U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to _______
Commission file number 0-23505
INNOVACOM, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0308568
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
- ------------------------------------- ---------------------------------
3400 Garrett Drive
Santa Clara, CA 94054
(Address of principal executive offices) (Zip Code)
(408) 727-2447
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of common stock outstanding as of June 30, 1999 was 25,175,796
Transitional Small Business disclosure format Yes [ ] No [X]
<PAGE>2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INNOVACOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<S> <C>
JUNE 30,
1999
ASSETS
--------
CURRENT ASSETS
Cash $ 54
Accounts receivable - trade, net of allowance for doubtful
accounts of $34 30
Other receivables 15
Inventory 229
Prepaid expenses and other 114
--------
Total current assets 442
Property and equipment, net 233
Deposits 37
--------
TOTAL ASSETS $ 712
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------
CURRENT LIABILITIES
Note payable - related parties $ 110
Note payable 74
Demand notes 1,950
Convertible debentures 9,540
Account payable 1,314
Accrued liabilities 2,063
Liabilities in excess of assets of discontinued operations 63
--------
Total current liabilities $ 15,114
--------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value, 150,000 shares authorized
25,176 shares issued and outstanding 25
Warrants 2,121
Additional paid-in capital 23,224
Deficit accumulated during development stage (39,772)
--------
Total stockholders' equity (deficit) (14,402)
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 712
========
</TABLE>
See accompanying notes to these condensed financial statements.
<PAGE>3
INNOVACOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
MARCH 3, 1993
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30, JUNE 30,
------------------------- ----------------------- -----------------
1998 1999 1998 1999 1999
-------- -------- -------- -------- --------
REVENUES $ - $ 61 $ 40 $ 97 $ 354
COSTS AND EXPENSES -------- -------- -------- -------- --------
Cost of goods sold 5 50 22 79 200
Research and development 1,342 367 2,765 736 11,003
Selling, general and administrative 2,611 884 4,626 1,629 17,737
Impairment loss on property and equipment 937 - 937 - 937
-------- -------- -------- -------- --------
Total costs and expenses 4,895 1,301 8,350 2,444 29,877
-------- -------- -------- -------- --------
OPERATING LOSS (4,895) (1,240) (8,310) (2,347) (29,523)
-------- -------- -------- -------- --------
OTHER INCOME AND EXPENSE
Interest expense, net of interest (income) 2,473 1,217 3,449 1,876 7,844
Debt conversion expense 261 - 261 - 261
-------- -------- -------- -------- --------
Total other (income) expense 2,734 1,217 3,710 1,876 8,105
-------- -------- -------- -------- --------
Loss from continuing operations before income tax
expense, discontinued operations, and
extraordinary item (7,629) (2,457) (12,020) (4,223) (37,628)
Income tax expense - - 2 2 8
-------- -------- -------- -------- --------
Loss from continuing operations (7,629) (2,457) (12,022) (4,225) (37,636)
-------- -------- -------- -------- --------
Loss on disposal of discontinued operation - - 1,155 - 1,155
Loss from operations of discontinued operation, net
of income tax expense 176 - 400 - 1,161
-------- -------- -------- -------- --------
Loss from discontinued operations 176 - 1,555 - 2,316
-------- -------- -------- -------- --------
Net loss before extraordinary item (7,805) (2,457) (13,577) (4,225) (39,952)
-------- -------- -------- -------- --------
Extraordinary item: Gain on extinguishment of
liabilities, net of income tax expense - 57 - 180 180
-------- -------- -------- -------- --------
Net loss $ (7,805) $ (2,400) $(13,577) $ (4,045) $(39,772)
======== ======== ======== ======== ========
Basic and diluted net loss per common share
Continuing operations $ (0.35) $ (0.10) $ (0.57) $ (0.17)
Discontinued operations (0.01) - (0.08)
Extraordinary item - - - 0.01
-------- -------- -------- --------
Basic and diluted net loss per common share $ (0.36) $ (0.10) $ (0.65) $ (0.16)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 21,501 24,970 21,034 25,003
======== ======== ======== ========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
<PAGE>4
INNOVACOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C>
MARCH 3, 1993
SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
---------------------- -----------------
1998 1999 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $(12,022) $ (4,225) $(37,636)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities:
Depreciation and amortization 202 76 804
Amortization of discount on long-term debt 2,574 2,346
Gain on extinguishment of liabilities - 180 180
Impairment loss on property and equipment 937 - 937
Interest related to beneficial conversion features
of notes payable and long-term liabilities 247 1,058 3,357
Compensation recognized upon issuance of stock
and stock options 560 18 5,788
Shares canceled from default judgment - - (250)
Expense recognized upon issuance of stock for
conversion incentive 261 - 261
Contribution of product license - - 1,275
Purchased incomplete research and development - - 500
Write-off acquisition costs 68 - 68
Write-off related party receivable - - 140
Changes in operating assets and liabilities:
Cash - restricted 8 - -
Accounts receivable (30) (22) (30)
Other receivables (11) 63 (15)
Inventory - (229) (229)
Prepaid and other expenses 151 (112) (114)
Deposits 49 - (37)
Accounts payable 1,792 (407) 1,725
Accrued liabilities 820 798 2,649
-------- -------- --------
Net cash used in operating activities from continuing
operations (4,394) (2,802) (18,282)
-------- -------- --------
Net loss from discontinued operations (1,555) - (2,316)
Loss from disposal of assets 49 - 49
Write down of film rights and film cost inventory 277 - 250
Write down of goodwill 848 - 848
Change in liabilities in excess of assets of discontinued
operations 78 - 63
-------- -------- --------
Net cash used in operating activities from discontinued
operations (303) - (1,106)
-------- -------- --------
(continued)
</TABLE>
<PAGE>5
INNOVACOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(continued)
<TABLE>
<S> <C> <C> <C>
MARCH 3, 1993
SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
---------------------- -----------------
1998 1999 1999
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received in acquisition of Sierra Vista - - 2,917
Advance to related party - - (140)
Cost incurred for organization of joint venture - - (68)
Purchases of property and equipment (997) (5) (2,195)
Proceeds from sale of asset - - 3
-------- -------- --------
Net cash provided by (used in) investing activities (997) (5) 517
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock - - 2,898
Proceeds from notes payable 778 2,065 6,931
Net proceeds from sale of debenture with detachable
warrants 1,992 750 9,359
Principal payments on notes payable - (66) (341)
Proceeds from settlement of litigation regarding stock - 78 78
-------- -------- --------
Net cash provided by financing activities 2,770 2,827 18,925
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,924) 20 54
CASH AND CASH EQUIVALENTS, beginning of period 4,149 34 -
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,225 $ 54 $ 54
======== ======== ========
See accompanying notes to these condensed consolidated financial statements.
</TABLE>
<PAGE>6
INNOVACOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 1998.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments considered necessary to present fairly the
Company's financial position at June 30, 1999, results of operations for the
three and six months ended June 30, 1998 and 1999, and the period from inception
(March 3, 1993) to June 30, 1999, and the cash flows for the six months ended
June 30, 1998 and 1999, and the period from inception (March 3, 1993) to June
30, 1999. The results for the period ended June 30, 1999, are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 1999.
These unaudited condensed consolidated financial statements reflect
reclassifications of certain amounts in prior periods to be consistent with the
presentation of the current period. Such reclassifications had no effect on net
loss.
Note 2 - Discontinued Operation
On June 15, 1998 (measurement date), the Company's Board of Directors decided to
discontinue the operations of Sierra Vista Entertainment, Inc. ("Sierra Vista"),
its wholly-owned subsidiary and entertainment segment of the business.
Accordingly, Sierra Vista is accounted for as a discontinued operation in the
accompanying condensed consolidated financial statements.
The liabilities in excess of net assets of Sierra Vista included in the
accompanying consolidated balance sheet as of June 30, 1999, consisted of
accounts payable and accrued expenses of approximately $63,000.
Sierra Vista has never generated any revenues.
Note 3 - Subsequent Event
On July 14, 1999, the Company borrowed $500,000 from an investor in the form of
a note. The note bears interest at 13% and is due on demand. In conjunction with
this note, the Company issued five year warrants to purchase up to 250,000
shares of Common Stock at $.55 per share to the note holder, and five year
warrants to purchase up to 100,000 shares of Common Stock at $.44 per share to
two finders.
<PAGE>7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenues and earnings from operations of the Company. Factors that could cause
actual results to differ materially include, in addition to other factors
identified in this report, lack of revenues, substantial losses, need for
additional capital and limited operating history, and other risks factors
detailed in the Company's Securities and Exchange Commission ("SEC") filings
including the risk factors set forth in the Company's Registration Statement on
Form SB-2, SEC File No. 333-45875 and "Certain Considerations" section in the
Company's Form 10-KSB for the year ended December 31, 1998. Readers of this
report are cautioned not to put undue reliance on "forward looking" statements
which are, by their nature, uncertain as reliable indicators of future
performance. The Company disclaims any intent or obligation to publicly update
these "forward looking" statements, whether as a result of new information,
future events, or otherwise.
Revenues
Revenues were approximately $61,000 and $97,000 for the three and six month
periods ended June 30, 1999, as compared to approximately zero and $40,000 for
the same periods in 1998. Revenue in 1999 was from the sale of the Company's
standard transmission and authoring products, mostly to resellers for their use
as demonstration units. Revenue in 1998 was from the sale of pre-production
boards and systems.
Cost of goods sold
Cost of goods sold increased from approximately $5,000 and $22,000 for the three
and six month periods ended June 30, 1998 to approximately $50,000 and $79,000
for the same periods in 1999. The product margins for all periods presented in
these statements are not necessarily indicative of those that the Company might
experience at such time, if any, that standard products begin to be shipped in
full- production quantities for installation by end-users.
Research and development
Research and development expense declined from approximately $1,342,000 and
$2,765,000 in the three and six month periods ended June 30, 1998 to
approximately $367,000 and $736,000 in the same periods in 1999. In June 1998
management took a number of steps to greatly reduce the Company's expenses which
included the layoff of approximately half of the Company's employees,
termination of a number of product development efforts, and concentration on
those products deemed most valuable and closest to market. All significant
research and development expense categories decreased sharply between 1998 and
1999, with the largest declines in payroll costs, consulting charges,
depreciation, and supplies.
Selling, general and administrative
Selling, general and administrative expense declined from approximately
$4,626,000 in the six months ended June 30, 1998, to approximately $1,629,000 in
the same period in 1999, a reduction of about 65%. For the quarters ended June
30, 1998 and 1999, selling, general and administrative expense declined about
66%, from approximately $2,611,000 to approximately $884,000. These decreases
resulted from the Company's expense reductions taken in June 1998 and were
reflected in all major expense categories including payroll, legal and
accounting, consulting, travel, and trade shows.
<PAGE>8
Impairment loss on property and equipment
In June 1998, the management of the Company decided to terminate the single chip
encoder product and to focus the Company's research and development efforts into
projects with more immediate prospects for revenues. Certain portions of the
Company's property and equipment were specific to the chip development project
and with the termination of the project, this property and equipment was written
down to its realizable value. The amount of this write-down was approximately
$937,000. There was no similar loss experienced in the three- month period ended
June 30, 1999.
Interest expense, net of interest income
Interest expense was approximately $1,217,000 in the second quarter of 1999. Of
this, approximately $814,000 was imputed from the warrants issued in conjunction
with demand notes issued in the quarter, approximately $214,000 related to
penalties accrued for failure to register common stock underlying the
convertible feature in the convertible debentures and the balance related to the
stated interest on the Company's debentures and notes.
The decline from interest expense of approximately $2,473,000 recognized in the
same quarter of 1998 relates principally to amortization of beneficial
conversion feature and deferred offering costs which approximated $1,463,000 in
the second quarter of 1998, but was not present in the same quarter of 1999. The
difference between the interest expense of approximately $3,449,000 recognized
in the first six months of 1998 and of approximately $1,876,000 for the same
period of 1999 relates mostly to the same factor.
Loss from continuing operations before income tax expense, discontinued
operations, and extraordinary item
Loss from continuing operations decreased from approximately $12,022,000 in the
six months ended June 30, 1998, to approximately $4,225,000 for the same period
in 1999 and from approximately $7,629,000 in the second quarter of 1998 to
approximately $2,457,000 in the second quarter of 1999. These decreases reflect
the steps taken in June 1998 to reduce headcount and other expenses, and to
focus the Company on a limited number of specific products or projects that
management deemed closest to market.
Extraordinary item
During the first half of 1999, the Company was able to settle certain
outstanding trade payables and other liabilities at discounts. The net amount of
the debt relieved was approximately $57,000 and $180,000 in the three and six
month periods ended June 30, 1999.
Liquidity and Capital Resources
Since inception, the Company has funded its operations primarily through the
sale of stock and placement of debt. On June 30, 1999, the Company had a cash
balance of approximately $54,000 and a working capital deficit of approximately
$14,672,000. This compares with cash of approximately $34,000 and a working
capital deficit of approximately $11,851,000 at December 31, 1998. The decrease
in working capital results from the loss for the first half of 1999, net of
imputed interest expense charged to warrants and to additional paid-in capital.
<PAGE>9
On January 15, 1999, the Company issued Convertible Debentures in the aggregate
principal amount of $750,000. The Debentures accrue interest at the rate of 7%
per annum and are convertible into shares of the Company's Common Stock at a
conversion price equal to the lesser of (i) 125% of the five-day average share
price at the time of issuance and (ii) 80% for conversions prior to 120 days
after issuance, 77.5% for conversions 120-150 days after issuance, and 75%
thereafter. The Debentures have a term of five years, expiring January 15, 2004,
and are secured by all of the assets of the Company. As part of the issuance of
the Debentures, the Company issued to the Debenture holders five-year warrants
to purchase up to 187,500 shares of Common Stock at $.50 per share.
From March through July 1999, the Company borrowed a total of $2,450,000 from
the investor who had purchased the majority of the Debentures evidenced in the
form of five notes. The notes bear interest at 13% and are due on demand. In
conjunction with this funding, the Company issued the holder of the notes five
year warrants to purchase up to 1,000,000 shares of Common Stock at $.60 per
share and 250,000 shares at $.55 per share.
In conjunction with the sale of the Debentures in January 1999 and of the notes
in March through July 1999, the Company issued warrants to purchase up to
640,000 shares of the Company's common stock at prices ranging from $0.11 to
$0.84 per share to two finders.
Management projects that the Company will not be able to internally generate the
cash that will be required to fund its operations and to pay off the liabilities
incurred in prior periods for at least the balance of 1999. Accordingly, the
Company will require additional funding to finance its operations. Since
December 1997, the Company has financed its operations through the issuance of
convertible debentures and demand notes to two investment funds that are
affiliated with each other, but no assurance can be given that these investors
will continue to provide funds to the Company. In this event, the Company will
need to secure additional financing from alternative sources. The Company is
already actively pursuing alternative funding sources. There can be no assurance
that additional funding will be available on terms favorable to the Company.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's, or
its suppliers' and customers' computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company's operations are now based on software applications that the Company
believes to be Year 2000 compliant. This included recent purchase of Year 2000
compliant versions of software for its computer, security, and communications
systems, as necessary. The Company has not yet identified any Year 2000 problem
but will continue to monitor the issues. No assurances can be given that the
Year 2000 problem will not occur with respect to the Company's computer systems.
The Company believes that its products are Year 2000 compliant. The Company has
initiated communications with significant suppliers to determine the extent to
which those third parties' failure to remedy Year 2000 issues in their own
operation or in their products might materially effect the Company's operations
or products. The Company has not received any indication from its suppliers that
the Year 2000 Issue may materially effect their ability to conduct business or
<PAGE>10
supply Year 2000 compliant products to the Company. In addition, the Company
continues to test its products and the third party software it purchases for
Year 2000 compliance.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has a number of overdue accounts payable to vendors. A number of
these vendors have filed suit against the Company to enforce collection. To date
the Company has been able to reach accommodation with the creditors on most of
these collection actions, but as of July 16, 1999, three of these collection
actions seeking to collect a total of approximately $62,000 had not been
settled. There can be no assurance that the suits that have been or will be
filed, or the terms that might be reached for settlement will not create
material hardship to the Company in the future. Management anticipates that the
number of such suits might increase over time as the Company's unpaid
obligations age further if more vendors conclude that legal action is the
prudent course to pursue for collection.
Item 2. Changes in Securities and Use of Proceeds. - Not Applicable
Item 3. Defaults Upon Senior Securities.
The Company was not in compliance with certain covenants of the December 1997,
June 1998, August 1998, and January 1999 Debenture and Warrant agreements
including, but not limited to, payment of interest, timely registration of
common stock underlying debt conversion rights, and common stock trading volume.
Consequently, these debentures have been classified as current debt in the
Company's financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
A special meeting of the shareholders of InnovaCom, Inc. (the "Corporation") was
convened at Santa Clara, California, on June 11, 1999.
The stockholders approved a proposal to amend the Company's Articles of
Incorporation to increase the authorized number of shares of Common Stock
available for issuance from Fifty Million (50,000,000) to One Hundred Fifty
Million (150,000,000). The proposal received the following votes:
<TABLE>
<S> <C> <C> <C>
For Against Abstain Broker Non-Vote
13,867,057 655,913 111,635 0
</TABLE>
The stockholders defeated a proposal to amend the Company's Articles of
Incorporation to authorize and create Ten Million (10,000,000) shares of
Preferred Stock. The proposal received the following votes:
<TABLE>
<S> <C> <C> <C>
For Against Abstain Broker Non-Vote
5,328,867 855,223 87,623 8,362,843
</TABLE>
<PAGE>11
The stockholders defeated a proposal to adopt the 1999 Stock Option Plan. The
proposal received the following votes:
<TABLE>
<S> <C> <C> <C>
For Against Abstain Broker Non-Vote
5,029,210 791,309 451,243 8,362,843
</TABLE>
Item 5. Other Information.
To provide for working capital since December 1997, the Company has issued an
aggregate face value of $9,750,000 of convertible debentures to two investor
funds that are affiliated with each other. At June 30, 1999 the average price at
which these convertible debentures could be converted into the Company's Common
Stock was approximately $.23 per share. If these two investors had exercised
their conversion rights at that time they would have owned approximately 64% of
the outstanding Common Stock of the Company, giving them effective control of
the Company. Because the price at which most of these convertible debentures can
be converted into common stock changes in concert with movements in the market
price of the Company's common stock, the actual percentage of control that these
two funds might acquire at any given time could be greater or less than the
figure determined as of June 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.32 $75,000 January 14, 1999 7% Debenture
10.33 $600,000 Secured Promissory Note dated March 3, 1999
10.34 $600,000 Secured Promissory Note dated April 9, 1999
10.35 $450,000 Secured Promissory Note dated May 7, 1999
10.36 $300,000 Secured Promissory Note dated June 17, 1999
10.37 Eighth Amended and Restated Security Agreement
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INNOVACOM, INC.
(Registrant)
Date: July 30, 1999 /s/ FRANK J. ALIOTO
----------------------------------------
Frank J. Alioto, President and
Chief Executive Officer
Date: July 30, 1999 /s/ STANTON CREASEY
----------------------------------------
Stanton Creasey, Chief Financial Officer
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. E-1 U.S. $750,000
INNOVACOM, INC.
7% SECURED CONVERTIBLE DEBENTURE DUE JANUARY 14, 2004
FOR VALUE RECEIVED, InnovaCom, Inc., a corporation organized under the laws
of the Nevada and having a principal place of business at 3400 Garrett Drive,
Santa Clara, California 95054 (the "Company") promises to pay to JNC Strategic
Fund Ltd., or registered assigns (the "Holder"), the principal sum of Seven
Hundred Fifty Thousand Dollars ($750,000), on or prior to January 14, 2004 or
such earlier date as this Debenture (the Debenture") is required to be repaid as
provided hereunder (the "Maturity Date") and to pay interest to the Holder on
the principal sum at the rate of 7% per annum, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year while this
Debenture is outstanding and on each Conversion Date (as defined in Section
4(a)(i)), commencing on the earlier to occur of a Conversion Date (as defined
herein) for such principal amount and March 31, 1999. Interest shall accrue
daily commencing on the Original Issue Date (as defined in Section 6) until
payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest shall be calculated on the basis of a 360-day year and for the actual
number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of this Debenture (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined below) on the date such interest was due. All amounts due hereunder
other than such interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
<PAGE>2
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay interest hereunder in shares
of Common Stock; (ii) such shares are not either registered for resale pursuant
to an Underlying Securities Registration Statement (as defined in Section 6) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; or (iii) such shares are not Actively Traded (as defined
herein) (or listed or quoted for trading on the American Stock Exchange, Nasdaq
National Market, Nasdaq SmallCap Market or The New York Stock Exchange, and any
other exchange on which the Common Stock is then listed for trading (each, a
"Subsequent Market")). As used herein, "Actively Traded" shall mean that (a) the
average value of the shares of Common Stock traded on the OTC Bulletin Board in
each week measured over a four (4) week period on a rolling basis equals or
exceeds $50,000 and (b) there are no fewer than ten (10) market makers actively
making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for
such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement. Prior to due presentment to the Company for transfer of
this Debenture, the Company and any agent of the Company may treat the
person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, this Debenture, free of any claim
of subordination, as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, a
Conversion Date or the Maturity Date or by acceleration or otherwise);
<PAGE>3
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement, the Security
Agreement or the Registration Rights Agreement, and such failure or
breach shall not have been remedied within 10 days after the date on
which notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 60 days; or the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company
or any subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or
any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be Actively Traded or fail to
be listed or quoted for trading on any Subsequent Market if after the
Original Issue Date the Common Stock shall be listed or quoted for
trading on any such Subsequent Market, or if the Common Stock shall be
suspended from trading thereon without being actively traded, relisted
or having such suspension lifted, as the case may be, within fifteen
(15) days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or,
if the Company is the surviving entity, the Company shall issue or
sell to another Person, or group thereof, in excess of 50% of the
Common Stock) or shall dispose of all or substantially all of its
<PAGE>4
assets in one or more transactions, or shall redeem more than a de
minimis number of shares of Common Stock (other than redemptions of
Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission
(the "Commission") on or prior to the 180th day after the Original
Issue Date;
(viii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as hereinafter defined) relating
thereto (other than an Event resulting from a failure of an Underlying
Securities Registration Statement to be declared effective by the
Commission on or prior to the 90th day after the Original Issue Date);
or
(ix) the Company shall fail to deliver certificates to the Holder
prior to the 15th day after the Conversion Date pursuant to Section
4(b).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other
amounts owing in respect thereof, to the date of acceleration, to be, shall
become, immediately due and payable in cash. The aggregate amount payable
upon an Event of Default in respect of the Debentures shall be equal to the
sum of (i) the Mandatory Prepayment Amount (as defined in Section 6) plus
(ii) the product of (A) the number of Underlying Shares issued in respect
of conversions or as payment of interest hereunder and then held by the
Holder and (B) the Per Share Market Value on the date prepayment is
demanded or the date the full prepayment price is paid, whichever is
greater. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder
may immediately and without expiration of any grace period enforce any and
all of its rights and remedies hereunder and all other remedies available
to it under applicable law. Such declaration may be rescinded and annulled
by Holder at any time prior to payment hereunder. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.
Section 4. Conversion.
(a)(i) This Debenture shall be convertible into shares of Common Stock
at the option of the Holder, in whole or in part at any time and from time
to time, from and after the 100th day following the Original Issue Date and
prior to the close of business on the Maturity Date. The number of shares
of Common Stock as shall be issuable upon a conversion hereunder shall be
determined by dividing the outstanding principal amount of this Debenture
to be converted, plus all accrued but unpaid interest thereon, by the
Conversion Price (as defined below), each as subject to adjustment as
provided hereunder. The Holder shall effect conversions by surrendering
this Debenture (or such portions thereof) to be converted, together with
the form of conversion notice attached hereto as Exhibit A (a "Conversion
Notice") to the Company. Each Conversion Notice shall specify the principal
amount of Debentures to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date such Conversion
Notice is deemed to have been delivered hereunder (a "Conversion Date"). If
<PAGE>5
no Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that such Conversion Notice is deemed delivered
hereunder. Subject to Section 4(b) hereof, each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all of
the principal amount represented by the Debenture(s) tendered by the Holder
with the Conversion Notice, or if a conversion hereunder cannot be effected
in full for any reason, the Company shall honor such conversion to the
extent permissible hereunder and shall promptly deliver to such Holder (in
the manner and within the time set forth in Section 4(b)) a new Debenture
for such principal amount as has not been converted.
(ii) Certain Conversion Restrictions.
(A) The Holder agrees not to convert Debentures to the extent
such conversion would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon
conversion of the Debentures held by such Holder after application of
this Section. The Holder shall have the sole authority and obligation
to determine whether the restriction contained in this Section applies
and, to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which
Debentures are convertible shall be in the sole discretion of the
Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 75
days prior notice to the Company (in which case, the Holder shall make
such filings with the Commission, including under Rule 13D or 13G, as
are required by applicable law). Other Holders shall be unaffected by
any such waiver.
(B) The Holder agrees not to convert Debentures to the extent
such conversion would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon
conversion of the Debentures held by such Holder after application of
this Section. The Holder shall have the sole authority and obligation
to determine whether the restriction contained in this Section applies
and, to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which
Debentures are convertible shall be in the sole discretion of the
Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 75
days prior notice to the Company. Other Holders shall be unaffected by
any such waiver.
(b) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing
the number of shares of the Common Stock being acquired upon the conversion
of Debentures, (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted; (iii) a bank check in the amount of all
accrued and unpaid interest (if the Company has elected and is permitted
hereunder to pay accrued interest in cash), together with all other amounts
then due and payable in accordance with the terms hereof, in respect of
Debentures tendered for conversion and (iv) if the Company has elected to
pay accrued interest in shares of the Common Stock, certificates, which
shall be free of restrictive legends and trading restrictions (other than
<PAGE>6
those required by Section 3.1(b) of the Purchase Agreement), representing
such number of shares of the Common Stock as equals such interest divided
by the Conversion Price calculated on the Conversion Date; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon conversion of the
principal amount of Debentures until Debentures are delivered for
conversion to the Company or the Holder notifies the Company that such
Debenture has been mutilated, lost, stolen or destroyed and complies with
Section 9 hereof. If in the case of any Conversion Notice such certificate
or certificates, including for purposes hereof, any shares of the Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
interest hereunder, are not delivered to or as directed by the Holder by
the third Trading Day after a Conversion Date, the Holder shall be entitled
by written notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such conversion
(whether subject to a Holder or a Company Conversion Notice), in which
event the Company shall immediately return the Debentures tendered for
conversion. If the Company fails to deliver to the Holder such certificate
or certificates pursuant to this Section, including for purposes hereof,
any shares of the Common Stock to be issued on the Conversion Date on
account of accrued but unpaid interest hereunder, prior to the fifth
Trading Day after the Conversion Date, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, $1,500 for
each day thereafter until the Company delivers such certificates (such
amount shall be also be due for each Trading Day after the date that the
Holder may rescind such conversion until such date as the Holder shall have
received the return of the principal amount of Debentures relating to such
rescission). If the Company fails to deliver to the Holder such certificate
or certificates pursuant to this Section prior to the 15th day after the
Conversion Date, the Company shall, upon notice from the Holder, prepay
such portion of the aggregate of the principal amount of Debentures then
held by such Holder, as requested by such Holder, for the Mandatory
Prepayment Amount, in cash. If any portion of the Mandatory Prepayment
Amount pursuant to this Section is not paid within seven days after notice
therefor is deemed delivered hereunder, the Company will pay interest on
the Mandatory Prepayment Amount at a rate of 15% per annum (to accrue
daily), in cash to such Holder, accruing from such seventh day until the
Mandatory Prepayment Amount, plus all accrued interest thereon, is paid in
full.
(c)(i) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of (A) $.1275 (the "Initial Conversion
Price") and (B) the Applicable Percentage (as defined in Section 6)
multiplied by the Average Price (as defined herein) calculated on the
Conversion Date; provided, that the five (5) Trading Day period
contemplated in the Average Price shall be extended for the number of
Trading Days, if any, during such period in which (A) the shares of Common
Stock are not Actively Traded or suspended or delisted from trading on any
Subsequent Market, (B) after the date declared effective by the Commission,
the Underlying Securities Registration Statement is not effective, or (C)
after the date declared effective by the Commission, the Prospectus
included in the Underlying Securities Registration Statement may not be
used by the Holder for the resale of Underlying Shares, provided, further,
that if (a) an Underlying Securities Registration Statement is not filed on
or prior to the Filing Date (as defined in the Registration Rights
Agreement), or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days of the
date that the Company is notified (orally or in writing, whichever is
earlier by the Commission that an Underlying Securities Registration
<PAGE>7
Statement will not be "reviewed" or is not subject to further review or
comment by the Commission, or (c) the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the
Effectiveness Date (as defined in the Registration Rights Agreement), or
(d) such Underlying Securities Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective
as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) for more than twenty (20) days at any time
prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and
declared effective by the Commission within twenty (20) days, or (e)
trading in the Common Stock shall fail to be Actively Traded or if the
Common Stock shall be suspended or delisted from trading on any Subsequent
Market for any reason for more than five (5) days, or (f) the conversion
rights of the Holders of Debentures are suspended for any reason or if the
Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) an amendment to the
Underlying Securities Registration Statement is not filed by the Company
with the Commission within fifteen (15) days of the Commission's notifying
the Company that such amendment is required in order for the Underlying
Securities Registration Statement to be declared effective (any such
failure being referred to as an "Event," and for purposes of clauses (a),
(c) and (f) the date on which such Event occurs, or for purposes of clauses
(b) and (e) the date on which such five (5) day period is exceeded, or for
purposes of clause (d) the date which such twenty (20) day period is
exceeded, or for purposes of clause (g) the date on which such fifteen (15)
day period is exceeded, being referred to as "Event Date"), the Company
shall pay, in cash, as liquidated damages and not as a penalty, on the
Event Date and on the first day of each month thereafter until the Event is
cured, 1.5% of the aggregate principal amount of Debentures then
outstanding pro rata to the holders thereof in accordance with their
holdings thereof. The provisions of this Section are not exclusive and
shall in no way limit the Company's obligations under the Registration
Rights Agreement.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, the Initial Conversion Price shall
be multiplied by a fraction of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of
shares of the Common Stock outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per
Share Market Value of the Common Stock at the record date mentioned below,
<PAGE>8
the Initial Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of the Common
Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of
the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any
such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to
the price which it would have been (but reflecting any other adjustments in
the Initial Conversion Price made pursuant to the provisions of this
Section 4 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that number of shares of the Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of the Common Stock (and not to Holders of
Debentures) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the Per Share Market Value of the Common Stock
determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event
of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in
interest of Debentures then outstanding; and provided, further, that the
Company, after receipt of the determination by such Appraiser shall have
the right to select an additional Appraiser, in good faith, in which case
the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described
in a statement provided to the holders of Debentures of the portion of
assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of the Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
<PAGE>9
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall
have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid interest
and any other amounts then owing hereunder in respect of this Debenture
only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holders of the
Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to
such reclassification or share exchange would have been entitled or (B)
require the Company to prepay, from funds legally available therefor at the
time of such prepayment, the aggregate of its outstanding principal amount
of Debentures, plus all interest and other amounts due and payable thereon,
at a price determined in accordance with Section 3(b). The entire
prepayment price shall be paid in cash. This provision shall similarly
apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted pursuant to
any of Section 4(c)(ii) - (v), the Company shall promptly mail to each
Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
D. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property; or
<PAGE>10
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Debentures, and shall cause
to be mailed to the Holders of Debentures at their last addresses as they
shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which
it is expected that holders of the Common Stock of record shall be entitled
to exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in
such notice. Holders are entitled to convert Debentures during the 30-day
period commencing the date of such notice to the effective date of the
event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and
payment of interest on the Debentures, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common
Stock as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 4(c)) upon
the conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all shares of the
Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Underlying Securities Registration Statement has been declared effective
under the Securities Act, freely tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such
time. If the Company elects not, or is unable, to make such a cash payment,
the holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
Debentures so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
<PAGE>11
the issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such tax
has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to the Company, at 3400 Garrett Drive, Santa Clara, California 95054
(facsimile number (408) 727-8778), attention Chief Financial Officer, or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to 7:00 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by
nationally recognized overnight courier service, or (v) upon actual receipt
by the party to whom such notice is required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
thirty (30) Trading Days prior written notice to the Holders of the
Debentures to be prepaid (the "Optional Prepayment Notice") given at any
time after the 90th day following the date the Underlying Securities
Registration Statement has been declared effective by the Commission
(provided that any Trading Days that the holders are prohibited from
utilizing such Underlying Securities Registration Statement to resell
Underlying Shares, despite their desire to do so, shall be added to such 90
day period), to prepay, from funds legally available therefor at the time
of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which
Conversion Notices have not previously been delivered hereunder, at a price
equal to the Optional Prepayment Price (as defined below). Any such
prepayment by the Company shall be in cash and shall be free of any claim
of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration
of the thirtieth (30th) Trading Day after receipt by the Holders of an
Optional Prepayment Notice for such Debentures (such date, the "Optional
Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be paid
by the Company by the Optional Prepayment Date, the Optional Prepayment
<PAGE>12
Price shall be increased by 15% per annum (to accrue daily) until paid
(which amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the optional Prepayment Price remains unpaid
through the expiration of the Optional Prepayment Date, the Holder subject
to such prepayment may elect by written notice to the Company to either (i)
demand conversion in accordance with the formula and the time period
therefor set forth in Section 4 of any portion of the principal amount of
Debentures for which the Optional Prepayment Price, plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment
Principal Amount"), in which event the applicable Per Share Market Value
shall be the lower of the Per Share Market Value calculated on the Optional
Prepayment Date and the Per Share Market Value as of the Holder's written
demand for conversion, or (ii) invalidate ab initio such optional
redemption, notwithstanding anything herein contained to the contrary. If
the Holder elects option (i) above, the Company shall within three (3)
Trading Days such election is deemed delivered hereunder to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Amount subject to such conversion demand and otherwise perform its
obligations hereunder with respect thereto; or, if the Holder elects option
(ii) above, the Company shall promptly, and in any event not later than
three Trading Days from receipt of notice of such election, return to the
Holder new Debentures for the full Unpaid Prepayment Principal Amount. If,
upon an election under option (i) above, the Company fails to deliver the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Principal Amount prior to the fifth Trading Day after such election is
deemed delivered hereunder, the Company shall pay to the Holder in cash, as
liquidated damages and not as a penalty, $1,500 per day until the Company
delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal the
sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x)
the Optional Prepayment Date or (y) the date the Optional Prepayment Price
is paid in full, whichever is less, multiplied by the Average Price on (x)
the Optional Prepayment Date or (y) the date the Optional Prepayment Price
is paid in full, whichever is greater, and (ii) all other amounts,
expenses, costs and liquidated damages due in respect of such principal
amount.
Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored prior to
the 120th day after the Original Issue Date, (ii) 77.5% for any conversion
honored on or after the 120th day and prior to the 150th day after the Original
Issue Date, and (iii) 75% for any conversion honored on or after the 150th day
after the Original Issue Date. For purposes hereof, a conversion is deemed to
have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder in accordance with the terms hereof.
"Average Price" on any date means the average Per Share Market Value for
the five (5) Trading Days immediately preceding such date.
<PAGE>13
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.
"Common Stock" means the Company's common stock, $.001 par value per share,
and stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum of (i)
the principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Average Price on (x) the date
the Mandatory Prepayment Amount is demanded or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"Original Issue Date" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"Per Share Market Value" on any particular date means (a) the closing bid
price per share of the Common Stock on such date as quoted by Bloomberg
Information Services, Inc. ("Bloomberg"), or similar organizations or agencies
succeeding to its functions of reporting prices, or (b) if the Common Stock is
no longer reported by Bloomberg, or such similar organizations or agencies, such
closing bid price per share shall be determined by reference to "Pink Sheet"
quotes for the relevant conversion period as determined in good faith by the
Holder or (c) if the Common Stock is not then publicly traded, the fair market
value of a share of Common Stock as determined by an appraiser selected in good
faith by the Holders of a majority in interest of the Debentures.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase Agreement,
dated as of the Original Issue Date, between the Company and the original Holder
of Debentures, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Original Issue Date, between the Company and the original Holder
of Debentures, as amended, modified or supplemented from time to time in
accordance with its terms.
"Security Agreement" means the Security Agreement, dated as of June 29,
1998, between the Company and the original Holder of Debentures, as amended and
restated on August 28, 1998, December 15, 1998 and the Original Issue Date, and
as may be further amended modified or supplemented from time to time in
accordance with its terms.
<PAGE>14
"Trading Day" means (a) a day on which the Common Stock is traded on the
Nasdaq Stock Market or other stock exchange or market on which the Common Stock
has been listed, or (b) if the Common Stock is not listed on the Nasdaq Stock
Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"Underlying Securities Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
Section 10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Company hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, 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, or that such suit, action or proceeding is
<PAGE>15
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument 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.
Section 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next calendar month, the preceding Business Day in the appropriate calendar
month).
Section 14. The payment obligations under this Debenture and the
obligations of the Company to the Holder arising upon the conversion of all or
any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Security Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>16
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.
INNOVACOM, INC.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
<PAGE>17
EXHIBIT A
INNOVACOM, INC
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. E-1 into shares of Common
Stock, $.001 par value per share (the "Common Stock"), of INNOVACOM, INC. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
_____________________________________________
Date to Effect Conversion
_____________________________________________
Principal Amount of Debentures to be Converted
_____________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________
Applicable Conversion Price
_____________________________________________
Signature
_____________________________________________
Name
_____________________________________________
Address
SECURED PROMISSORY NOTE
$600,000.00 March 3, 1999
FOR VALUE RECEIVED, InnovaCom, Inc., a Nevada corporation ("Maker"), hereby
promises to pay to JNC Strategic Fund Ltd., or its successors and assigns
("Payee"), at its address c/o Encore Capital Management, L.L.C., 12007 Sunrise
Valley Drive, Suite 460, Reston, VA 20191, or to such other address as Payee
shall provide in writing to Maker for such purpose, in lawful money of the
United States of America, the principal sum of SIX HUNDRED THOUSAND DOLLARS
($600,000), upon demand therefor by Payee.
1. Security Agreement. This Promissory Note shall be a secured obligation
subject to the terms and conditions of the Fourth Amended and Restated Security
Agreement, effective as of the date hereof, between Maker and Payee.
2. Interest Rate. Interest shall accrue on the unpaid principal amount of
this Promissory Note at the rate of 13% per annum from the date hereof until
such unpaid principal amount is paid in full. Interest due hereunder shall be
paid on the date the principal amount due under this Promissory Note is repaid
and shall be computed on the basis of a 365-day year for the actual number of
days elapsed. 3. Default Rate. If the Maker shall fail to pay any amounts due
hereunder when due, whether on demand therefor by Payee or otherwise, the Maker
shall pay shall pay interest on any and all such amounts at the rate of 18% per
annum accruing daily from such date until paid in full.
4. No Waiver of Payee's Rights etc. All payments of principal and interest
shall be made without setoff, deduction or counterclaim. No delay or failure on
the part of Payee in exercising any of its options, powers or rights, nor any
partial or single exercise of its options, powers or rights shall constitute a
waiver thereof or of any other option, power or right, and no waiver on the part
of Payee of any of its options, powers or rights shall constitute a waiver of
any other option, power or right. Maker hereby waives presentment of payment,
protest, and all notices or demands in connection with the delivery, acceptance,
performance, default or endorsement of this Promissory Note. Acceptance by Payee
of less than the full amount due and payable hereunder shall in no way limit the
right of Payee to require full payment of all sums due and payable hereunder in
accordance with the terms hereof.
5. Modifications. No term or provision contained herein may be modified,
amended or waived except by written agreement or consent signed by the party to
be bound thereby.
<PAGE>2
6. Cumulative Rights and Remedies. The rights and remedies of Payee
expressed herein are cumulative and not exclusive of any rights and remedies
otherwise available.
7. Collection Expenses. If this obligation is placed in the hands of an
attorney for collection after default, and provided Payee prevails on the merits
in respect to its claim of default, Maker shall pay (and shall indemnify and
hold harmless Payee from and against), all reasonable attorneys' fees and
expenses incurred by Payee in pursuing collection of this Promissory Note.
8. Successors and Assigns. This Promissory Note shall be binding upon Maker
and its successors and shall inure to the benefit of the Payee and its
successors and assigns. The term "Payee," as used herein, shall also include any
endorsee, assignee or other holder of this Promissory Note.
9. Lost or Stolen Promissory Note. If this Promissory Note is lost, stolen,
mutilated or otherwise destroyed, Maker shall execute and deliver to Payee a new
promissory note containing the same terms, and in the same form, as this
Promissory Note. In such event, Maker may require Payee to deliver to Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
10. Governing Law. This Promissory Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Promissory Note 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.
IN WITNESS WHEREOF, Maker has caused this Secured Promissory Note to be
duly executed and delivered as of the date first set forth above.
INNOVACOM, INC.
By:_____________________________________
Name:
Title:
SECURED PROMISSORY NOTE
$600,000.00 April 9, 1999
FOR VALUE RECEIVED, InnovaCom, Inc., a Nevada corporation ("Maker"), hereby
promises to pay to JNC Strategic Fund Ltd., or its successors and assigns
("Payee"), at its address c/o Encore Capital Management, L.L.C., 12007 Sunrise
Valley Drive, Suite 460, Reston, VA 20191, or to such other address as Payee
shall provide in writing to Maker for such purpose, in lawful money of the
United States of America, the principal sum of SIX HUNDRED THOUSAND DOLLARS
($600,000), upon demand therefor by Payee.
1. Security Agreement. This Promissory Note shall be a secured obligation
subject to the terms and conditions of the Fifth Amended and Restated Security
Agreement, effective as of the date hereof, between Maker and Payee.
2. Interest Rate. Interest shall accrue on the unpaid principal amount of
this Promissory Note at the rate of 13% per annum from the date hereof until
such unpaid principal amount is paid in full. Interest due hereunder shall be
paid on the date the principal amount due under this Promissory Note is repaid
and shall be computed on the basis of a 365-day year for the actual number of
days elapsed.
3. Default Rate. If the Maker shall fail to pay any amounts due hereunder
when due, whether on demand therefor by Payee or otherwise, the Maker shall pay
shall pay interest on any and all such amounts at the rate of 18% per annum
accruing daily from such date until paid in full.
4. No Waiver of Payee's Rights etc. All payments of principal and interest
shall be made without setoff, deduction or counterclaim. No delay or failure on
the part of Payee in exercising any of its options, powers or rights, nor any
partial or single exercise of its options, powers or rights shall constitute a
waiver thereof or of any other option, power or right, and no waiver on the part
of Payee of any of its options, powers or rights shall constitute a waiver of
any other option, power or right. Maker hereby waives presentment of payment,
protest, and all notices or demands in connection with the delivery, acceptance,
performance, default or endorsement of this Promissory Note. Acceptance by Payee
of less than the full amount due and payable hereunder shall in no way limit the
right of Payee to require full payment of all sums due and payable hereunder in
accordance with the terms hereof.
5. Modifications. No term or provision contained herein may be modified,
amended or waived except by written agreement or consent signed by the party to
be bound thereby.
<PAGE>2
6. Cumulative Rights and Remedies. The rights and remedies of Payee
expressed herein are cumulative and not exclusive of any rights and remedies
otherwise available.
7. Collection Expenses. If this obligation is placed in the hands of an
attorney for collection after default, and provided Payee prevails on the merits
in respect to its claim of default, Maker shall pay (and shall indemnify and
hold harmless Payee from and against), all reasonable attorneys' fees and
expenses incurred by Payee in pursuing collection of this Promissory Note.
8. Successors and Assigns. This Promissory Note shall be binding upon Maker
and its successors and shall inure to the benefit of the Payee and its
successors and assigns. The term "Payee," as used herein, shall also include any
endorsee, assignee or other holder of this Promissory Note.
9. Lost or Stolen Promissory Note. If this Promissory Note is lost, stolen,
mutilated or otherwise destroyed, Maker shall execute and deliver to Payee a new
promissory note containing the same terms, and in the same form, as this
Promissory Note. In such event, Maker may require Payee to deliver to Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
10. Governing Law. This Promissory Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Promissory Note 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.
IN WITNESS WHEREOF, Maker has caused this Secured Promissory Note to be
duly executed and delivered as of the date first set forth above.
INNOVACOM, INC.
By:__________________________________
Name: Frank Alioto
Title: President
SECURED PROMISSORY NOTE
$450,000.00 May 7, 1999
FOR VALUE RECEIVED, InnovaCom, Inc., a Nevada corporation ("Maker"), hereby
promises to pay to JNC Strategic Fund Ltd., or its successors and assigns
("Payee"), at its address c/o Encore Capital Management, L.L.C., 12007 Sunrise
Valley Drive, Suite 460, Reston, VA 20191, or to such other address as Payee
shall provide in writing to Maker for such purpose, in lawful money of the
United States of America, the principal sum of FOUR HUNDRED AND FIFTY THOUSAND
DOLLARS ($450,000), upon demand therefor by Payee.
1. Security Agreement. This Promissory Note shall be a secured obligation
subject to the terms and conditions of the Sixth Amended and Restated Security
Agreement, effective as of the date hereof, between Maker and Payee.
2. Interest Rate. Interest shall accrue on the unpaid principal amount of
this Promissory Note at the rate of 13% per annum from the date hereof until
such unpaid principal amount is paid in full. Interest due hereunder shall be
paid on the date the principal amount due under this Promissory Note is repaid
and shall be computed on the basis of a 365-day year for the actual number of
days elapsed.
3. Default Rate. If Maker shall fail to pay any amounts due hereunder when
due, whether on demand therefor by Payee or otherwise, Maker shall pay shall pay
interest on any and all such amounts at the rate of 18% per annum accruing daily
from such date until paid in full.
4. No Waiver of Payee's Rights etc. All payments of principal and interest
shall be made without setoff, deduction or counterclaim. No delay or failure on
the part of Payee in exercising any of its options, powers or rights, nor any
partial or single exercise of its options, powers or rights shall constitute a
waiver thereof or of any other option, power or right, and no waiver on the part
of Payee of any of its options, powers or rights shall constitute a waiver of
any other option, power or right. Maker hereby waives presentment of payment,
protest, and all notices or demands in connection with the delivery, acceptance,
performance, default or endorsement of this Promissory Note. Acceptance by Payee
of less than the full amount due and payable hereunder shall in no way limit the
right of Payee to require full payment of all sums due and payable hereunder in
accordance with the terms hereof.
5. Modifications. No term or provision contained herein may be modified,
amended or waived except by written agreement or consent signed by the party to
be bound thereby.
6. Cumulative Rights and Remedies. The rights and remedies of Payee
expressed herein are cumulative and not exclusive of any rights and remedies
otherwise available.
<PAGE>2
7. Collection Expenses. If this obligation is placed in the hands of an
attorney for collection after default, and provided Payee prevails on the merits
in respect to its claim of default, Maker shall pay (and shall indemnify and
hold harmless Payee from and against), all reasonable attorneys' fees and
expenses incurred by Payee in pursuing collection of this Promissory Note.
8. Successors and Assigns. This Promissory Note shall be binding upon Maker
and its successors and shall inure to the benefit of Payee and its successors
and assigns. The term "Payee," as used herein, shall also include any endorsee,
assignee or other holder of this Promissory Note.
9. Lost or Stolen Promissory Note. If this Promissory Note is lost, stolen,
mutilated or otherwise destroyed, Maker shall execute and deliver to Payee a new
promissory note containing the same terms, and in the same form, as this
Promissory Note. In such event, Maker may require Payee to deliver to Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
10. Governing Law. This Promissory Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Promissory Note 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.
IN WITNESS WHEREOF, Maker has caused this Secured Promissory Note to be
duly executed and delivered as of the date first set forth above.
INNOVACOM, INC.
By:_______________________________
Name:
Title:
SECURED PROMISSORY NOTE
$300,000.00 June 17, 1999
FOR VALUE RECEIVED, InnovaCom, Inc., a Nevada corporation ("Maker"), hereby
promises to pay to JNC Strategic Fund Ltd., or its successors and assigns
("Payee"), at its address c/o Encore Capital Management, L.L.C., 12007 Sunrise
Valley Drive, Suite 460, Reston, VA 20191, or to such other address as Payee
shall provide in writing to Maker for such purpose, in lawful money of the
United States of America, the principal sum of THREE HUNDRED THOUSAND DOLLARS
($300,000), upon demand therefor by Payee.
1. Security Agreement. This Promissory Note shall be a secured obligation
subject to the terms and conditions of the Seventh Amended and Restated Security
Agreement, effective as of the date hereof, between Maker and Payee.
2. Interest Rate. Interest shall accrue on the unpaid principal amount of
this Promissory Note at the rate of 13% per annum from the date hereof until
such unpaid principal amount is paid in full. Interest due hereunder shall be
paid on the date the principal amount due under this Promissory Note is repaid
and shall be computed on the basis of a 365-day year for the actual number of
days elapsed.
3. Default Rate. If Maker shall fail to pay any amounts due hereunder when
due, whether on demand therefor by Payee or otherwise, Maker shall pay shall pay
interest on any and all such amounts at the rate of 18% per annum accruing daily
from such date until paid in full.
4. No Waiver of Payee's Rights etc. All payments of principal and interest
shall be made without setoff, deduction or counterclaim. No delay or failure on
the part of Payee in exercising any of its options, powers or rights, nor any
partial or single exercise of its options, powers or rights shall constitute a
waiver thereof or of any other option, power or right, and no waiver on the part
of Payee of any of its options, powers or rights shall constitute a waiver of
any other option, power or right. Maker hereby waives presentment of payment,
protest, and all notices or demands in connection with the delivery, acceptance,
performance, default or endorsement of this Promissory Note. Acceptance by Payee
of less than the full amount due and payable hereunder shall in no way limit the
right of Payee to require full payment of all sums due and payable hereunder in
accordance with the terms hereof.
5. Modifications. No term or provision contained herein may be modified,
amended or waived except by written agreement or consent signed by the party to
be bound thereby.
<PAGE>2
6. Cumulative Rights and Remedies. The rights and remedies of Payee
expressed herein are cumulative and not exclusive of any rights and remedies
otherwise available. If it shall be found that any interest due hereunder shall
violate applicable laws governing usury, the applicable rate of interest due
hereunder shall be reduced to the maximum permitted rate of interest under such
law.
7. Collection Expenses. If this obligation is placed in the hands of an
attorney for collection after default, and provided Payee prevails on the merits
in respect to its claim of default, Maker shall pay (and shall indemnify and
hold harmless Payee from and against), all reasonable attorneys' fees and
expenses incurred by Payee in pursuing collection of this Promissory Note.
8. Successors and Assigns. This Promissory Note shall be binding upon Maker
and its successors and shall inure to the benefit of Payee and its successors
and assigns. The term "Payee," as used herein, shall also include any endorsee,
assignee or other holder of this Promissory Note.
9. Lost or Stolen Promissory Note. If this Promissory Note is lost, stolen,
mutilated or otherwise destroyed, Maker shall execute and deliver to Payee a new
promissory note containing the same terms, and in the same form, as this
Promissory Note. In such event, Maker may require Payee to deliver to Maker an
affidavit of lost instrument and customary indemnity in respect thereof as a
condition to the delivery of any such new promissory note.
10. Due Authorization. This Promissory Note has been duly authorized,
executed and delivered by Maker and is the legal obligation of Maker,
enforceable against Maker in accordance with its terms.
11. Governing Law. This Promissory Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Promissory Note 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.
IN WITNESS WHEREOF, Maker has caused this Secured Promissory Note to be
duly executed and delivered as of the date first set forth above.
INNOVACOM, INC.
By:_____________________________________
Name:
Title:
EIGHTH AMENDED AND RESTATED SECURITY AGREEMENT
THIS EIGHTH AMENDED AND RESTATED SECURITY AGREEMENT (the "Security
Agreement") is made and entered into, as of July 14th, 1999, by and between JNC
Strategic Fund Ltd., a Cayman Islands corporation ("JNC") and InnovaCom, Inc., a
Nevada corporation (the "Company").
RECITALS
WHEREAS, on June 29, 1998, JNC and the Company entered into a
Convertible Debenture Purchase Agreement (the "June 29th Purchase Agreement"),
and related documents, pursuant to which JNC purchased an aggregate principal
amount of $2,000,000 of the Company's 7% Convertible Debentures Due June 29,
2003 (the "June 29th Debentures");
WHEREAS, in connection with the June 29th Purchase Agreement, the
Company also executed and delivered to JNC a Security Agreement (the "Security
Agreement") to secure the payment and discharge of all of the Company's
obligations under the June 29th Debentures and to provide JNC with a continuing
security interest, a first lien upon, and a right of set-off against, all of the
Company's right, title, and interest in the Collateral (as defined in the
Security Agreement), to which any and all rights and claims of any other parties
shall be subordinate;
WHEREAS, JNC and the Company subsequently agreed to amend and restate in
its entirety the Security Agreement in connection with their entering into a
Convertible Debenture Purchase Agreement dated as of August 28th, 1998 (the
"August 28th Purchase Agreement") in order to provide that the obligations of
the Company pursuant to the Company's 7% Convertible Secured Debentures Due
August 28, 2003 in an aggregate principal amount of $1,500,000 (the "August 28th
Debentures") and other Transaction Documents (as defined in Section 2.1(a) of
the August 28th Purchase Agreement) would also be deemed to be part of the
Obligations (as defined in Section 2 of the Security Agreement) of the Company
under the Security Agreement;
WHEREAS, JNC and the Company again agreed to amend and restate in its
entirety the Security Agreement (as amended and restated pursuant to the
transactions contemplated by the August 28th Purchase Agreement) in connection
with their entering into a Convertible Debenture Purchase Agreement dated as of
December 15th, 1998 (the "December 15th Purchase Agreement") in order to provide
that the obligations of the Company pursuant to the Company's 7% Secured
Convertible Debentures Due December 15, 2003 in an aggregate principal amount of
$500,000 (the "December 15th Debentures") and other Transaction Documents (as
defined in Section 2.1(a) of the December 15th Purchase Agreement) would also be
deemed to be part of the Obligations of the Company under the Security
Agreement;
WHEREAS, JNC and the Company again agreed to amend and restate in its
entirety the Security Agreement (as amended and restated pursuant to the
transactions contemplated by the August 28th Purchase Agreement and the
transactions contemplated by the December 15th Purchase Agreement) in connection
with their entering into a Convertible Debenture Purchase Agreement dated as of
January 14th, 1999 (the "January 14th Purchase Agreement," and collectively with
the June 29th Purchase Agreement, the August 28th Purchase Agreement, and the
December 15th Purchase Agreement, the "Purchase Agreements") in order to provide
that the obligations of the Company pursuant to the Company's 7% Secured
<PAGE>2
Convertible Debentures Due January 14, 2004 in an aggregate principal amount of
$750,000 (the "January 14th Debentures," and collectively with the June 29th
Debentures, the August 28th Debentures, and the December 15th Debentures, the
"Debentures") and other Transaction Documents (as defined in Section 2.1(a) of
the January 14th Purchase Agreement) shall also be deemed to be part of the
Obligations of the Company under the Security Agreement;
WHEREAS, JNC and the Company again agreed to amend and restate in its
entirety the Security Agreement (as amended and restated pursuant to the
transactions contemplated by the August 28th Purchase Agreement, the December
15th Purchase Agreement, and the January 14th Purchase Agreement) in connection
with the Company's executing a "Secured Promissory Note" dated as of March 3,
1999 in the aggregate principal amount of $600,000 in favor of JNC (the "March
3rd Note"), in order to provide that the obligations of the Company pursuant to
the March 3rd Note shall also be deemed to be part of the Obligations of the
Company under the Security Agreement;
WHEREAS, JNC and the Company again agreed to amend and restate in its
entirety the Security Agreement (as amended and restated pursuant to the
transactions contemplated by the August 28th Purchase Agreement, the December
15th Purchase Agreement, the January 14th Purchase Agreement, and the March 3rd
Note) in connection with the Company's executing a "Secured Promissory Note"
dated as of April 9, 1999 in the aggregate principal amount of $600,000 in favor
of JNC (the "April 9th Note"), in order to provide that the obligations of the
Company pursuant to the April 9th Note shall also be deemed to be part of the
Obligations of the Company under the Security Agreement;
WHEREAS, JNC and the Company again agreed to amend and restate in its
entirety the Security Agreement (as amended and restated pursuant to the
transactions contemplated by the August 28th Purchase Agreement, the December
15th Purchase Agreement, the January 14th Purchase Agreement, the March 3rd
Note, and the April 9th Note) in connection with the Company's executing a
"Secured Promissory Note" dated as of May 7th, 1999 in the aggregate principal
amount of $450,000 in favor of JNC (the "May 7th Note"), in order to provide
that the obligations of the Company pursuant to the May 7th Note shall also be
deemed to be part of the Obligations of the Company under the Security
Agreement;
WHEREAS, JNC and the Company again agreed to amend and restate in its
entirety the Security Agreement (as amended and restated pursuant to the
transactions contemplated by the August 28th Purchase Agreement, the December
15th Purchase Agreement, the January 14th Purchase Agreement, the March 3rd
Note, the April 9th Note, and the May 7th Note) in connection with the Company's
executing a "Secured Promissory Note" dated as of June 17th, 1999 in the
aggregate principal amount of $300,000 in favor of JNC (the "June 17th Note"),
in order to provide that the obligations of the Company pursuant to the June
17th Note shall also be deemed to be part of the Obligations of the Company
under the Security Agreement;
WHEREAS, JNC and the Company have now agreed to amend and restate in its
entirety the Security Agreement (as amended and restated pursuant to the
transactions contemplated by the August 28th Purchase Agreement, the December
15th Purchase Agreement, the January 14th Purchase Agreement, the March 3rd
Note, the April 9th Note, the May 7th Note, and the June 17th Note) in
connection with the Company's executing a "Secured Promissory Note" dated as of
July 14th, 1999 in the aggregate principal amount of $500,000 in favor of JNC
(the "July 14th Note"), in order to provide that the obligations of the Company
pursuant to the July 14th Note shall also be deemed to be part of the
Obligations of the Company under the Security Agreement.
<PAGE>3
NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Definitions. Unless otherwise defined, or unless the context otherwise
requires, capitalized terms used in this Security Agreement shall have
the same meaning given such terms in the Transaction Documents (as
defined in Section 2.1(a) of the January 14th Purchase Agreement).
(a) The following terms shall have the same meaning given such terms
in Article 9 of the Uniform Commercial Code of the State of
California, as amended to the date of this Security Agreement,
and/or any other applicable law of any jurisdiction (whether or
not such other Uniform Commercial Code applies to the Collateral,
as defined herein)(collectively, the "UCC"): Chattel Paper,
Documents, Goods, Instruments, Accounts, Consumer Goods,
Equipment, Fixtures, Deposit Accounts, Proceeds, General
Intangibles and Inventory.
2. Grant of Security Interest. As security for the full and punctual
satisfaction, payment, and performance of all of the obligations of the
Company pursuant to the July 14th Note, as well as the obligations of
the Company under each and all of the June 17th Note, the May 7th Note,
the April 9th Note, the March 3rd Note, and the Transaction Documents
referenced in each of the Purchase Agreements (collectively, the "JNC
Transaction Documents"), as such obligations may be amended,
supplemented, and modified from time to time (the "Obligations"), the
Company does hereby, unconditionally and irrevocably, pledge, mortgage,
assign, set over, convey, grant, transfer, and deliver (collectively,
"Transfer") to JNC a continuing security interest, a first lien upon,
and a right of set-off against, all of the Company's right, title, and
interest of whatsoever kind and nature in and to the Collateral (as
hereinafter defined)(the "Security Interest"). The Security Interest
granted hereby shall relate back to the date of the June 29th Purchase
Agreement.
3. Collateral. The "Collateral" shall cover and include all right, title,
and interest of the Company in, to, and under all of the following,
whether now existing or hereafter acquired from time to time: (i) all
Accounts; (ii) all receivables; (iii) all General Intangibles; (iv) all
Goods, including, without limitation, all Equipment, and all Inventory,
whether now held or acquired in the future and wherever located,
including, but not limited to Inventory that is repossessed, returned or
acquired as a result of a "trade-in;" and (v) all letters of credit,
notes, drafts, stock and other debt and equity securities whether or not
certificated, and all instruments; (vi) all Chattel Paper and all
Documents including without limitation documents of title (vii) all
Instruments; (viii) all contract rights and all causes of action; (ix)
all Deposit Accounts (general or special) with, and all credits and
other claims against, all-lenders or other financial institutions; (x)
all money; (xi) all property or interests in property now or hereafter
coming into the possession, custody or control of the Company (whether
for safekeeping, deposit, custody, pledge, transmission, collection or
otherwise); (xii) all Proceeds including, without limitation, all
proceeds of any loans, including the Loan and all insurance proceeds of
or relating to any of the foregoing; (xiii) all books and records
<PAGE>4
relating to any of the foregoing; (xiv) all Fixtures, accessions and
additions to, substitutions for, and replacements, products and proceeds
of any of the foregoing and (xv) all rights to payment resulting from
disposition or other Transfer of any of the foregoing.
4. Preservation and Perfection of Security Interests. In connection with
the Security Agreement, the Company previously delivered to JNC one or
more Uniform Commercial Code Form 1 Financing Statements (collectively,
"UCC Form 1") with respect to the Security Interest. In addition, the
Company shall, as required from time to time by JNC, execute and deliver
or endorse any and all instruments, documents, conveyances, assignments,
security agreements, additional financing statements, continuation
statements, and other agreements and writings which JNC may request in
order to create, perfect, or continue the Security Interest or which JNC
may otherwise reasonably request in order to secure, protect or enforce
the Security Interest or the rights of JNC under this Security Agreement
(but any failure to request or assure that the Company execute, deliver
or endorse any such item shall not affect nor impair the validity,
sufficiency or enforceability of this Security Agreement or any security
interests granted herein, regardless of whether any such item was or was
not executed, delivered or endorsed in a similar context or on a prior
occasion). A carbon, photographic or other reproduction of this Security
Agreement or of a financing statement is sufficient as a financing
statement.
5. Representations and Warranties of the Company. The Company hereby
incorporates by reference those representations and warranties set forth
in the JNC Transaction Documents, and further represents and warrants to
JNC:
a. Except for the rights granted hereunder and the related UCC Form
1 which was filed on June 26, 1998 with the California Secretary
of State and on June 29, 1998 with the Santa Clara County
Recorder, the Company is the sole owner of the Collateral, free
and clear from any liens, security interests, encumbrances,
rights or claims, and is fully authorized to grant the Security
Interest in and pledge the Collateral, and the Collateral is not
subject to any UCC financing statement.
b. This Security Agreement is fully sufficient to create and
transfer to JNC, and shall create and transfer to JNC, a Security
Interest in and to all of the Company's right, title, and
interest in the Collateral, free and clear of any and all adverse
liens, claims, and encumbrances of any kind or nature, and the
Company has not transferred, and shall not transfer any Security
Interest in the Collateral to any other person, without the prior
written consent of JNC.
c. This Security Agreement creates a valid and perfected security
interest in the Collateral, securing the performance of the
Obligations. All filings and other actions necessary to perfect
and protect such security interest have been made or taken by the
Company.
d. Except for the consent of JNC, which is implicit pursuant to this
Security Agreement, no consent of any person (including, without
limitation, stock holders or creditors of the Company) is
required for the subjection by the Company of the Collateral to
the terms of this Security Agreement.
<PAGE>5
6. Covenants of the Company. The Company hereby reaffirms and incorporates
those covenants set forth in the JNC Transaction Documents and further
covenants and agrees:
a. To appear and defend any and all actions and proceedings
affecting the Collateral, or otherwise affecting the Security
Interest, against any persons whatsoever, and the Company shall
obtain and furnish to JNC from time to time, upon demand, such
releases and/or subordinations of claims and liens which may be
required to maintain the priority of the Security Interest
hereunder.
b. To permit JNC, its representatives and its agents to inspect the
Collateral at any time, and to make copies of records pertaining
to the Collateral as may be requested by JNC from time-to-time.
c. At all times, to maintain the liens and security interests
provided for hereunder as valid and perfected first priority
liens and security interests in the Collateral hereby granted to
JNC.
d. That all Collateral shall, for the entire term of this Security
Agreement, be free and clear of any liens, mortgages, pledges, or
any other encumbrances of any kind or nature whatsoever, except
only for the security interests created by this Security
Agreement, or as otherwise consented to in writing by JNC.
e. Not to sell, lease, transfer or remove the Collateral, or any
part thereof, from its present location without first obtaining
the express written consent of JNC, except in the ordinary course
of business.
f. With respect to that part of the Collateral which is tangible,
the Company will maintain such Collateral in good order and
repair and will not use any part of such Collateral in any manner
injurious or likely to be injurious or which will result in its
unreasonable deterioration or consumption or which will be in
violation of any laws or regulations or any policy of insurance.
With respect to Collateral which is not tangible, the Company
will take all steps reasonably necessary to preserve and protect
the value of such Collateral, and the Company will diligently
pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable.
g. To safeguard and protect all Collateral for the account of JNC
and make no disposition thereof other than in the ordinary course
of business. At the request of JNC, the Company will sign and
deliver to JNC, at any time or from time to time, one or more
financing statements pursuant to the UCC in form satisfactory to
JNC and will pay the cost of filing the same in all public
offices wherever filing is, or is deemed by JNC to be, necessary
or desirable and with respect to the Collateral.
h. To promptly notify JNC in sufficient detail upon becoming aware
of any attachment, garnishment, execution or other legal process
levied against any or all of the Collateral and of any other
information received by the Company that may materially affect
the value of the Collateral, the Security Interest or the rights
and remedies of JNC hereunder.
<PAGE>6
i. To maintain insurance on the Collateral against loss or damage by
fire, perils commonly covered under the extended coverage
endorsement, malicious mischief and sprinkler leakage.
7. Defaults. The following events shall be "Events of Default" under this
Security Agreement:
a. An Event of Default under any of the JNC Transaction Documents
(which shall include any default under any of the July 14th Note,
the June 17th Note, the May 7th Note, the April 9th Note, or the
March 3rd Note); or
b. The Company shall fail to observe or perform any of its
obligations hereunder for 20 days after receipt by the Company of
notice of such default from JNC; or
c. Any representation, warranty, certification or statement made by
the Company hereunder shall prove to have been incorrect in any
material respect when made.
8. Duty To Hold In Trust. Upon the occurrence of any Event of Default, the
Company shall, upon receipt by it of any revenue, income, or other sums
(collectively, the "Sums") subject to the Security Interest, whether
payable pursuant to the Debentures or otherwise, or of any check, draft,
note, trade acceptance or other instrument evidencing an obligation to
pay any such sum, hold the same in trust for JNC and shall forthwith
endorse and transfer any such sums or instruments, or both, to JNC for
application to the satisfaction of the Obligations.
9. Rights and Remedies Upon Default. Upon occurrence of any of the above
Events of Default and at any time thereafter, as long as any such Event
of Default shall continue, JNC may exercise any and all of the rights
and remedies conferred hereunder and under any of the JNC Transaction
Documents, including, without limitation, the right, to accelerate
payment under any or all Debentures, and JNC shall have all the rights
and remedies of a secured party under the UCC and shall further have, in
addition to all other rights and remedies provided herein or by law, the
following rights and powers:
a. JNC may enter upon the premises where any of the Collateral may
be located, and take possession of the Collateral, and demand and
receive reconveyance of the Collateral from any person who has
possession thereof, and JNC may take such measures as may be
necessary or proper for the care or protection of the value
thereof, including the right to remove, keep and/or store all or
any portion of the Collateral or put a custodian in charge
thereof; and/or
b. At JNC's request, the Company shall assemble the Collateral and
make it available to JNC at places which JNC shall reasonably
select, whether at the Company's premises or elsewhere, and make
available to JNC, without rent, all of the Company's premises and
facilities for the purpose of JNC taking possession of, removing
or putting the Collateral in saleable or disposable form; and/or
<PAGE>7
c. With or without taking possession, JNC may sell or cause to be
sold, at any time, and from time to time, as JNC may determine,
any of the Collateral in its entirety or in parcels, either at
public or private sale, at such price and on such terms as JNC
may deem best, at which sale JNC may bid and purchase to the
extent permitted by law, as now or hereinafter in effect, all
without (except as shall be required by applicable statute and
cannot be waived) advertisement or demand upon or notice to the
Company or right of redemption of the Company, which are hereby
expressly waived. The Company shall have no right of redemption
subsequent to any such sale, and hereby expressly waives any such
right. JNC shall apply the proceeds of any such sale or sales
first to the expenses incident thereto, including reasonable
attorneys' fees, and next to the full and complete satisfaction
of all of the Obligations. The Company shall remain fully liable
to JNC for any deficiency which may exist after any such sale or
sales and the application of the proceeds thereof in accordance
herewith. Any purchaser at any such sale or sales (including
without limitation JNC) shall thereafter hold any of the
Collateral so purchased absolutely free from any claim or right
of any nature whatsoever by any other person or entity (including
without limitation the Company); and/or
i. Upon each such sale, JNC may, unless prohibited by
applicable statute which cannot be waived, purchase all or
any part of the Collateral being sold, free from and
discharged of all trusts, claims, right of redemption and
equities of the Company, which are hereby waived and
released.
ii. The proceeds of any such sale, lease, or other disposition
of the Collateral shall be applied first, to the expenses
of retaking, holding, storing, processing, and preparing
for sale, selling, and the like, and to the reasonable
attorneys' fees and expenses incurred by JNC, and then to
satisfaction of the Obligations, and to the payment of any
other amounts required by applicable law, after which JNC
shall pay to the Company any surplus proceeds. If, upon
the sale, lease or other disposition of the Collateral,
the proceeds thereof are insufficient to pay all amounts
to which JNC is legally entitled, the Company will be
liable for the deficiency, together with interest thereon,
at the rate of 18% per annum (the "Default Rate"), and the
reasonable fees of any attorneys employed by JNC to
collect such deficiency. To the extent permitted by
applicable law, the Company waives all claims, damages and
demands against JNC arising out of the repossession,
removal, retention or sale of the Collateral, unless due
to the gross negligence or willful misconduct of JNC.
d. Upon the occurrence and during the continuance of an Event of
Default, JNC shall have the right to send notice of the
assignment granted herein and the security interest created
hereunder to any account debtors of the Company or any other
persons obligated on, holding or otherwise concerned with, any of
the receivables, may demand that monies due or to become due be
paid to JNC and thereafter, JNC shall have the sole right to
collect the receivables and all books and records relating
thereto; and/or
e. JNC may institute any proceeding at law, in equity, or otherwise
in order to foreclose upon the Collateral or any part thereof. To
the extent permitted by
<PAGE>8
law, any sale thereof shall be held in the same manner, with the
same effect and subject to the same terms and conditions as
specified in paragraph (c) of this Section 9. JNC may, in the
exercise of its sole and absolute discretion, from time to time,
at any time and in any order, choose to institute a proceeding
for foreclosure on some portion of the Collateral and/or a sale
under paragraphs (c) or (d) on other portions of the Collateral,
without being deemed to have made an election of remedies or to
have waived any other rights or remedies, and without in any
other way limiting any remedies or rights which it may otherwise
have; and/or
f. In its name or in the name of the Company or otherwise, JNC may
demand, sue for, collect, or receive any money or property at any
time payable or receivable on account of or in exchange for or
make any compromise or settlement deemed desirable with respect
to, any of the Collateral, but shall be under no obligation to do
so, and JNC may extend the time of payment, arrange for payment
in installments, or otherwise modify the terms of, or release,
any of the Collateral, without thereby incurring responsibility
to, or discharging or otherwise affecting any liability of, the
Company or in any other way limiting any remedies or rights which
JNC may otherwise have; and/or
g. JNC may, in the event JNC takes possession of the Collateral
pursuant to the exercise of any right or remedy provided for
hereunder or by law, any insurance policy owned by the Company,
together with any unearned or prepaid premium thereon, shall, at
the option of JNC, be assigned by the Company to, and become the
sole property of JNC, provided that the amount of any such
unearned or prepaid premium is thereupon applied to the payment
or satisfaction of the Obligations.
10. Responsibility for Collateral. The Company assumes all liabilities and
responsibility in connection with all Collateral, and the obligation of
the Company hereunder or under any of the JNC Transaction Documents, and
shall in no way be affected or diminished by reason of the loss,
destruction, damage, or theft of any of the Collateral or its
unavailability for any reason.
11. Security Interest Absolute. All rights of JNC and the Security Interest
hereunder, and all Obligations of the Company hereunder, shall be
absolute and unconditional, irrespective of: (a) any lack of validity or
enforceability of any of the JNC Transaction Documents or this Security
Agreement, and any agreement entered into in connection with the
foregoing, or any portion hereof or thereof; (b) any change in the time,
manner or place of payment or performance of, or in any other term of,
all or any of the Obligations, or any other amendment or waiver of or
any consent to any departure from the JNC Transaction Documents; (c) any
exchange, release, or nonperfection of any of the Collateral, or any
release or amendment or waiver of or consent to departure from any other
collateral for, or any guaranty, or any other security, for all or any
of the Obligations; (d) any action by JNC to obtain, adjust, settle, and
cancel in its sole discretion any insurance claims or matters made or
arising in connection with the Collateral; or (e) any other circumstance
which might otherwise constitute any legal or equitable defense
available to the Company, or a discharge of all or any part of the
Security Interest granted hereby. Until the Obligations shall have been
paid and performed in full, JNC's rights shall continue even if the
Obligations are barred for any reason, including, without limitation,
<PAGE>9
the running of the statute of limitations or bankruptcy. The Company
expressly waives presentment, protest, notice of protest, demand,
notice of nonpayment, and demand for performance. This Security
Agreement shall create a continuing security interest in the
Collateral and shall remain in full force and effect until the
Obligations shall have been paid and performed in full, and shall be
binding upon the Company and its successors and permitted transferees
and assigns. In the event that at any time any transfer of any
Collateral or any payment received by JNC hereunder shall be deemed by
final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or shall be deemed to be
otherwise due to any party other than JNC, then, in any such event,
the Company's obligations hereunder shall survive cancellation of this
Security Agreement, and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Security Agreement,
but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. The Company waives
all right to require JNC to proceed against any other person or to
apply any Collateral which JNC may hold at any time, or to marshal
assets, or to pursue any other remedy. JNC may, at its election,
exercise any right or remedy it may have against any security held by
JNC, including, without limitation, the right to foreclose any such
security by judicial or nonjudicial sale, without affecting or
impairing in any way the rights of JNC hereunder. The Company waives
any defense arising by reason of the application of the statute of
limitations to any obligation secured hereby.
12. JNC Appointed Attorney-in-Fact. The Company hereby irrevocably makes,
nominates, constitutes and appoints JNC and each of its officers,
agents, successors, or assigns (with full power of substitution and
resubstitution), as the Company's true and lawful attorney-in-fact
with full power to take all actions and sign, execute, acknowledge,
record, and file, in the Company's name and for JNC's use and benefit,
all documents that shall be necessary to accomplish the following on
the occurrence of any Event of Default and at any time thereafter, so
long as such Event of Default shall continue:
a. To receive, open, and dispose of all mail addressed to the
Company which relates to the Collateral, or to endorse and
collect any notes, checks, drafts, money orders, or other
evidences of payment that may come into the possession of JNC;
b. To enforce all rights of the Company under and pursuant to any
agreements or other contractual arrangements relating to the
Collateral, and to enter into such other agreements as may be
necessary to exploit the Collateral;
c. To pay or discharge taxes, liens, security interests, or other
encumbrances at any time levied or placed on or threatened
against the Collateral; to demand, collect, receipt for,
compromise, settle, and sue for monies due in respect of the
Collateral;
d. to execute and perform such other and further agreements,
documents, and instruments of any nature whatsoever, including,
but not limited to, the execution and filing of a UCC Form 1 and
to do any and all other things as JNC may deem necessary or
appropriate for the purpose of preserving, protecting or
maintaining the Collateral and the Security Interest granted to
<PAGE>10
JNC; and Generally, to do, at the option of JNC and at the
Company's expense, at any time, or from time to time, all acts
and things which JNC deems necessary to protect, preserve, and
realize upon the Collateral and JNC's security interests therein
in order to effect the intent of this Security Agreement and of
the Purchase Agreements all as fully and effectually as the
Company might or could do.
The Company hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled
with an interest and shall be irrevocable for the term of this Security
Agreement and thereafter as long as any of the Obligations shall be
outstanding.
13. Duties of JNC.
a. The powers conferred on JNC hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the safe custody of any
Collateral in its actual possession and the accounting for monies
actually received by it hereunder with respect to which JNC shall
act with reasonable care, JNC shall have no duty as to any
Collateral or as to the taking of any steps necessary to preserve
its rights against prior parties or any other rights pertaining
to any Collateral. JNC shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment that is
substantially equal to that treatment which JNC accords its own
property in the ordinary course of its business.
b. If the Company fails to pay, before delinquency, any taxes or
other governmental charges which may be levied against the
Collateral or its operation or use, or any assessments made
against the Collateral, or fails to make any payment or to take
any action required herein or in the JNC Transaction Documents,
or to take any other action necessary to preserve the priority
and value of JNC's rights under this Security Agreement, then JNC
may (but shall not be obligated to) make such payments and take
all such actions as JNC deems necessary to protect its security
interest in or to protect and preserve the value of the
Collateral, and JNC is hereby authorized (without limiting the
general nature of the authority hereinabove conferred) to pay,
purchase, contest, or compromise any encumbrances, charges, or
liens which in the judgment of JNC appear to be prior to or
superior to, or of equal priority with, the Security Interest.
Any amount so paid shall be included in the Obligations secured
hereby and shall bear interest thereon at the Default Rate from
date of payment until repaid, and shall be secured pursuant to
the terms of this Security Agreement by the Collateral and shall
be repayable by the Company on demand.
14. Expenses. In addition to expenses payable under the Transaction
Documents, the Company agrees to pay all out of pocket fees, costs, and
expenses incurred in the filing of the UCC Form 1 or any other financing
statements, continuation statements, partial releases, and/or
termination statements related thereto or any expenses of any searches
reasonably required by JNC. The Company shall also pay all other claims
and charges which in the reasonable opinion of JNC might prejudice,
imperil, or otherwise affect the Collateral or the Security Interest
<PAGE>11
therein. All expenses so incurred shall be immediately paid by the
Company upon demand by JNC. The Company will also, upon demand, pay to
JNC the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and
agents, which JNC may incur in connection with (i) the administration
of this Security Agreement, (ii) the custody or preservation of, or
the sale of, collection from, or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any of the rights of
JNC hereunder or under the JNC Transaction Documents, or (iv) the
failure by the Company to perform or observe any of the provisions
contained herein or in the JNC Transaction Documents. Until so paid,
any fees payable hereunder shall be added to the principal amount of
the Obligations and shall bear interest at the Default Rate.
15. Term of Agreement. This Security Agreement shall terminate when all
payments under the JNC Transaction Documents have been made in full
and all other Obligations have been paid or discharged. Upon such
termination, JNC, at the request and at the expense of the Company,
will join in executing any termination statement with respect to any
financing statement executed and filed pursuant to this Security
Agreement.
16. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the
guarantee, endorsement, or property of any other person, firm,
corporation, or other entity, then JNC shall have the right, in its
sole discretion, to pursue, relinquish, subordinate, modify, or take
any other action with respect thereto, without in any way modifying or
affecting any of JNC's rights and remedies hereunder.
17. Miscellaneous.
a. Indemnity. The Company agrees to defend, protect, indemnify, and
hold harmless JNC and each and all of its respective officers,
directors, employees, attorneys, and Agents (collectively called
the "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses, and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative, or judicial
proceeding, whether or not such Indemnitees shall be designated a
party thereto), which may be imposed on, incurred by, or asserted
against such Indemnitees (whether direct, indirect, or
consequential and whether based on any federal or state laws or
other statutory regulations, including, without limitation,
securities and commercial laws and regulations, common law or at
equitable cause, or contract or otherwise) in any manner relating
to or arising out of this Security Agreement or the Obligations,
or any act, event, or transaction related or attendant thereto,
including, without limitation, any and all costs and expenses
incurred in the enforcement of this Security Agreement
(collectively, the "Indemnified Matters"). To the extent that the
undertaking to indemnify, pay, and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative
of any law or public policy, the Company shall contribute the
maximum portion which it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees.
b. Course of Dealing. No course of dealing between the Company and
JNC, nor any failure to exercise, nor any delay in exercising, on
<PAGE>12
the part of JNC, any right, power, or privilege hereunder or
under the JNC Transaction Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right,
power, or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege.
c. Remedies Cumulative. Except as otherwise expressly provided
herein, no remedy conferred by any of the specific provisions of
this Security Agreement is intended to be exclusive of any other
remedy which is otherwise available at law, in equity, by
statute, or otherwise, and except as otherwise expressly provided
for herein, each and every other remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or
otherwise. The election of any one or more of such remedies by
any of the parties hereto shall not constitute a waiver by such
party of the right to pursue any other available remedies.
d. Notices. All notices, requests, demands, deliveries, and other
communications hereunder shall be in writing and, except as
otherwise specifically provided in this Security Agreement, shall
be deemed to have been duly given, upon receipt, if delivered
personally or via fax, or ten (10) business days after deposit in
the mail, if mailed, first class with postage prepaid to the
parties at the following addresses:
If to JNC, to:
JNC Strategic Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Attn: Director
Fax: (441) 295-2305
with a copy to:
Encore Capital Management, LLC
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Attn: Managing Director
Fax: (703) 476-7711
and
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Eric L. Cohen, Esq.
Fax: 212-541-4630
<PAGE>13
If to the Company, to:
InnovaCom, Inc.
3400 Garrett Drive
Santa Clara, CA 95054
Attn: Frank Alioto, President
Fax: 408-727-8778
with a copy to:
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel, Esq.
Fax: 916-442-3442
d. Headings. The section headings contained in this Security
Agreement are for convenience only and shall not control or
affect the meaning or construction of any of the provisions of
this Security Agreement.
e. Governing Law. This Security Agreement shall be construed in
accordance with the laws of the State of New York, except to the
extent the validity, perfection or enforcement of a security
interest hereunder in respect of any particular Collateral are
governed by a jurisdiction other than the State of New York in
which case such law shall govern.
The Company and JNC hereby irrevocably submit to the jurisdiction
of any New York State or United States Federal court sitting in
Manhattan county over any action or proceeding arising out of or
relating to this Security Agreement, and the Company and JNC
hereby irrevocably agree that all claims in respect of such
action or proceeding may be heard and determined in such New York
State or Federal court. The Company and JNC agree that a final
judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. The Company and JNC further
waive any objection to venue in such State and any objection to
an action or proceeding in such State on the basis of forum non
conveniens.
f. Amendments, etc. Any of the terms and provisions of this Security
Agreement may be waived at any time by the party which is
entitled to the benefit thereof, but only by a written instrument
executed by such party. This Security Agreement may be amended
only by an agreement in writing executed by JNC and the Company.
g. Severability. In the event that any provision of this Security
Agreement is held to be invalid, prohibited or unenforceable in
any jurisdiction for any reason, unless such provision is
narrowed by judicial construction, this Security Agreement shall,
as to such jurisdiction, be construed as if such invalid,
prohibited or unenforceable provision had been more narrowly
drawn so as not to be invalid, prohibited or unenforceable. If,
notwithstanding the foregoing, any provision of this Security
Agreement is held to be invalid, prohibited or
<PAGE>14
unenforceable in any jurisdiction, such provision, as to such
jurisdiction, shall be ineffective to the extent of such
invalidity, prohibition or unenforceability without invalidating
the remaining portion of such provision or the other provisions
of this Security Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this
Security Agreement in any other jurisdiction.
h. Delay, Etc. No delay or omission to exercise any right, power, or
remedy accruing to any party hereto shall impair any such right,
power, or remedy of such party nor be construed to be a waiver of
any such right, power, or remedy nor constitute any course of
dealing or performance hereunder.
i. Costs and Attorneys' Fees. If any action, suit, arbitration
proceeding, or other proceeding is instituted arising out of this
Security Agreement, the prevailing party shall recover all of
such party's costs, including, without limitation, the court
costs and reasonable attorneys' fees incurred therein, including
any and all appeals or petitions therefrom.
j. Counterparts. This Security Agreement may be executed in one or
more counterparts, each of which may be deemed an original, but
all of which together, shall constitute one and the same
instrument. This Security Agreement may be executed by a party
and sent to the other parties via facsimile transmission and the
facsimile transmitted copy shall have the same integrity, force,
and effect as an original document.
k. Entire Agreement. This Security Agreement and the other
agreements referred to herein supersede all prior negotiations
and agreements (whether written or oral) and constitute the
entire understanding among the parties hereto, it being
understood that this Security Agreement relates back to the date
of the June 29th Purchase Agreement.
[remainder of page intentionally left blank -- signature page follows]
<PAGE>15
IN WITNESS WHEREOF, the Company has caused this Eighth Amended And
Restated Security Agreement to be duly executed and delivered by its officers
thereunto duly authorized effective as of July 14th, 1999.
INNOVACOM, INC.
By:____________________________________
Frank Alioto
President
Accepted and agreed, effective
as of this 14th day of July, 1999:
JNC STRATEGIC FUND LTD.
By:_______________________________
Its:______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED BY THE 10-QSB FOR
THE PERIOD ENDED JUNE 30, 1999 FOR INNOVACOM, INC. AND IS QUALIFIED BY ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 54,000
<SECURITIES> 0
<RECEIVABLES> 64,000
<ALLOWANCES> 34,000
<INVENTORY> 229,000
<CURRENT-ASSETS> 442,000
<PP&E> 463,000
<DEPRECIATION> 230,000
<TOTAL-ASSETS> 712,000
<CURRENT-LIABILITIES> 15,114,000
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> (14,427,000)
<TOTAL-LIABILITY-AND-EQUITY> 712,000
<SALES> 61,000
<TOTAL-REVENUES> 61,000
<CGS> 50,000
<TOTAL-COSTS> 1,301,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,217,000
<INCOME-PRETAX> (2,457,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,457,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 57,000
<CHANGES> 0
<NET-INCOME> (2,400,000)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
