Plan because of the acquisition of the Securities (including the
Conversion Shares and Warrant Shares) pursuant to this Agreement, and the
acquisition of the Securities (including the Conversion Shares and Warrant
Shares) pursuant to this Agreement, shall not, under any circumstances, trigger
a Distribution Date within the meaning of the Rights Plan; provided, however,
that only Securities (including the Conversion Shares and Warrant Shares)
acquired pursuant to this Agreement shall be deemed excluded from the number of
shares of Common Stock deemed beneficially owned by each Buyer in determining
whether such Buyer is an Acquiring Person within the meaning of the Rights Plan.
d. Issuance of Securities. The Securities are duly authorized and,
upon issuance in accordance with the terms of the applicable Transaction
Documents, shall be (i) validly issued, fully paid and non-assessable and (ii)
free from all taxes, liens and charges with respect to the issuance thereof, and
shall not be subject to pre-emptive rights or other similar rights of
stockholders of the Company. As of the Closing, at least 11,731,437 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in Section 4(f) below) will have been duly authorized and reserved for issuance
upon conversion of the Debentures and exercise of the Warrants. Upon conversion
or issuance in accordance with the Debentures or the Warrants, as applicable,
the Conversion Shares, the Interest Payment Shares, the Commitment Fee Payment
Shares and the Warrant Shares, as the case may be, will be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issue thereof, with the holders being entitled to all rights accorded to
a holder of Common Stock. Based, in part, on reliance on the representations and
warranties of each of the Buyers in the Transaction Documents, the issuance by
the Company of the Securities is exempt from registration under the 1933 Act.
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 hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not (i) result in a
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violation of the Certificate of Incorporation or the By-laws; (ii) 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 material 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 federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) 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. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, By-laws or their organizational charter or
by-laws, respectively. Except as disclosed in Schedule 3(e), neither the Company
nor any of its Subsidiaries is in violation of any term of or in default under
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except where such violations and defaults would not
result, either individually or in the aggregate, in a Material Adverse Effect.
The business of the Company and its Subsidiaries is not being conducted, and
shall not be conducted, in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect. Except as
specifically contemplated by this Agreement, as required under the 1933 Act, or
as required by Blue Sky filings, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents. Except as disclosed in Schedule 3(e),
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company is not in violation of the listing
requirements of the Principal Market, and has no actual knowledge of any facts
which would reasonably lead to delisting or suspension of the Common Stock by
the Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since January 31, 1999, the
Company has filed 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 "1934 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 being hereinafter referred to as the "SEC Documents"). As of
the date of filing of such SEC Documents, such SEC Documents, as they may have
been subsequently amended by filings made by the Company with the SEC prior to
the date hereof, complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents. None of the SEC Documents, as of the date filed
and as they may have been subsequently amended by filings made by the Company
with the SEC prior to the date hereof, 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 the light of the
circumstances under which they were made, not misleading. 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 with respect
thereto. Such
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financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). No other information provided by or on behalf of the Company
to any Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d), contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they are or were made, not misleading. Neither the Company nor any of its
Subsidiaries nor any of their officers, directors, employees or agents have
provided the Buyers with any material, nonpublic information. As of the date
hereof, the Company meets the requirements for use of Form S-3 for registration
of the resale of Registrable Securities (as defined in the Registration Rights
Agreement). The Company is not required to file and will not be required to file
any agreement, note, lease, mortgage, deed or other instrument entered into
prior to the date hereof and to which the Company is a party or by which the
Company is bound which has not been previously filed as an exhibit to its
reports filed with the SEC under the 1934 Act.
g. Absence of Certain Changes. Except as disclosed in the Company's
Annual Report on Form 10-K for the year ended January 31, 2001 or Quarterly
Report on Form 10-Q for the period ended April 30, 2001, since January 31, 2001,
there has been no change or development that has had or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The Company has not taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy 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 or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
Except as disclosed in the Company's Annual Report on Form 10-K for the year
ended January 31, 2001 or the Quarterly Report on Form 10-Q for the period ended
April 30, 2001, since January 31, 2001, the Company has not declared or paid any
dividends, and as of the date hereof, has not sold any assets, individually or
in the aggregate, in excess of $500,000 outside of the ordinary course of
business or had capital expenditures, individually or in the aggregate, in
excess of $3,000,000.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
except as expressly set forth in Schedule 3(h) or, with respect to the Company
and its Subsidiaries, to the extent that any such action or threatened action
does not set forth potential liability, claims or charges individually in excess
of $500,000, or in the aggregate in excess of $2,000,000. Except as set forth in
Schedule 3(h), to the knowledge of the Company, none of the directors or
officers of the Company have been a party to any securities related litigation
during the past five years. To the best knowledge of the Company, Schedule 3(h)
contains a complete list and summary description of any pending, or to the
knowledge of the
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Company, threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it could have a Material Adverse Effect.
i. Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each of the Buyers is acting solely in the
capacity of an arm's length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby and thereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and any advice
given by any of the Buyers or any of their respective representatives or agents
in connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or Circumstances.
Except for the issuance of the Debentures and the Warrants contemplated by this
Agreement, no event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws and which has
not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of any of
the Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
issuance by the Company of any of the Securities under the 1933 Act or cause
this offering of any of the Securities to be integrated with prior offerings by
the Company for purposes of the 1933 Act or, except as set forth on Schedule
3(l), any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated, nor will the Company or any of its Subsidiaries take any action or
steps that would require registration of the issuance by the Company of any of
the Securities under the 1933 Act or, except as set forth on Schedule 3(l),
cause the offering of the Securities to be integrated with other offerings.
m. Employment Matters; ERISA Matters. No executive officer (as defined
in Rule 501(f) of the 0000 Xxx) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. No executive officer, to the best knowledge of the Company and
its Subsidiaries, 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 such
-11-
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations 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, have a Material
Adverse Effect. There are no pending investigations involving the Company or any
of its Subsidiaries by the U.S. Department of Labor or any other governmental
agency responsible for the enforcement of such federal, state, local or foreign
laws and regulations. There is no unfair labor practice charge or complaint
against the Company or any of its Subsidiaries pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any of its
Subsidiaries. No representation question exists respecting the employees of the
Company or any of its Subsidiaries, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or any of its
Subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
its Subsidiaries. No material labor dispute with the employees of the Company or
any of its Subsidiaries exists or, to the knowledge of the Company, is imminent.
Every employee benefit plan (whether or not subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) maintained or contributed to
by the Company or any of member of its controlled group (determined in
accordance with Section 4001(a)(14) of ERISA) (collectively the "Plans") is in
full force and effect. Except for such failures that would not, either
individually or in the aggregate, result in a Material Adverse Effect, each of
the Plans have been maintained and administered in accordance with their terms,
ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and other
applicable laws. None of the Plans is subject to Title IV of ERISA and no Plan
is a multiemployer plan (within the meaning of Section 3(37) of ERISA). Each
Plan intended to qualify under Section 401(a) or 501(c)(9) of the Code has
received a favorable determination or approval letter from the Internal Revenue
Service regarding its qualification under such section and no event has occurred
which cause any such Plan to lose its qualification.
n. Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted, except where the
failure to own or possess such rights would not result, either individually or
in the aggregate, in a Material Adverse Effect. None of the Company's
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets or other intellectual property rights
have expired or terminated, or are expected to expire or terminate within two
(2) years from the date of this Agreement, except where such expiration or
termination would not result, either individually or in the aggregate, in a
Material Adverse Effect. Except as would not have a Material Adverse Effect, the
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, trade secrets or other intellectual property rights of
others, or of any development of similar or identical trade secrets or technical
information by others and, except as set forth on Schedule 3(n), and except as
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would not have a Material Adverse Effect, there is no claim, action or
proceeding being made or brought against, or to the knowledge of the Company,
being threatened against, the Company or its Subsidiaries regarding its
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets,
or infringement of other intellectual property rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
o. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them.
p. Environmental Laws. The Company and its Subsidiaries (A) are in
compliance with any and all Environmental Laws, (B) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses, and (C) are in compliance with all terms
and conditions of any such permit, license or approval, except in each case
where the failure of the Company and its subsidiaries would not, either
individually or in the aggregate, have a Material Adverse Effect. Except as
would not have a Material Adverse Effect, with respect to the Company and/or its
Subsidiaries (1) there are no past or present releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under any Environmental Law and (2) neither the
Company nor any of its Subsidiaries has received any notice with respect to the
foregoing, nor is any action pending or, to the knowledge of the Company,
threatened in connection with the foregoing. The term "Environmental Laws" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
q. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
r. Regulatory Permits. Except for Permits (as defined below) the
absence of which would not result, either individually or in the aggregate, in a
Material Adverse
-13-
Effect, the Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses (the
"Permits"), and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
Permit.
s. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares and Warrant Shares issuable upon conversion of the
Debentures and exercise of the Warrants, respectively, will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Debentures and the Warrant Shares upon
exercise of the Warrants, in accordance with this Agreement and the respective
terms of the Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the company.
u. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
v. Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) 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 for which the
Company has made appropriate reserves for on its books, and (iii) 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
(referred to in clause (i) above) 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.
w. Transactions With Affiliates. Except as set forth on Schedule 3(w)
and in the SEC Documents, and other than the grant of stock options described on
Schedule 3(c), none of the officers, directors or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the
-14-
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, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
x. Application of Takeover Protections. 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 the Certificate of Incorporation, the laws of the
state of its incorporation or the laws of any other state which is or could
become applicable to the Buyers as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyers' ownership of the Securities.
y. Rights Agreement. Except as set forth on Schedule 3(y), the Company
has not adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
z. No Other Agreements. The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
aa. Investment Company Status. The Company is not, and upon
consummation of the sale of the Securities will not be, an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
bb. Foreign Corrupt Practices. 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 or any Subsidiary 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.
cc. Solvency. The Company individually and together with its
Subsidiaries on a consolidated basis (both before and after giving effect to
the transactions contemplated by the Transaction Documents) is solvent (i.e.,
its assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured),
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability, nor does it intend to take
any action that would impair, its ability to pay its debts from time to time
incurred in connection therewith as such debts mature.
-15-
dd. Disclosure. All information relating to or concerning the Company
or any of its Subsidiaries set forth in this Agreement and provided to the Buyer
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects as
of the date of and delivery of such information 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 information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
4. COVENANTS
a. Best Efforts. Each party shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the
Securities for, sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the later of (i) the date which is one year
after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and the Warrant Shares and (B) none of
the Debentures or Warrants is outstanding (the "Reporting Period"), the Company
shall (x) timely file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination and (y) will
use its best efforts to take all necessary action to maintain its ability to
register securities on Form S-3.
d. Use of Proceeds. The Company will use the proceeds from the sale of
the Debentures and the Warrants for general corporate purposes, except that none
of the proceeds received from the Debentures shall be applied towards the
payment of any obligations of the Sorrento Subsidiary with respect to the
exercise of the put by the holders of the Series A.
-16-
e. Financial Information. The Company agrees to file all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act. The financial
statements of the Company will be prepared in accordance with generally accepted
accounting principles, consistently applied, and will fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries and results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). The Company agrees to send the following to each
Investor (as that term is defined in the Registration Rights Agreement) during
the Reporting Period: (i) within two (2) days after the filing thereof with the
SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form
10-Q, any Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act, provided that if
any such report is not filed with the SEC through XXXXX then the Company shall
deliver a copy of such report to each Investor by facsimile on the same day it
is filed with the SEC; (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than 150% of the number of shares of Common Stock needed to provide for
the issuance of the Conversion Shares upon conversion of all of the Debentures
and the Warrant Shares upon exercise of all of the Warrants (without regard to
any limitations on conversions or exercise).
g. Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. So long as any Securities
are outstanding, the Company shall maintain the Common Stock's authorization for
quotation on NASDAQ or listing on the NYSE (as applicable, the "Principal
Market"). Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock from the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(g).
h. Filing of Form 8-K. On or before 8:30 a.m., New York City time, on
the Business Day following the Closing Date, the Company shall file a Current
Report on Form 8-K with the SEC describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement, the forms of Debentures, the form of
Warrants and the Registration Rights Agreement, and the schedules hereto and
thereto in the form required by the 1934 Act.
i. Corporate Existence. So long as a Buyer beneficially owns any
Securities, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale
-17-
of all or substantially all of the Company's assets, where the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (ii) such surviving or successor entity or its parent into whose
stock the Debentures and Warrants will be convertible or exercisable is a
publicly traded corporation whose common stock is listed for trading on or
quoted on NYSE or NASDAQ.
j. Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged in compliance with applicable securities laws by an
Investor in connection with a bona fide margin agreement or other loan 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 Investor
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, including, without limitation,
Section 2(f) of this Agreement; provided that an Investor and its pledgee shall
be required to comply with the provisions of Section 2(f) hereof in order to
effect a sale, transfer or assignment of Securities to such pledgee. The Company
hereby agrees to execute and deliver such reasonable documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by an Investor.
k. Expenses. Subject to Section 9(l) below, at the Closing, the
Company shall pay the legal fees of Xxxxxxx Xxxx and Katten Munchin Zavis
(special counsel to Deutsche Banc Xxxx Xxxxx Inc.) and each Buyer's actual
expenses out of the proceeds received at Closing. Prior to the Closing, each
Buyer will submit to the Company an estimate of its actual expenses.
l. Good Standing. At the Closing, the Company shall deliver a good
standing certificate to each of the Buyers, certifying the Company's
qualification to do business and its good standing in the States of New Jersey
and California as certified by the Treasurer of the State of New Jersey and the
Secretary of State of the State of California, respectively.
m. Additional Debentures. For so long as any Buyer beneficially owns
any Debentures, the Company shall not issue any other securities that would
cause a breach or default under the Debentures.
n. Transactions With Affiliates. So long as Debentures are
outstanding, the Company shall not, and shall cause each of its Subsidiaries not
to, enter into, amend, modify or supplement, or permit any Subsidiary to enter
into, amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiary's officers, directors, persons who
were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or their
affiliates, or with any individual related by blood, marriage or adoption to any
such individual or with any entity in which any such entity or individual owns a
5% or more beneficial interest (each, a "Related Party"), except for (a)
customary employment arrangements and benefit programs on reasonable terms, (b)
any agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company or (c) any agreement,
transaction, commitment or arrangement on an arm's-length basis on terms no less
favorable than terms
-18-
which would have been obtainable from a person other than such Related Party.
For purposes hereof, any director who is also an officer of the Company or any
Subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment or arrangement. "Affiliate" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a 5% or more equity interest in
that person or entity, (ii) has 5% or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common control with
that person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
o. Acquisitions. Until the delivery by the Company to the Buyer of all
shares of Common Stock upon conversion of the Debentures or all sums of cash
upon redemption or repayment of the Debentures, as applicable, such that after
such delivery upon any such conversion, redemption or repayment no more than
$5,000,000 in principal amount of the Debentures remain outstanding, other than
in connection with business acquisitions where the aggregate cash consideration
paid for all such transactions does not exceed $1,000,000, the Company covenants
and agrees that it will not enter into or complete any business acquisitions,
whether stock or asset transactions.
p. Dividends and Distributions. Until the delivery by the Company to
the Buyer of all shares of Common Stock upon conversion of the Debentures or all
sums of cash upon redemption or repayment of the Debentures, as applicable, such
that after such delivery upon any such conversion, redemption or repayment no
more than $500,000 in principal amount of the Debentures remain outstanding, the
Company shall not make or fix a record date for the determination of holders of
Common Stock or other securities entitled to receive a dividend or other
distribution (special or otherwise).
q. Disclosure. From and after the date hereof, the Company will not
provide to any Buyer any material non-public information.
r. Compliance with Law. The Company will conduct its business in
compliance with all applicable laws, rules, ordinances and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable local, state and federal environmental laws and regulations the
failure to comply with which would have a Material Adverse Effect.
s. Insurance. The Company shall maintain liability, casualty and other
insurance (subject to customary deductions and retentions) with responsible
insurance companies against such risk of the types and in the amounts
customarily maintained by companies of comparable size and operations to the
Company.
t. No Integration. The Company will not conduct any future offering
that will be integrated with the issuance of the Securities for purposes of the
rules promulgated by the SEC or the Principal Market.
u. Buyers Covenant. Each of the Buyers covenants with respect to
itself that from and after the execution of this Agreement (i) neither it nor
its affiliates will purchase or
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sell shares of Common Stock prior to the Closing Date and (ii) it will purchase
and sell the Securities in compliance with the rules and regulations of the SEC
(except to the extent that such failure to comply results from the breach by the
Company of any representation, warranty or covenant in the Transaction
Documents).
v. Buy-Back. If the Registration Statement has not been declared
effective by the SEC within one hundred eighty (180) days following the Closing
Date, then each Buyer, in its sole discretion, may require the Company to
re-purchase the Debentures held by it for an amount in cash equal to the
Purchase Price plus all accrued interest which payment shall be made within ten
(10) Business Days of the demand therefor.
w. Additional Issuances of Securities. The Company shall not without
each Buyer's prior written approval, at any time on or before the 120th day
following the date that the Registration Statement required to be filed pursuant
to Section 2(a) of the Registration Rights Agreement is declared effective by
the SEC, agree to issue or issue any Common Stock or other equity security or
any other security convertible into or exchangeable or exercisable for Common
Stock (including any debt financing with an equity component) or any other right
to acquire any Common Stock (the "Convertible Securities") pursuant to Section
4(2) of the 1933 Act or an offering of equity securities (including any debt
security with an equity component) under Regulation D or Regulation S of the
1933 Act or in any other private placement or enter into any equity issuing
arrangement including an "equity line" or similar product if (A) the per share
purchase price for the securities to be so issued or sold is less than the
greater of (x) the Conversion Price (as defined in the Debentures) then in
effect and (y) the Weighted Average Price (as defined in the Debentures) for the
Measuring Period ending on the trading day immediately preceding the issuance
date or date of applicable contract, as appropriate or (B) the conversion ratio
for any such Convertible Securities may fluctuate, in whole or in part, based on
or derived from or by reference to any trading price or other measure of value
of Common Stock. The foregoing provisions shall not apply to issuances of Common
Stock or Convertible Securities (1) in a consensual transaction to the holders
of the Series A provided that (x) such issuance of Common Stock or Convertible
Securities does not constitute more than 19.99% of the Company's outstanding
Common Stock as of the Closing Date, and (y) such issuance is made pursuant to
the terms of such Series A Convertible Preferred Stock of the Sorrento
Subsidiary in effect on the date immediately preceding the date hereof and such
Series A Convertible Preferred Stock of the Sorrento Subsidiary is not amended
after the date immediately preceding the date hereof, (2) of up to 14,381,116
shares pursuant to Company authorized stock option plans (which number includes
all options already granted), (3) of up to 1,000,000 shares (subject to
adjustment for stock splits, stock dividends, stock combinations and similar
transactions) pursuant to a Strategic Financing (as defined below), (4) upon the
exercise of Convertible Securities issued prior to the date hereof and disclosed
on Schedule 3(c) (the "Existing Securities"), provided, that such issuance is
made pursuant to the terms of such Existing Securities existing on the date
immediately preceding the date hereof and such Existing Securities are not
amended after the date immediately preceding the date hereof, (5) to the seller
in connection with an acquisition by the Company, so long as such issuances are
not primarily for equity financing purposes and the issuance price per share is
not less than the lower of the Closing Bid Price on the trading day immediately
preceding the issuance date and the twenty (20) day trailing average of such
Closing Bid Prices and (6) in a underwritten offering registered with the SEC
under the 1933 Act (other than a shelf registration statement pursuant to
Rule 415
-20-
of the 1933 Act). A "Strategic Financing" shall mean the issuance of Common
Stock or warrants to purchase Common Stock at a purchase price or an exercise
price, as the case may be, that is not less than the Closing Bid Price of the
Common Stock over the five (5) Business Days prior to issuance of such Common
Stock or warrant, in connection with any strategic investor, strategic alliance
in the telecommunications industry, marketing and promotional contract, vendor,
lease, loan or similar arrangement (the primary purpose of which is not to raise
equity capital); provided, that the aggregate number of shares of Common Stock
which the Company may issue pursuant to this definition shall not exceed
1,000,000 shares (subject to adjustment for stock splits, stock dividends, stock
combination and similar transactions); and provided, further that any such
issuance in connection with a loan shall be less than 20% of the principal
amount of such loan.
x. Series A Prohibitions. The Company covenants and agrees that none
of the Debenture proceeds shall be used to satisfy any obligations to the
holders of the Series A, including (without limitation) use any of the proceeds
to pay any obligations arising out of the holders of the Series A exercise of
their put right. In addition, the Company is prohibited from issuing (through
stock or a convertible debt or equity instrument) more than 19.99% of its then
outstanding Common Stock to satisfy the Sorrento Subsidiary's Series A put right
obligations.
y. Sale of Subsidiary Capital Stock, etc. The Company covenants and
agrees that it will not allow the Sorrento Subsidiary to enter into or undertake
any transaction, arrangement or agreement (whether a consolidation, merger,
issue or sale of Capital Stock or other securities, reorganization, voting
agreement or otherwise) which would cause a Change of Control (as defined in the
Debenture) (collectively, the "Sorrento Subsidiary Sale"). For purposes hereof,
the term "Capital Stock" shall mean any shares, interests, participations or
other equivalents (howsoever designated) of corporate capital stock or any
options, warrants or other rights to subscribe for, or to purchase, or to
convert any property into, or to exchange any property for, any such corporate
capital stock, options, warrants or other rights. The Company hereby agrees that
any Sorrento Subsidiary Sale shall be deemed to be a Change of Control (as
defined in the Debentures) of the Company pursuant to the Debentures.
z. Shareholder Approval. Unless the NASD Approval (as defined in the
Debentures) has been obtained prior to the NASD Deadline, the Company shall (i)
solicit a Shareholder Vote (as defined in the Debentures) for the purpose of
approving the issuance of Common Stock upon conversion of the Debentures and
exercise of the Warrants at a price per share less than the market value of the
Common Stock as of the Closing Date on or prior to the earlier of (i) 120 days
from the Closing Date (the "Stockholder Meeting Deadline") or (ii) the next
meeting of the stockholders of the Company. The Company shall use its best
efforts to solicit its stockholders' approval of such issuance of Common Stock
upon conversion of the Debentures and exercise of the Warrants at a price per
share less than the market value of the Common Stock as of the Closing Date,
including the hiring of a nationally-recognized proxy solicitation firm to
solicit such approval, and to cause the Board of Directors of the Company to
recommend to the stockholders that they approve such proposal.
aa. The Company covenants and agrees that (1) it will not amend,
alter, change, or otherwise modify any provision of the Escrow Agreement without
the prior written consent of all of the Buyers and (2) it will not change the
Escrow Agent without the prior
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written consent of Buyers holding at least two-thirds of the Outstanding
Principal Amount (as defined in the Debentures) of the Debentures. The Company
covenants to insure that $10,244,635.87 will be on deposit with the Escrow
Agent.
5. TRANSFER AGENT INSTRUCTIONS
The Company shall issue irrevocable instructions to its transfer agents,
and any subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures, or exercise of the Warrants, as applicable (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
Conversion Shares and the Warrant Shares under the 0000 Xxx) will 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, the Debentures, the Warrants and the Registration
Rights Agreement. If a Buyer provides the Company with an opinion of counsel, in
a generally acceptable form, to the effect that a public sale, assignment or
transfer of Securities may be made without registration under the 1933 Act or
the Buyer provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144(k), the Company shall permit the transfer, and,
in the case of the Conversion Shares and the Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates, or credit shares to one or
more balance accounts at DTC, in such name and in such denominations as
specified by such Buyer and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company to issue and sell the Debentures and the
Warrants to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, 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 by providing each Buyer with prior
written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
-22-
(ii) Such Buyer shall have delivered to the Company the purchase price
(less the amounts withheld pursuant to Section 4(k)) for the Debentures and
the Warrants being purchased by such Buyer at the Closing, by wire transfer
of immediately available funds pursuant to the wire instructions provided
by the Company.
(iii) The representations and warranties of such Buyer 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), and such Buyer shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE
The obligation of each Buyer hereunder to purchase the Debentures and
the Warrants from the Company at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The Company shall have executed each of the Transaction Documents
and delivered the same to such Buyer.
(ii) The Common Stock (x) shall be designated for quotation or listed
on the Principal Market and (y) shall not have been suspended by the SEC or
the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened either
(A) in writing by the SEC or the Principal Market or (B) by falling below
the minimum listing maintenance requirements of the Principal Market; and
the Conversion Shares issuable upon conversion of the Debentures (without
regard to any limitations on conversions) and the Warrant Shares issuable
upon exercise of the Warrants (without regard to any limitations on
exercises) shall be listed (subject to official notice of issuance) upon
the Principal Market.
(iii) 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) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer, including, without
limitation, an update as of the Closing Date regarding the representation
contained in Section 3(c) above.
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(iv) Such Buyer shall have received the opinion of Greenbaum, Rowe,
Xxxxx, Xxxxx, Xxxxx & Xxxxxx LLP,, dated as of the Closing Date, in the
form of Exhibit E, attached hereto.
(v) The Company shall have executed and delivered to such Buyer the
Debentures and Warrants (in such denominations as such Buyer shall request)
for the Debentures and the Warrants being purchased by such Buyer at the
Closing.
(vi) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above and in a form reasonably
acceptable to such Buyer (the "Resolutions").
(vii) As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Debentures and the exercise of the Warrants
11,731,437 shares of its Common Stock.
(viii) The Irrevocable Transfer Agent Instructions shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(ix) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and the
Sorrento Subsidiary and Meret Communications, Inc. in such entity's state
of incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten (10) days of
the Closing Date.
(x) The Company shall have delivered to such Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State of
the State of New Jersey as of a date within ten (10) days of the Closing
Date.
(xi) The Company shall have delivered to such Buyer a secretary's
certificate, dated as of the Closing Date, certifying as to (A) the
Resolutions, (B) the Certificate of Incorporation and (C) the By-laws, each
as in effect at the Closing.
(xii) The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of
the Securities pursuant to this Agreement in compliance with such laws.
(xiii) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five (5) days of the Closing Date.
(xiv) The Company shall have received a minimum of $25 million in the
aggregate from the Buyers to purchase the Debentures. In the event that the
Company does not receive at least $25 million from the Buyers, all funds
shall be immediately returned to the Buyers.
-24-
(xv) The Company shall have filed the Certificate of Designation for
the Preferred Shares with the Secretary of State of the State of New
Jersey, and shall have delivered a copy thereof to such Buyer certified by
the Secretary of State of the State of New Jersey.
(xvi) The parties thereto shall have executed and delivered the Escrow
Agreement.
(xvii) The Company shall have delivered to the Buyers such other
documents relating to the transactions contemplated by the Transaction
Documents as the Buyers or their counsel may reasonably request.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of the Securities and all of their stockholders, 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 (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitee (other than a cause of action, suit or claim
which is (x) brought or made by the Company and (y) is not a stockholder
derivative suit) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of such Buyer 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 8 shall
be the same as those set forth in Sections 6(a) and (d) of the Registration
Rights Agreement, including, without limitation, those procedures with respect
to the settlement of claims and the Company's rights to assume the defense of
claims.
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9. MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the federal courts sitting
in the Southern District of New York and the state courts in the borough of
Manhattan, New York, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of 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 for such 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.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
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 in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended or waived other than by an instrument in writing signed
by the Company and the holders of at least two-thirds of the
-26-
outstanding principal amount of the Debentures or Conversion Shares, as
applicable. No such amendment shall be effective to the extent that it applies
to less than all of the holders of the Debentures then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of the Conversion Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Sorrento Networks Corporation
0000 Xxxx Xxx Xxxx
Xxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: General Counsel and
Chief Financial Officer
With a copy to:
Greenbaum, Rowe, Xxxxx, Xxxxx, Xxxxx & Xxxxxx LLP
00 Xxxx Xxxxxx Xxxxx
X.X. Xxx 0000
Xxxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: W. Xxxxxxx Xxxxxx
If to the Transfer Agent:
American Stock Transfer & Trust Co.
0000 00xx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxxxx Xxxxxx
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
-27-
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds of the outstanding principal
amount of the Debentures including by merger or consolidation, except pursuant
to a Change of Control with respect to which the Company is in compliance with
the terms of the Debentures and Section 4(j) of this Agreement. A Buyer may
assign some or all of its rights hereunder without the consent of the Company;
provided, however, that the transferee has agreed in writing to be bound by the
applicable provisions of this Agreement. The Buyers shall be entitled to pledge
the Securities in connection with a bona fide margin account or other loan
secured by the Securities.
h. No 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.
i. Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any 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 Buyer, to make any
press release or other public disclosure with respect to such transactions in
the form as is required by applicable law and regulations (although each Buyer
shall be consulted by the Company in connection with any such press release or
other public disclosure prior to its release and shall be provided with a copy
thereof).
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.
l. Termination. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching
-28-
party shall have the option to terminate this Agreement with respect to such
breaching party at the close of business on such date without liability of any
party to any other party; provided, however, that if this Agreement is
terminated pursuant to this Section 9(l), the Company shall remain obligated to
reimburse any nonbreaching Buyer for the expenses described in Section 4(l)
above.
m. Placement Agent. The Company acknowledges that it has not engaged a
placement agent in connection with the sale of the Debentures or the Warrants,
except X.X. Xxxxx in its role as placement agent of the Debentures and Warrants.
The Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or brokers' commissions (other than for persons engaged
by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security) to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
or payments to any Buyer hereunder or pursuant to any of the other Transaction
Documents, or the Buyers enforce or exercise their 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.
q. Equitable Relief. The Company recognizes that in the event that it
fails to perform, observe, or discharge any or all of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to the Buyers.
The Company therefore agrees that the Buyers shall be entitled to seek temporary
and permanent injunctive relief in any such case without the necessity of
proving actual damages.
r. Crescent. The parties hereby acknowledge that any reference to
interest made herein or in any other Transaction Document is not applicable to
Crescent.
-29-
Furthermore, the parties hereby acknowledge that in lieu of any interest due and
owing to the Buyers hereunder or pursuant to any other Transaction Document,
Crescent shall accrue a corresponding fee in the equivalent pro-rata amount
earned by the other Buyers.
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY:
SORRENTO NETWORKS CORPORATION
By: /s/ Xxx X. Xxxxxxxxx
-----------------------------------
Name: Xxx X. Xxxxxxxxx
Title: Chief Financial Officer
-30-
BUYERS:
DEUTSCHE BANC ALEX. XXXXX INC., as
agent for DEUTSCHE BANK AG, LONDON
BRANCH
By: /s/ Xxxxxx Xxxx
-----------------------------
Name: Xxxxxx Xxxx
Title: Managing Director
By: /s/ Xxxxxxxx Xxxxx
-----------------------------
Name: Xxxxxxxx Xxxxx
Title: Director
SOCIETE GENERALE
By: /s/ Xxxxxxxxx Xxxxxx
-----------------------------
Name: Xxxxxxxxx Xxxxxx
Title: Managing Director
ZLP MASTER FUND, LTD.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxx
Title: Director
ZLP MASTER TECHNOLOGY FUND, LTD.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxx
Title: Director
STEELHEAD INVESTMENTS LTD.
By: /s/ Xxxxx X'Xxxx
-----------------------------
Name: Xxxxx X'Xxxx
Title: Authorized Signatory
-00-
XXXXXXXX XXXXXXXXXXXXX, LTD.
By:
-----------------------------
Name:
Title:
RIVERVIEW, LLC
By: /s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
Title: Chief Financial Officer
VERTICAL INTERNATIONAL LIMITED
By: /s/ Xxxxxxx X. Xxxxxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Attorney-in-Fact
GRYPHON MASTER FUND, L.P.
By: /s/ X.X. Xxxx
-----------------------------
Name: X.X. Xxxx
Title: Partner
XXXXXXX PARTNERS, L.P.
By: /s/ Xxxxxxx Xxxxx
-----------------------------
Name: Xxxxxxx Xxxxx
Title: Managing Member
XXXXXXX ASSOCIATES, L.P.
By: /s/ Xxxxxx Xxxxxxxxx
-----------------------------
Name: Xxxxxx Xxxxxxxxx
Title: Vice President
-32-
SCHEDULE OF BUYERS
Principal
Amount
Investor Address of Escrow Number of Investor's Representatives' Address
Investor Name and Facsimile Number Debentures Amount Warrants and Facsimile Number
------------- -------------------- ---------- ------ -------- -----------------------------------
Deutsche Bank AG, c/o Deutsche Banc Alex. 7,500,000 2,386,172.95 780,708 c/o Deutsche Banc Alex.
London Branch Xxxxx, Inc. Xxxxx. Inc.
00 Xxxx 00xx Xxxxxx (00xx Xxxxx) 00 Xxxx 00xx Xxxxxx (00xx Xxxxx)
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxx/Xxxx Attn: Xxxxxx Xxxx/Xxxx
Xxxxx/Xxxxx Xx Xxxxx/Xxxxx Xx
000-000-0000 000-000-0000
Gryphon Master Fund* 00 Xxxxxxxxxxx Xxxxx 3,000,000 954,469.18 312,283 00 Xxxxxxxxxxx Xxxxx
Xxxxx 0000 Xxxxx 0000
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxx Attn: Xxxxxxx Xxxx
000-000-0000 000-000-0000
Xxxxxx Xxxxx 00 Xxxxxxxx, 00xx Xxxxx 5,000,000 1,590,781.97 520,472 00 Xxxxxxxx, 00xx Xxxxx
Xxxxxxxx Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxx Attn: Xxxxxx Xxxxxx
000-000-0000 000-000-0000
Societe Generale 0000 Xxxxxx xx xxx Xxxxxxxx 4,000,000 1,272,625.57 416,378 0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxxxxxx Xxxxxx Attn: Xxxxxxxxx Xxxxxx
000-000-0000 000-000-0000
Vertical Ventures* 000 Xxxxxxx Xxxx Xxxxx 3,000,000 954,469.18 312,283 000 Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxx/Xxxx Xxxxxxxxx Attn: Xxxxx Xxxxx/Xxxx Xxxxxxxxx
000-000-0000 000-000-0000
Crescent c/o Greenlight 1,200,000 381,787.67 124,913 x/x Xxxxxxxxxx
Xxxxxxxxxxxxx, Xxx. 00 Xxxxxx Xxxxx Xxxxx, 0000 00 Xxxxxx Xxxxx Xxxxx, 0000
Xxxxxxxx Cointrin
Geneva, Switzerland Geneva, Switzerland
Attn: Xxx Xxxxxxxxx Attn: Xxx Xxxxxxxxx
011-4122-791-72-98 011-4122-791-72-98
River View LLC c/o Millenium Partners 2,000,000 636,312.79 208,189 c/o Millenium Partners
000 0xx Xxxxxx 000 0xx Xxxxxx
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxx Xxxxxxxx Attn: Xxx Xxxxxxxx
000-000-0000 000-000-0000
Xxxxxxx Associates, 00 Xxxxxxxxxxx Xxxxx 1,000,000 317,765.18 104,094 45 Rockefeller Xxxxx
X.X.* Xxxxx 0000 Xxxxx 0000
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxx Attn: Xxxxxxx Xxxx
000-000-0000 000-000-0000
Xxxxxxx Partners, 00 Xxxxxxxxxxx Xxxxx 3,000,000 954,469.18 312,283 45 Rockefeller Xxxxx
X.X.* Xxxxx 0000 Xxxxx 0000
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxx Attn: Xxxxxxx Xxxx
000-000-0000 000-000-0000
Xxxxxxxxx 00 Xxxxxxxxxxx Xxxxx 2,500,000 795,782.28 260,236 00 Xxxxxxxxxxx Xxxxx
Investments Ltd.* Xxxxx 0000 Xxxxx 0000
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxx Attn: Xxxxxxx Xxxx
000-000-0000 000-000-0000
* With a copy to:
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP
1290 Avenue of the Anericas
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxx, Esq.
000-000-0000
TABLE OF CONTENTS
Page
----
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS..........................2
2. BUYER'S REPRESENTATIONS AND WARRANTIES................................3
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................6
4. COVENANTS.............................................................16
5. TRANSFER AGENT INSTRUCTIONS...........................................22
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL........................22
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.....................23
8. INDEMNIFICATION.......................................................25
9. MISCELLANEOUS.........................................................26
SCHEDULES
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(h) - Litigation
Schedule 3(l) - Integration
Schedule 3(m)(ii) - Employee Matters
Schedule 3(n) - Intellectual Property
Schedule 3(o) - Liens
Schedule 3(p)(ii) - Environmental
Schedule 3(w) - Transactions with Affiliates
Schedule 3(y) - Rights Agreement
Schedule 4(d) - Use of Proceeds
EXHIBITS
Exhibit A - Form of Debenture
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Irrevocable Transfer Agent Instructions
Exhibit E - Form of Company Counsel Opinion
-i-
INDEX
Page
----
1933 Act.....................................................................1
1934 Act.....................................................................9
Affiliate...................................................................19
Agreement....................................................................1
Business Day.................................................................3
Buyer........................................................................1
By-laws......................................................................8
Certificate of Incorporation.................................................8
Closing......................................................................2
Closing Date.................................................................3
Code........................................................................12
Common Stock.................................................................1
Company......................................................................1
Conditions to Cancellation of Right to Exercise Warrants.....................2
Conversion Shares............................................................1
Convertible Securities......................................................20
Debentures...................................................................1
Environmental Laws..........................................................13
ERISA.......................................................................12
Existing Securities.........................................................21
Hazardous Materials.........................................................13
Indemnified Liabilities.....................................................25
Indemnitees.................................................................25
Irrevocable Transfer Agent Instructions.....................................22
Material Adverse Effect......................................................6
Measuring Period.............................................................3
NASDAQ.......................................................................2
NYSE.........................................................................2
Permits.....................................................................14
Plans.......................................................................12
Principal Market............................................................18
Registration Rights Agreement................................................2
Registration Statement.......................................................2
Regulation D.................................................................1
Related Party...............................................................19
Reporting Period............................................................17
Resolutions.................................................................24
Rule 144.....................................................................5
SEC..........................................................................1
SEC Documents................................................................9
Securities...................................................................4
Strategic Financing.........................................................21
Subsidiaries.................................................................6
Transaction Documents........................................................7
Warrant Cancellation Date....................................................2
Warrant Cancellation Notice..................................................2
Warrant Shares...............................................................1
Warrants.....................................................................1
-i-
Schedule 3(c) - Capitalization
Authorized Shares:
Common Stock, $.30 par value 150,000,000
Preferred Stock, $.01 par value 2,000,000
preferred stock series designated:
Preferred Stock, Series A 2,500
Preferred Stock, Series B 1,000
Preferred Stock, Series C 10,000
Preferred Stock, Series D 3,000
Preferred Stock, Series E 1,000,000
Issued and Outstanding Shares at July 17, 2001:
Common Stock issued 14,237,914
Less: Treasury stock (8,888)
------
Common Stock issued and outstanding 14,229,026
Preferred Stock:
Series D - shares outstanding 1,353
"Conversion" value of outstanding preferred stock (convertible at an average of
the five days market closing price)
Conversion Estimated
Value Reserve
----- -------
Series D $1,353,000 193,286
Shares reserved for issuance under Company's stock plans:
Options outstanding under Company's option plans including the 1988
Stock Option Plan, the 1997 Incentive and Non-Qualified Stock
Option Plan, the 1997 Director Stock Option Plan, and the 2000
Stock Incentive Plan all of which have been
filed with various SEC filings 4,866,336
Shares reserved for issuance under the 2000 Stock
Incentive Plan 4,807,449
---------
9,673,785
---------
The Company's 2000 Stock Incentive Plan contains provisions which
provide for stock appreciation rights. None of the currently outstanding options
contain any stock appreciation rights.
Shares reserved for issuance under Sorrento Networks, Inc. stock plan:
Options to acquires shares of subsidiary at assumed
conversion of 1 for 3.9; option holders may
elect conversion 4,707,331
Total warrants to acquire Company's common stock outstanding:
As of July 17, 2001 509,833
Other commitments:
Pursuant to a Stock Purchase Agreement dated as of March 22, 2001, the
Company is potentially liable for the issuance of additional shares of common
stock to the purchasers in the event the Company issues equity securities,
including convertible debt, at a price less than $6.5531 per share from March
22, 2001 through September 13, 2002. In addition, the Company would be required
to issue warrants to acquire additional shares (25% of the additional shares
issued) exercisable at 125% of the reduced purchase price. The Company has filed
the required registration agreement on Form S-3 provided by this agreement,
except as regards potentially issuable shares, and such Registration Statement
became effective on June 5, 2001.
Sorrento Networks, Inc. ("Sorrento") has 9,495,770 shares of its Series
A Preferred Stock outstanding of which 899,437 are held by the Company. Each
share of Sorrento's Series A Preferred Stock is convertible into one share of
Sorrento's common stock at the option of the holder and has a liquidation
preference of $5.45 per share. The holders of more than 50% of the then
outstanding Series A shares requested a redemption at the current liquidation
preference of $48.8 million. The requested redemption can only be made from
specified categories of funds, and Sorrento cannot legally redeem any of the
Series A shares at this time. The Company with the assistance of an investment
banking firm is attempting to structure an agreement between Sorrento and the
Series A shareholders regarding their redemption request which may include the
issuance of the Company's common stock or a newly designated convertible
preferred stock.
Schedule 3(e) - Conflicts
As a result of necessary cash requirements to fund continuing
operations of its subsidiary, Sorrento, the Company has financed Sorrento with
various amounts from time to time after March 3, 2000 which, in the aggregate,
total approximately $36,000,000 as of July 17, 2001. Sorrento has not sought
approval of its Series A shareholders with respect to such financings, which
approval might have been required. However, the Board of Directors of the
Company and Sorrento have agreed to a transaction whereby Sorrento would sell
additional shares of its Series A Preferred to the Company, on the same terms
and conditions and for the same price as previous issuances of said stock, for
which the sole consideration would be the extinguishment of the aforesaid
inter-company obligation, and for which approval of the Series A shareholders
should not be required.
Schedule 3(h) - Litigation
The only litigation currently pending or threatened against the Company
or any of its subsidiaries of which the Company is aware of are the following:
1. Telcom-SNI Investors, L.L.C., Xxxxxxxx, Xxxxxxxx & Co., L.P.,
and Belmarken Holding N.V. v. Sorrento Networks, Inc., Civil
Action No. 18915-NC in the Delaware Court of Chancery.
This action has been brought pursuant to Delaware General
Corporation Law Section 220 seeking inspection of the books
and records of Sorrento Networks, Inc. Trial is set for August
8, 2001. No monetary or other relief is sought besides access
to the books and records of Sorrento Networks, Inc.
2. Cirtran Corporation v. Osicom Technologies, Inc., a New Jersey
corporation and Entrada Networks, Inc., a Delaware
corporation, Case No. 2:01-CV-142B in the United States
District Court for the District of Utah.
This is an action against the predecessor of the Company, and
a former subsidiary of the Company, alleging that the former
subsidiary owes a supplier in excess of $800,000 as a result
of transactions by the former subsidiary in the normal course
of business. No claims are made in this action arising from
transactions between the plaintiff and the Company or any of
its current subsidiaries. The Company has filed a motion to
dismiss on the basis of lack of personal jurisdiction, and
believes that, to the extent the Complaint can be construed as
alleging claims against it, any such claims are without merit.
The only securities related litigation in which a current director or officer of
the Company has been party within the past five years is the case styled In re
Osicom Technologies, Inc. Securities Litigation, Master File Xx.
XX-00-0000-X(Xxx), Xxxxxx Xxxxxx Xxxxxxxx Xxxxx, Xxxxxxx District of California.
Xx. Xxx Xxxxx, the Company's Chairman and Chief Executive Officer, was a named
defendant in this class action, which alleged violations of sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, on behalf of a class of purchasers of Osicom's publicly traded
securities during the period July 2, 1998 through April 20, 1999, inclusive. In
September 2000, the action was dismissed with prejudice against all defendants,
pursuant to a settlement agreement approved by the court after notice and
hearing.
Schedule 3(l) - Integration
None.
Schedule 3(m) - Employment Matters; ERISA Matters
One of the Executive Officers of the Company, who is not active in
day-to-day operations, has indicated that he will resign as an officer in the
near future.
Schedule 3(v) - Transactions with Affiliates
None.
Schedule 3(y) - Rights Agreement
On June 25, 2001, the Company's board of directors authorized
management to draft a shareholder rights plan, and subsequently approved said
plan by unanimous consent. The Company is in the process of implementing this
plan.
