As filed with the Securities and Exchange Commission on May 1, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FASTCOMM COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-289115
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
45472 Holiday Drive
Sterling, Virginia 20166
Telephone: (703) 318-7750
(Address of principal place of business, and address and telephone number
of principal executive offices)
Mark H. Rafferty Copy to:
Chief Financial Officer Thomas G. Amon, Esq.
FastComm Communications Corporation Amon & Sabatini
45472 Holiday Drive 437 Madison Avenue
Sterling, Virginia 20166 New York, New York 10022
Telephone: (703) 318-7750 Telephone: (212) 759-9030
(Name, address and telephone number (Counsel for Registrant)
of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to a dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum
Title of each class of securities to be registered Amount to be offering price per aggregated offering Amount of registration
registered(1) share(2) price fee
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<S> <C> <C> <C> <C>
Common Shares, par value $.01 per share .......... 3,190,591 $4.00 $12,762,364 $3,829.00
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(1) Pursuant to Rule 416(a), also registered hereunder is an indeterminate
number of Shares of Common Stock issuable as a result of the anti-dilution
provisions of the Debentures and Preferred Stock it is convertible into,
and warrants exercisable for the shares of Common Stock registered hereby.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee and based, pursuant to Rule 457, on the closing price of
the Common Stock of the Company on the NASDAQ on April 28, 1997.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
FastComm Communications Corporation
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location in Prospectus of
information required by Items of Form S-3.
Item Number and heading in Form S-3
Registration Statement Caption or Location in Prospectus
- ----------------------------------- ---------------------------------
1. Forepart of the Registration Forepart of the Registration Statement;
Statement and Outside Front Outside Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back Cover Page
Cover Pages of Prospectus of Prospectus
3. Summary Information and Risk The Company; Certain Risk Factors
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of Prospectus
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Plan of Distribution
9. Description of Securities to be Not Applicable
Registered
10. Interests of Named Experts and Experts
Counsel
11. Material Change Not Applicable
12. Incorporation of Certain Documents Incorporated by Reference
Information by Reference
13. Disclosure of Commission Not Applicable
Position
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 1, 1997
PRELIMINARY PROSPECTUS
3,190,591 Shares
FASTCOMM COMMUNICATIONS CORPORATION
Common Stock
This Prospectus relates to 3,190,591 shares (the "Shares" or the "Offered
Shares") of common stock, par value $.01 per share (the "Common Stock"), of
FastComm Communications Corporation, a Virginia corporation (the "Company"). The
Shares are issuable by the Company upon: (i) the conversion of (a) $5,000,000
principal amount of the Company's 1997 Convertible Debentures (the
"Debentures"), or (b) if approved by the Company's, shareholders, conversion of
shares of a to-be created class of Series A Preferred Stock of the Company into
which the Debentures may be converted at the option of the Company ("Preferred
Stock"); and (ii) exercise of the warrants (the "Warrants") issuable under
certain circumstances, upon conversion of Debentures and Preferred Stock. The
Company issued the Debentures in a private placement transaction to four
accredited investors. See "Selling Shareholders." Additional Shares that may
become issuable as a result of the anti-dilution or default provisions of the
Debentures (or Preferred Stock) and the Warrants are offered hereby pursuant to
Rule 416 under the Securities Act of 1933, as amended (the "Securities Act"). In
addition, 190,551 of the Shares have been, or may be, issued to Richard L. Apel
in connection with the acquisition by the Company of Comstat DataComm
Corporation on January 31, 1997. See "Selling Shareholders."
The Company will not receive any proceeds from the sale of Shares by the
Selling Shareholders, but will receive the exercise price payable upon the
exercise of the Warrants if those Warrants are issued and exercised for cash.
There can be no assurance that all or any part of the Warrants will be issued or
that they will be exercised for cash. All expenses incurred in connection with
this offering are being borne by the Company, other than any commissions or
discounts paid or allowed by the Selling Shareholders to underwriters, dealers,
brokers or agents and legal fees of counsel to the Selling Shareholders, if any.
The Shares being registered under the Registration Statement of which this
Prospectus is a part may be offered for sale from time to time by or for the
account of such Selling Shareholders in the open market, on the NASDAQ National
Market, in privately negotiated transactions, in an underwritten offering, or a
combination of such methods, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Offered Shares are intended to be sold through one or more broker-dealers or
directly to purchasers. Such broker-dealers may receive compensation in the form
of commissions, discounts or concessions from the Selling Shareholders and/or
purchasers of the Offered Shares for whom such broker-dealers may act as agent,
or to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be in excess of customary concessions). The Selling
Shareholders and any broker-dealers who act in connection with the sale of
Offered Shares hereunder may be deemed to be "underwriters" within the meaning
of the Securities Act, and any commissions received by them and proceeds of any
resale of the Offered Shares may be deemed to be underwriting discounts and
commissions under the Securities Act, See "Selling Shareholders" and "Plan of
Distribution."
The Common Stock of the Company is listed on the NASDAQ-NMS (Symbol; FSCX).
The Shares offered hereby involve a high degree of RISK. See "CERTAIN RISK
FACTORS" at page 3 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May , 1997
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AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports and other information with the Commission. Reports, proxy and
information statements, and other information filed by the Company with the
Commission can be inspected and copied, at prescribed rates, during normal
business hours at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W. Room 1024, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: Chicago Regional Office,
NorthWestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; New York Regional Office, 75 Park Place, 14th Floor, New
York, New York 10007. Electronic filings of such documents are publicly
available on the Commission's Web Site at http://www.sec.gov. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
A registration statement on Form S-3 in respect of the Shares offered by
this Prospectus (the "Registration Statement") has been filed with the
Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549,
under the 1933 Act. This Prospectus does not contain all of the information
contained in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. Accordingly,
additional information concerning the Company and such securities can be found
in the Registration Statement, including various exhibits thereto, which may be
inspected at the Public Reference Section of the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Prospectus:
1. Form 10-K for the fiscal year ended April 30, 1996, filed with the
Commission pursuant to Section 13(a) of the 1934 Act;
2. Form 10-K/A for the fiscal year ended April 30, 1996, filed with the
Commission pursuant to Section 13(a) of the 1934 Act;
3. Form 10-Q for the fiscal quarters ended August 3, 1996, November 2,
1996 and February 1, 1997 filed pursuant to Section 13(a) of the 1934
Act since the end of the fiscal year covered by the Annual Report
referred to above;
4. The description of the Company's Common Stock registered under the
1934 Act contained in the Company's Form 8-A filed with the Commission
on September 8, 1988, including any amendments or reports filed for
the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the
termination of this offering, shall be deemed to be incorporated by reference
into this prospectus. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, expect as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon request, a copy of any or all of the foregoing
documents incorporated herein by reference (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporated). Requests should be directed to FastComm Communications
Corporation, 45472 Holiday Drive, Sterling, Virginia 20166, (703) 318-7750,
Attention: Investor Relations.
No person has been authorized to give any information or to make any
representation other than those contained in, or incorporated by reference into,
this Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any Selling
Shareholders. This Prospectus does not constitute an offer to sell or
solicitation of an offer to buy, nor shall there be any sale of these Shares by
anyone, in any state in which such offer, solicitation, or sale would be
unlawful prior to the registration or qualification under the securities laws of
any state, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the information herein or the affairs of the Company since the date
hereof.
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<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Common Stock offered hereby involves a high degree of risk. In
addition, this Prospectus and the documents incorporated herein by reference
contain certain "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements, which are often identified by words such as "believes",
"anticipates", "expects", "estimates", "should", "may", "will", and "similar"
expressions, represent the Company's expectations or beliefs concerning future
events. Numerous assumptions, risks and uncertainties, including the factors set
forth below, could cause actual results to differ materially from the results
discussed in the forward looking statements. Prospective purchasers of the
Shares should carefully consider the factors set forth below, as well as the
other information contained herein or in the documents incorporated herein by
reference.
CERTAIN RISK FACTORS
1. Recent History of Losses. The Company incurred net losses of $1,999,000,
$4,084,000, and $631,000 for the years ended April 30, 1994, 1995 and 1996 and a
net loss of $675,000 for the nine (9) months ending February 1, 1997. Such
losses are primarily attributable to sales levels insufficient to meet the costs
associated with the development and marketing of new products in an emerging
technology. Sales levels have been negatively impacted by delays in product
development, delays on the part of the carriers to offer frame relay services
and once offered, incorrect carrier pricing for frame relay services. In order
to address these factors, the Company has taken various steps. The Company
actively participates in industry forums that promote frame relay and ATM
services. Further, the Company upgraded and expanded it sales, marketing and
engineering organizations, while decreasing its general and administrative
overhead. The Company is focused on acquisitions and partnership arrangements
intended to expand its technology base and increase sales. There can be no
assurance that the Company will generate sufficient revenues to meet expenses or
to operate profitably in the future.
2. Historical Financial Statement Adjustments. During the fourth quarter
ended April 30, 1995, the Company increased its allowance for doubtful accounts
by $200,000 ($0.02 per share) to take account of products returned and credited
to customers in the fourth quarter as well as to provide for future sales
returns and allowances. The Company also increased its reserve for inventory
obsolescence in the fourth quarter by $295,000 ($0.04 per share) primarily to
take account of certain slow moving data compression and analog modem inventory.
During the fourth quarter ended April 30, 1994, the Company reversed a sale
in the amount of $580,000 which was originally recorded in the third quarter
ended February 5, 1994. The reversal of the sale was made after certain
technical difficulties arose in the fourth quarter regarding the project for
which the Company's product was intended. These matters were not identified to
management at the time of sale. The effect on third quarter and fiscal 1994
operating results of the reversal of the sale was to increase net loss by
approximately $295,000, and to increase the per share net loss by ($0.04) per
share.
Also during the fiscal 1994 fourth quarter, the Company increased its
allowance for doubtful accounts for products returned and credited to customers
in the fourth quarter as well as to provide for potential future returns and
allowances. The increase in the allowance includes $220,000 which management now
believed was attributable to matters which existed at the end of third quarter.
The effect on third quarter and fiscal 1994 and operating results of increasing
the allowance for doubtful accounts by $220,000 was to increase the net loss by
$220,000 and to increase the net loss per share by ($0.03).
The Company restated its 1993 financial statements to reflect corrections
to the accounts payable, costs of goods sold and additional paid-in capital
accounts, in connection with the re-audit of the 1993 financial statements by
the Company's accountants BDO Seidman LLP. With respect to the 1993 financial
statements, the restatement reduced the pre-tax income and the net income by
$90,000 ($0.01 per share). The restatement had no effect on total stockholders'
equity as originally reported.
3. Pending SEC Investigation. The United States Securities and Exchange
Commission ("SEC") is currently conducting a confidential inquiry pursuant to a
formal order directing a private investigation. This inquiry, which commenced in
September, 1994 and has focused on certain accounting, end of quarter, revenue
recognition, and internal controls issues, is confidential and should not be
construed as an indication by the SEC or the staff that any violations of law
have occurred. The Company is cooperating fully with the SEC staff. No assurance
can be given concerning the outcome of this investigation or that the inquiry
will be resolved in the near future.
4. Fluctuations in Quarterly Operating Results. The Company has
historically experienced substantial quarterly fluctuation in its operating
results. Due to changes to software and the relatively high revenues per unit
sold, production or shipping delays or customer order rescheduling can
significantly affect quarterly revenues and profitability. The Company has
experienced and may again experience quarters during which a substantial portion
of the Company's net sales are realized near the end of the quarter.
Accordingly, delays in shipments near the end of a quarter can cause quarterly
net sales to fall significantly short of anticipated levels. Since most of the
Company's expenses are fixed in the short term, such shortfalls in net sales
could have a material adverse effect on the Company's business and results of
operations. The Company's operating results may also vary from quarter to
quarter based upon numerous factors including the timing of new product
introductions, product mix, levels of sales, proportions of domestic and
international sales activities of competitors, acquisitions, international
events and problems in obtaining adequate materials or components on a timely
basis.
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<PAGE>
5. Competition. The data communications industry is intensely competitive.
The Company currently competes principally in the markets for high-speed voice
and data frame relay products. Many of the Company's existing and potential
competitors (including certain of the company's customers and suppliers) have
far more extensive financial, engineering, product development, manufacturing
and marketing resources than the Company. The Company's products and services
compete on the basis of a number of factors, including, in the case of the frame
relay business, time to market and delivery risk, price, quality, features and
functions, power consumption, and manufacturing rights, and recommendations of
the systems integrators, modularity and expendability, reliability, service and
support, supplier credibility, and price. There can be no assurance that
competitors will not introduce products incorporating technology as advanced or
more advanced than the Company's or that changes in the communications
environment will not render competitors product solutions more attractive to the
customer than the Company's solutions. Competitive pressures often necessitate
price reductions which the Company may not be able to achieve or which could
adversely affect profit margins which can adversely affect operating results. As
a result, these competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products and services
than the Company. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. There can be no
assurance that the Company will be able to compete successfully with existing or
new competitors or that competitive pressures faced by the Company would not
materially and adversely affect its business, results of operations, or
financial condition.
6. Rapid Technological Change. The market for the Company's products is
characterized by rapidly changing technology, emerging industry standards,
product proliferation and short product life cycles. The Company believes that
its future success will depend upon its ability to enhance its existing products
and to develop and introduce new products which conform to or support emerging
data communications standards, meet a wide range of evolving user needs and
achieve market acceptance. There can be no assurance that the Company will
succeed in developing and marketing such products or that the Company will be
able to respond effectively to technological changes, emerging industry
standards or new product introductions by others. Furthermore, there can be no
assurance that competitors will not introduce products incorporating technology
as advanced or more advanced than the Company's thereby rendering the Company's
products or technologies uncompetitive or obsolete. Any significant delays in
developing or shipping new or enhanced products could adversely affect the
Company's operating results. Conversely, the growth of the market for
communications products has been driven in part by the rapid technological
change experienced by that market. There can be no assurance that such rapid
technological change will continue or that the telecommunications infrastructure
will support such products. Any of these factors could materially adversely
affect the market for data communications products and the Company's operating
results.
7. Changes to Protocols and Changing Technology. New Data Protocols may be
developed that could displace the protocols currently supported in Company
products, requiring additional software development to sustain the viability of
those products. An announcement of such new protocols could have a negative
effect on sales of older designs, as users hesitate to install equipment based
on existing designs until they had evaluated the new ones. There can be no
assurance that the Company would have the necessary resources, particularly the
knowledgeable employees, to implement new protocols in a timely manner. Such
failure to develop adequate products in response to new technology could
adversely affect the Company's profitability. Asynchronous Transfer Mode (ATM)
is a new technology for transmitting digital information, including voice and
data, over a public or private network. Telephone companies and other operators
of public network are deploying ATM in their backbone segments. If the ATM
technology becomes much less expensive, ATM services could become economically
more attractive than frame relay services that currently are involved in the
bulk of Company's business. If ATM were to become more popular that frame
replay, the Company would need to develop new products, retrain its employees,
and educate its sales and distribution channel partners. There can be no
assurance that the Company will have the resources necessary to develop
appropriate products in a timely manner.
8. Introduction of New Products. The Company's future revenue is dependent
on its ability to successfully develop, manufacture and market products. In this
regard, future growth is dependent on the Company's ability to timely and
successfully develop and introduce new products, establish new distribution
channels, develop affiliations with leading market participants which facilitate
product development and distribution, and market existing and new products with
service providers, resellers, channel partners, and others. The introduction of
new or enhanced products requires the Company to manage the transition from
older products in order to minimize disruption in customer ordering patterns,
avoid excessive levels of older product inventories and ensure that adequate
supplies of new products can be delivered to meet customer demand. In addition,
as the technical complexity of new products increases, it may become
increasingly difficult to introduce new products quickly and according to
schedule. There can be no assurance that the Company will successfully manage
the transition to new products or that the Company's research and development
efforts will result in commercially successful new technology and products in
the future.
9. Future Capital Requirements. The Company's ability to make future
capital expenditures and fund the development and launch of new products, are
dependent on existing cash and some or all of the following: demands on cash to
support inventory for the frame relay, demands on cash arising from the
redemption (if required) of the Debentures or Preferred Stock, and the Company's
return to profitability. The timing and amount of the Company's future capital
requirements can not be accurately predicted, nor can there be any assurance
that debt or equity financing, if required, can be obtained on acceptable terms.
There can be no assurance that the company will have cash available in the
amounts and at the times needed.
10. Dependence on Key Employees. The Company's ability to implement its
strategies depends upon its ability to retain and continue to attract highly
talented managerial and technical personnel. The Company is especially dependent
on its key technical personnel to remain in the forefront of technology and on
its sales executives to develop and implement the sales strategies for its
products. Competition for qualified personnel is intense in the data
communications industry. Most of the Company's senior executives, are employed
on an "at-will" basis. There can be no assurance that the Company will retain
its key managerial and technical employees or that it will attract and
assimilate, such employees in the future . The loss of key management or
technical personnel could materially and adversely affect the Company's
business, results of operations and financial condition.
11. Inventory Management. From time to time, the Company has experienced
significant increases in its levels of inventory in order to meet production
requirements of existing or anticipated orders or as the result of delays in
receiving certain components, such as critical chipsets, from suppliers and the
concurrent accumulation of other inventory. Increased levels of inventory could
adversely affect the Company's liquidity, increase the risk of inventory
obsolescence (from cancellation of orders, failure to receive anticipated orders
or otherwise), or increase the risk of a decline in market value of such
inventory or losses from theft, fire or other similar occurrences. The failure
of the Company to effectively manage its inventory levels could have a material
adverse affect on the Company's financial condition and results of operations.
4
<PAGE>
12. Intellectual Property Rights. The Company's success depends in part
upon its technological expertise and proprietary product designs. The Company
relies upon its trade secret protection efforts and, to a lesser extent, upon
patents and copyrights to protect its proprietary technologies. There can be no
assurance that these steps will be adequate to deter misappropriation or
infringement of its proprietary technologies or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. Further, given the rapid evolution of
technology and uncertainties in intellectual property law, there can be no
assurance that the Company's current or future products will not be determined
to infringe proprietary rights of others. Should the Company be sued for patent
infringement, there can be no assurance that the Company will prevail, or, if
required by such litigation, that it will be able to obtain the requisite
licenses or rights to use such technology on commercially reasonable terms. In
addition, any litigation, regardless of the outcome, could result in substantial
costs to the Company.
13. Regulatory Standards. The Company's products are subject to regulation
by the Federal Communications Commission (the "FCC"), and each of the Company's
products must typically be tested before it can be introduced into the market.
Any inability of the Company's products to conform to FCC regulations or any
failure of the Company's products to meet FCC testing requirements could delay
the introduction of the Company's products into the market, impact the Company's
relationships with its OEMs and otherwise adversely affect the Company. Foreign
authorities often establish telecommunications standards different from those in
the United States, making it difficult and more time-consuming to obtain the
required regulatory approvals. Any significant delay in obtaining such
regulatory approvals could have an adverse effect on the Company's operating
results. Furthermore, changes in such laws, regulations, policies or
requirements could affect the demand for the Company's products or result in the
need to modify products, which may involve substantial costs or delays in sales
and could have an adverse effect on the Company's future operating results.
14. Potential Redemption of Debentures or Preferred Stock. Pursuant to
regulations of the National Association of Securities Dealers, in the absence of
shareholder approval, the Company may not issue, in the aggregate, more than
2,016,261 shares of Common Stock upon conversion of the Debentures (or Preferred
Stock) and the exercise of the Warrants. The actual number of shares of Common
Stock to be issued upon conversion of the Debentures (or Preferred Stock) will
depend on the average closing price of the Common Stock prior to conversion. The
Company is obligated to redeem any shares of Preferred Stock which may not be
converted and any Warrants which may not be exercised as a result of such
regulatory limitation. The cash demands to fund such a redemption may adversely
affect the Company's ability to make future capital expenditures and fund the
development and launch of new products. Furthermore, there can be no assurance
that the Company will have cash available to fund such a redemption. See "Future
Capital Requirements".
15. Potential Dilution; Shares Eligible for Future Sales; Possible Effect
on Additional Equity Financing. A substantial number of shares of Common Stock
are or will be issuable by the Company upon the conversion of convertible
Debentures (or Preferred Stock) and the exercise of Warrants which the Company
has issued, which could result in dilution to a shareholder's percentage
ownership interest in the Company and could adversely affect the market price of
the Common Stock. Under the applicable conversion formulas of the Debentures
(and Preferred Stock), the number of shares of Common Stock issuable upon
conversion is inversely proportional to the market price of the Common Stock at
the time of conversion (i.e., the number of shares increases as the market price
of the Common Stock decreases): and except with respect to certain redemption
rights of the Company for the Debentures (or Preferred Stock), there is no cap
on the number of shares of Common Stock which may be issued. In addition, the
number of shares issuable upon the conversion of the Debentures (or Preferred
Stock) and the exercise of Warrants is subject to adjustment upon the occurrence
of certain dilutive events after October 9, 1997.
On April 15, 1997, there were issued and outstanding a total of 10,081,307
shares of Common Stock. If all convertible Debentures (or Preferred Stock) and
Warrants Issuable Conversion which the Company has issued were deemed converted
and exercised, as the case may be, as of April 15, 1997, there would be issuable
1,160,622 shares of Common Stock. Upon such conversion and exercise, there would
be outstanding 11,241,929 shares of Common Stock. Of these, the Company
currently has registered for resale 3,000,000 shares (including the Shares
offered hereby). The sale or availability for sale of a significant number of
shares of Common Stock in the public market could adversely affect the market
price of the Common Stock. In addition, certain holders of outstanding
securities of the Company have rights to approve and/or participate in certain
types of future equity financing by the Company. The availability to the Company
of additional equity financing, and the terms of any such financing, may be
adversely affected by the foregoing.
16. Price Volatility and Absence of Dividends. The market price of the
Company's Common Stock has been, and may continue to be, highly volatile. The
Company believes that factors such as quarterly fluctuations in results of
operations, adverse circumstances affecting the introduction or market
acceptance of new products offered by the Company, announcements of new products
by competitors, changes in earnings estimates by analysts, changes in accounting
principles, sales by existing shareholders (including sales from time to time by
the Selling Shareholders), loss of key personnel and other factors will continue
to cause the market price of the Company's Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies,
including the Company, fluctuate widely for other reasons (such as market
perception of high technology industries) unrelated to operating results. These
fluctuations as well as general economic, political and market conditions, such
as recessions or military conflicts, may adversely affect the market price of
the Company's Common Stock. Changes in the price of the Company's Common Stock
could affect the Company's ability to successfully attract and retain qualified
personnel or complete other transactions in the future. The Company has never
paid any cash dividends on its capital stock, and has no plans to do so in the
future.
5
<PAGE>
THE COMPANY
The Company participates in the communications networking industry, which
divides logically into two major areas:
1. Backbone systems and components: consisting of large switches and
multiplexers, connected to each other by Wide Area Network (WAN)
transmission lines. Public networks put backbone components in Central
Offices. Private networks place them at headquarters, major regional
centers, and the larger branch locations.
2. Access devices: this equipment is physically smaller, typically
located in remote customer offices and attached to the backbone
network through a single or multiple telephone lines. An access device
may be part of a local area network (LAN) within a building or campus
and/or facilitate connection among and between LAN and WAN
environments.
FastComm designs, manufactures, markets, and sells access devices that allow
computer users to connect to public and private networks based on analog and
digital transmission. Its products include a range of devices aimed at the fast
packet services as well as digital leased-lines, switched 56 networks and ID
route networks (including the Internet). The Company's access devices allow many
types of terminal equipment and computers to access these services. The Company
does not make backbone network components or systems, but is focused on the much
simpler access devices. The market potential (in units) is greater for access
products because there are so many small offices and businesses that are
increasingly able to justify a digital connection.
The Company's current business is primarily based on access devices for
frame relay services. Other access products offered include models designed for
cell relay or ATM services (a LAN bridge), analog phone lines (modems), and
leased or switched digital data services (CSU/DSUs for DDS). FastComm also
offers a family of moderate to very high speed data compressors to enhance
access to digital services.
The Company manufactures some of its products at its headquarters location
in Sterling, Virginia. It also resells products manufactured by others under its
label. The Company subcontracts the manufacturing of its printed circuit boards
to various outside, unrelated contractors and performs the final assembly and
testing at its headquarters.
The Company maintains its principal executive offices at 45472 Holiday
Drive, Sterling, Virginia 20166 and its telephone number is (703) 318- 7750.
USE OF PROCEEDS
The Company will not receive any proceeds form the sale of the Offered
Shares by the Selling Shareholders. The Company will use the proceeds of any
exercise of the Warrants for cash for general corporate purposes and working
capital.
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling Shareholders, the
number of Common Shares beneficially owned by such Selling Shareholder as of
April 15, 1997 and the number of Offered Shares which may be offered for sale
pursuant to this Prospectus by each such Selling Shareholder. None of the
Selling Shareholders has held any position, offices, or other material
relationship with the Company or any of its affiliates within the past three
years other than as a result of his or its ownership of Common Shares. The
Offered Shares may be offered from time to time by the Selling Shareholders
named below. However, such Selling Shareholders are under no obligation to sell
all or any portion of such Offered Shares, nor are the Selling Shareholders
obligated to sell any such Offered Shares immediately under this Prospectus. All
information with respect to share ownership has been furnished by the Selling
Shareholders. Because Selling Shareholders may sell all or part of their Offered
Shares, no estimate can be given as to the number of Common Shares that will be
held by any Selling Shareholder upon termination of any offering made hereby.
Pursuant to Rule 416 of the Securities Act, Selling Shareholders many also
offer and sell Common Shares issued with respect to the Debentures (or Preferred
Stock) and the Warrants as a result of stock splits, stock dividends and
anti-dilution provisions (including by reason of changes in the conversion price
of the Debentures and Preferred Stock in accordance with the terms thereof)
6
<PAGE>
<TABLE>
<CAPTION>
Common Shares
Number of Common Owned After Offering(2)
Beneficially Shares Owned Percentage of
Name of Selling Shareholder Prior to Offering(1) Common Shares Offered Hereby Number Outstanding
- --------------------------- ---------------------- ---------------------------- ------ -----------
<S> <C> <C> <C> <C>
Capital Ventures International(2) 1,800,000(3) 1,800,000 - 0 - - 0 -
Nelson Partners(2)(4) 300,000(3) 300,000(3) - 0 - - 0 -
Olympus Securities, Ltd.(2)(4) 300,000(3) 300,000(3) - 0 - - 0 -
CC Investments, LDC.(2) 600,000(3) 600,000 - 0 - - 0 -
Richard L. Apel 190,551(5) 190,551 - 0 - - 0 -
</TABLE>
(1) Assumes the sale of all Offered Shares.
(2) Pursuant to the Securities Purchase Agreement, dated April 9, 1997,
among the Company and Capital Ventures International, Nelson Partners, Olympus
Securities, Ltd., CC Investments, LDC. (collectively, the "Investors"), the
Investors purchased an aggregate of $5,000,000 principal amount of Debentures,
which are convertible upon approval of the Company Stockholders into 5,000
shares of Preferred Stock. The Debentures (or shares of Preferred Stock) are
convertible into Shares of Common Stock and Warrants (the "Warrants") to acquire
a number of shares of Common Stock equal to up to forty percent (40%) of the
number of shares of Common Stock issuable upon conversion of each Debenture and
share of Preferred Stock.
(3) Represents the pro rata allocation among the Investors of 3,000,000 Shares
which the Company is registering hereunder pursuant to the registration
rights agreement attached as Exhibit 4.3 hereto. The actual number of
Common Shares issuable upon conversion of the Convertible Debentures (or
Preferred Stock) will equal (in addition to the Common Shares issuable upon
exercise of the Warrants), (i) the aggregate principal amount of the
Debentures or stated value of the shares of Preferred Stock then being
converted (plus a premium in the amount of 5% per annum accruing from April
9, 1997, through the date of conversion (unless the Company chooses to pay
such premium in cash), plus any Conversion Default Amount (as defined in
the Debentures and the Certificate of Designations Preferences and Rights
of the Preferred Stock), divided by (ii) (x) if the conversion occurs on or
before October 6, 1997, a conversion price equal to a percentage of the
average closing price of the shares of Common Stock during a specified
trading period immediately prior to conversion (as determined in accordance
with the Debentures or Certificate of Designations Preference and Rights of
the Preferred Stock), or (y) in the case of conversions on or after October
6, 1997, a conversion price equal to the lower of a percentage of the
average closing price of the Common Shares during a specified trading
period immediately prior to conversion, and $7.54 (subject to adjustment in
accordance with the Debentures or Certificate of Designations Preferences
and Rights of the Preferred Stock). Upon conversion of the Debentures or
Preferred Stock into shares of Common Stock, each holder thereof will
receive warrants to acquire a number of shares of Common Stock equal to up
to forty percent (40%) of the number of shares of Common Stock issuable
upon conversion of each Debenture or share of Preferred Stock. The Warrants
entitle the Holder thereof to acquire shares of Common Stock an exercise
price of 125% of the market price, as defined in the Warrants on the date
of issuance of the Warrants. For a complete description of the terms of the
Debentures, see Exhibit 4.4 hereto.For a complete description of the
relative rights, preferences, privileges, powers and restrictions of the
Preferred Stock, see the Certificate of Designations, Preferences and
rights of Series A Convertible Preferred Stock of FastComm Communications
Corporation attached as Exhibit 4.6 hereto. For complete description of the
terms of the Warrants, see the Form of Warrant attached as Exhibit 4.5
hereto.
Except under certain limited circumstances, no holder of the Debentures or
Preferred Stock and Warrants is entitled to convert or exercise such
securities to the extent that the shares to be received by such holder upon
such conversion or exercise would cause such holder to beneficially own
more than 4.9% of the outstanding shares of Common Stock. Therefore, the
number of Shares set forth herein and which a Selling Shareholder may sell
pursuant to this Prospectus may exceed the number of Shares such Selling
Shareholders would otherwise beneficially own as determined pursuant to
Section 13(d) of the Exchange Act. Moreover, pursuant to the regulations of
the National Association of Securities Dealers, in the absence of
shareholder approval, the aggregate number of shares of Common Stock
issuable to the Selling Shareholders at a discount from market price upon
conversion of the Debentures or Preferred Stock and exercise of the
Warrants which have been and may be issued to the Selling Shareholders
pursuant to the Securities Purchase Agreements may not exceed 19.99% of the
outstanding Common Shares on April 9, 1997 (i.e., 2,016,261 shares). Unless
shareholder approval is obtained to issue shares of Common Stock to the
Investors in excess of the maximum amount set forth above, none of the
Selling Shareholders will be entitled to acquire more than its
proportionate share of such maximum amount. Any Debentures or Preferred
Stock which may not be converted and any Warrants which may not be
exercised because of such limitation must be redeemed by the Company.
(4) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson") and the trading manager of Olympus Securities, Ltd.
("Olympus") and consequently has voting control and investment discretion
over securities held by both Nelson and Olympus. The ownership information
for Nelson does not include the shares owned by Olympus and the ownership
information for Olympus does not include the shares owned by Nelson.
(5) Includes 105,520 shares of Stock issued to Richard L. Apel at Closing and
an additional 26,380 Shares issuable in accordance with certain
post-closing adjustments; also includes an additional 58,651, issuable to
Mr. Apel in the future if Net Revenue of Comstat Communications Corporation
exceeds a certain threshold amount ("Adjustment Shares"). The number of
Adjustment Shares, if earned, is subject to further adjustment up or down,
if the average closing bid price for shares of the Company's Common Stock
is greater or less than $6.82 for the five (5) business days proceeding the
applicable Adjustment Date.
7
<PAGE>
PLAN OF DISTRIBUTION
The Offered Shares are being offered on behalf of the Selling Shareholders,
and, except for the cash exercise price of the Warrants, the Company will not
receive any proceeds from the Offering. The Offered Shares may be sold or
distributed from time to time by the Selling Shareholders, or by pledgees,
donees or transferees of, or other successors in interest to, the Selling
Shareholders, directly to one or more purchasers (including pledgees) or through
brokers, dealers or underwriters who may act solely as agents or may acquire
Offered Shares as principals, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The distribution of the Offered Shares may
be effected in one or more of the following methods: (i) ordinary brokers'
transactions, which may include long or short sales (ii) transactions involving
cross or block trades or otherwise on the NASDAQ National Market; (iii)
purchases by brokers, dealers or underwriters as principal and resale by such
purchasers for their own account pursuant to this Prospectus; (iv) "at the
market " to or through market makers or into an existing market for the Common
Shares; (v) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through agents;
(vi) through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise), or (vii) any combination of the foregoing, or by
any other legally available means. In addition, the Selling Shareholders or
their successors in interest may enter into hedging transaction with
broker-dealers who may engage in short sales of Offered Shares in the course of
hedging the positions they assume with the Selling Shareholders. The Selling
Shareholders or their successors in interest may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the Offered Shares, which Offered Shares may be resold
thereafter pursuant to this Prospectus.
Brokers, dealers, underwriters or agents participating in the distribution
of the Offered Shares as agents may receive compensation in the form of
commissions, discounts of concessions from the Selling Shareholders and/or
purchasers of the Offered Shares for whom such broker-dealers may act as agent,
or to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be less than or in excess of customary
commissions). The Selling Shareholders and any broker-dealers who act in
connection with the sale of Offered Shares hereunder may be deemed to be
"Underwriters" within the meaning of the Securities Act, and any commissions
they receive and proceeds of any sale of Offered Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. Neither the
Company nor any Selling Shareholder can presently estimate the amount of such
compensation. The Company knows of no existing arrangements between any Selling
Shareholder any other shareholder, broker, dealer, underwriter or agent relating
to the sale of distribution of the Offered Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Offered Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The Company
has also agreed to indemnify certain of the Selling Shareholders and certain
related persons against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon by Amon & Sabatini, New York, New York, counsel to the Company.
EXPERTS
The financial statements and supplemental schedules of the Company have
been audited by BDO Seidman LLP, Independent Accountants, whose report is
incorporated herein by reference from the Company's Annual Report on Form 10-K.
These financial statements and supplemental schedule are incorporated herein by
reference in reliance upon the reports of such independent certified public
accountants given upon their authority as experts in accounting and auditing.
8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
discounts and commissions), which other than the SEC registration fee are
estimates, payable by the Company in connection with the sale and distribution
of the Shares registered hereby.
SEC registration fee........................................ $ 5,801.00
Blue Sky fees and expenses (including legal fees)........... $ 1,000.00*
Legal fees and expenses..................................... $ 5,000.00*
Accounting fees and expenses................................ $ 1,500.00*
Printing expenses........................................... $ 1,000.00*
Miscellaneous............................................... $ 699.00*
==========
Total....................................................... $15,000.00*
- ----------
* Estimated
Item 15. Indemnification of Directors and Officers.
Article Six of the By-Laws, as amended, of the Company empowers the Company
to indemnify current or former directors, officers, employees or agents of the
Company or persons serving by request of the Company in such capacities in any
other enterprise or persons who have served by the request of the Company in
such capacities in any other enterprise to the full extent permitted by the laws
of the Commonwealth of Virginia.
Article Tenth of the Virginia Stock Corporation Act contains provisions
authorizing indemnification by the Company of directors, officers, employees or
agents against certain liabilities and expenses which they may incur as
directors, officers, employees or agents of the Company or of certain other
entities. Section 13.1 - 699 also provides that such indemnification may include
payment by the Company of expenses incurred in defending a civil or criminal
action or proceeding in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by the person indemnified to repay
such payment if he shall be ultimately found not to be entitled to
indemnification under the Section. Indemnification may be provided even though
the person to be indemnified is no longer a director, officer, employee or agent
of the Company or such other entities. Section 13.1 - 703 also contains
provisions authorizing the Company to obtain insurance on behalf of any such
director, officer employee or agent against liabilities, whether or not the
Company would have the power to indemnify such person against such liabilities
under the provisions of the Section. The Company currently maintains a policy of
insurance under which the directors and officers of the Company are insured,
within the limits and subject to the exclusions and limitations of the policy,
against certain expenses in connection with the defense of actions, suits or
proceedings, to which they are parties by reason of being or having been such
directors or officers.
The indemnification and advancement of expenses provided pursuant to
Section 13.1 - 699 are not exclusive, and subject to certain conditions, the
Company may make other or further indemnification or advancement of expenses of
any of its directors, officers, employees or agents. Because the Articles of
Incorporation, as amended, of the Company do not otherwise provide,
notwithstanding the failure of the Company to provide indemnification and
despite a contrary determination by the Board of Directors or its shareholders
in a specific case, a director, officer, employee or agent of the Company who is
or was a party to a proceeding may apply to a court of competent jurisdiction
for indemnification or advancement of expenses or both, and the court may order
indemnification and advancement of expenses, including expenses incurred in
seeking court-ordered indemnification or advancement of expenses if it
determines that the petitioner is entitled to mandatory indemnification pursuant
to Section 13.1 - 698 because he has been successful on the merits, or because
the Company has the power to indemnify on a discretionary basis pursuant to
Section 13.1 - 699 or because the court determines that the petitioner is fairly
and reasonably entitled indemnification or advancement of expenses or both in
view of all the relevant circumstances.
Section 13.1692.1 of the Act provides that the damages assessed against any
officer or director arising out of a single transaction, occurrence or course of
conduct shall not exceed the lesser of (1) the monetary amount specified in the
Articles of Incorporation; or (2) the greater of (i) $100,000 or the amount of
cash compensation received by the officer or director from the corporation for
the twelve (12) months immediately proceeding the act or omission for which
liability was imposed. The liability of an officer or director engaged in
willful misconduct or a knowing violation of criminal law or of any federal or
state securities law including without limit of any claim of unlawful insider
trading or manipulation of the market for any security is not covered by such
provision.
The Agreement between the Company and the Selling Stockholders provides
that the Selling Stockholders and, under certain circumstances, persons
participating as underwriters in the offering or sale of the Common Stock being
registered will indemnify and hold harmless the Company and each director,
officer
9
<PAGE>
and controlling person of the Company with respect to any statement or omission
in the Registration Statement or the Prospectus based upon written information
furnished to the Company by or on behalf of the Selling Stockholders or such
underwriters, as the case may be, for inclusion therein.
Item 16. Exhibits
(a) Exhibits:
3.1 Restated Articles of Incorporation of the Company (1)
3.2 By-Laws of the Company, as amended (1)
4.1 Form of Securities Purchase Agreement between the Company and Capital
Ventures, International, Nelson Partners, Olympus Securities, Ltd., and
CC Investments, LDC. (2)
4.2 Registration Rights Agreement between the Company and Richard Apel (2)
4.3 Registration Rights Agreement between the Company and Capital Ventures,
International, Nelson Partners Olympus Securities, Ltd., and CC
Investments, LDC.
4.4 Form of Convertible Debenture (2)
4.5 Form of Warrant (2)
4.6 Proposed Form of Certificate of Designations, Preference and Rights (2)
5.1 Opinion of Amon & Sabatini (2)
23.1 Consent of BDO Seidman LLP, Independent Accountants (2)
23.2 Consent of Amon & Sabatini (included in Exhibit 5.1) (2)
24.1 Power of Attorney (included in Signature Page)
- ----------
(1) Previously filed as an Exhibit to the Company's Registration Statement
on Form S-18, File no. 33-19785.
(2) Filed herewith.
Item 17. Undertakings.
A. The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs A.(1)(i) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
10
<PAGE>
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions of otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of express incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against pubic
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Sterling, Commonwealth of Virginia on April 30, 1997.
FASTCOMM COMMUNICATIONS CORPORATION
By: /s/ PETER C. MADSEN
---------------------------------------------
Peter C. Madsen, President, CEO and Director
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature to this Registration Statement
appears below has appointed each of Peter C. Madsen and Mark H. Rafferty as his
attorney-in-fact to sign on his behalf individually and in the capacity stated
below and to file all amendments and post-effective amendments, supplements to
this Registration Statement, and any and all instruments or documents filed as
part of or in connection with this Registration Statement or any amendment or
supplement thereto, and any such attorney-in-fact may make such changes and
additions to this Registration Statement as such attorney-in-fact may deem
necessary or appropriate.
NAME TITLE DATE
---- ----- ----
/s/ Peter C. Madsen Chairman of the Board; Chief April 30, 1997
- ------------------------ Executive Officer and Director
Peter C. Madsen
/s/ Mark H. Rafferty Vice President; Principal Financial April 30, 1997
- ------------------------ and Accounting Officer
Mark H. Rafferty
/s/ Edward R. Olson Director April 30, 1997
- ------------------------
Edward R. Olson
/s/ Thomas G. Amon Director April 30, 1997
- ------------------------
Thomas G. Amon
11
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of April 9,
1997, by and among FASTCOMM COMMUNICATIONS CORPORATION, a Virginia corporation,
with headquarters located at 45472 Holiday Drive, Sterling, Virginia 20166 (the
"Company"), and the purchaser or the purchasers (collectively, the "Purchasers")
set forth on the execution page(s) hereof.
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
B. Each Purchaser desires to purchase, upon the terms and conditions stated
in this Agreement, (i) convertible debentures of the Company, in the form
attached hereto as Exhibit A (the "Debentures"), convertible into (a) (x) shares
of the Company's common stock, par value $.01 per share (the "Common Stock") and
(y) warrants (the "Warrants"), in the form attached hereto as Exhibit B, to
acquire shares of Common Stock or (b) if authorized by the Board of Directors
and the shareholders of the Company, shares of a to-be-created class of Series A
preferred stock of the Company (the "Preferred Shares" and, together with the
Debentures, the "Convertible Securities"), which shall have the rights,
preferences and privileges set forth in the Certificate of Designation in the
form attached hereto as Exhibit F (the "Certificate of Designation") or (ii) if
authorized by the Board of Directors and the shareholders of the Company,
Preferred Shares, which Preferred Shares are convertible into shares of Common
Stock and Warrants, upon the terms and subject to the limitations and conditions
set forth in the Certificate of Designation. The shares of Common Stock issuable
upon conversion of or otherwise pursuant to the Convertible Securities are
referred to herein as the "Conversion Shares" and the shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Warrants are referred to
herein as the "Warrant Shares." The Debentures, Preferred Shares, Warrants,
Conversion Shares and Warrant Shares are collectively referred to herein as the
"Securities."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
<PAGE>
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF CONVERTIBLE SECURITIES
a. Purchase of Convertible Securities. The issuance, sale and purchase of
the Convertible Securities shall take place in two (2) separate closings, the
first of which is hereinafter referred to as the "First Closing" and the second
of which is hereinafter referred to as the "Second Closing." The purchase price
(the "Purchase Price") per Convertible Security at each such closing shall be
equal to the principal amount of such Debenture or the face amount of such
Preferred Shares, whichever is applicable.
(i) On the date of the First Closing, subject to the satisfaction (or
waiver) of the conditions set forth in Section 6 and Section 7 below, the
Company shall issue and sell to each Purchaser and each Purchaser shall purchase
from the Company, 60% of the principal amount of Debentures or face amount of
Preferred Shares, whichever is applicable, set forth on the signature page
hereto executed by such Purchaser.
(ii) On the date of the Second Closing, subject to the satisfaction
(or waiver) of the conditions set forth in Section 6 and Section 7 below, the
Company shall issue and sell to each Purchaser and each Purchaser shall purchase
from the Company, 40% of the principal amount of Debentures or face amount of
Preferred Shares, whichever is applicable, set forth on the signature page
hereto executed by such Purchaser.
b. Form of Payment. At each of the First Closing and the Second Closing,
each Purchaser shall pay the aggregate Purchase Price for the Convertible
Securities being purchased by such Purchaser at such closing hereunder by wire
transfer to the Company, in accordance with the Company's written wiring
instructions, against delivery of the duly executed Debentures (or certificates
representing the Preferred Shares) being purchased by such Purchaser hereunder
and the Company shall deliver such Debentures (or certificates) against receipt
of such aggregate Purchase Price.
c. Closing Dates. Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, the date and time of the
issuance and sale of the Convertible Securities pursuant to this Agreement shall
be (i) in the case of the First Closing, 12:00 noon Eastern Time on April 9,
1997, (ii) in the case of the Second Closing, 12:00 noon Eastern Time on the
fifth (5th) trading day following notification of satisfaction (or waiver) of
the conditions to such closing set forth in Section 7(b) hereof (subject, in
each case, to a two (2) business day grace period at either party's option, but,
in any event, not later than April 12, 1997 in the case of the First Closing),
or, in each case, such other time, as may be mutually agreed upon by the Company
and the Purchasers. The closings shall occur at the offices of Klehr, Harrison,
Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia, Pennsylvania
19102.
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2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Convertible Securities
for Purchaser's own account for investment only and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering any such Securities
other than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the Securities Act.
b. Accredited Investor Status. Purchaser is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Purchaser understands that the Convertible
Securities are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Convertible Securities.
d. Information. Purchaser and its counsel, if any, have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Convertible Securities which
have been requested by Purchaser or its counsel. Purchaser and its counsel have
been provided with all materials which the Company deemed to have been
reasonably requested and have had an opportunity to interview certain member's
of the Company's management, Company legal counsel and the Company's independent
public accountants regarding Davison v. FastComm Communications Corporation and
Madsen; (Circuit Court, Fairfax County, Virginia Case No. 159732), Davison v.
FastComm Communications Corporation; (Circuit Court, Fairfax County, Virginia
Case No. 159733) and the inquiry by the United States Securities and Exchange
Commission pursuant to an order directing a private investigation, which
commenced in September 1994. In light of the aforementioned due diligence by the
Purchaser and its counsel, the Purchaser has decided to proceed with the
transaction, upon the terms stated herein. Purchaser understands that the
Company can give no assurance as to the outcome of these current and any future
events.
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Except as set forth above, neither such inquiries nor any other due
diligence investigation conducted by Purchaser or its counsel or any of its
representatives shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 3 below. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.
e. Governmental Review. Purchaser understands that no United States federal
or state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as provided in
the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be transferred unless (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions, the cost of which shall be borne by the Purchaser)
to the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration or (c) sold pursuant
to Rule 144 promulgated under the Securities Act (or a successor rule) ("Rule
144"); (ii) any sale of such Securities made in reliance on Rule 144 may be made
only in accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission (the "SEC") thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such Securities under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder (in each
case, other than pursuant to, and in accordance with the terms and conditions
of, the Registration Rights Agreement). Purchaser agrees that it will not
transfer Convertible Securities having a total principal amount or face value
less than $200,000 to any transferee.
g. Legends. Purchaser understands that the Debentures, Preferred Shares,
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the Securities Act as contemplated by the Registration
Rights Agreement or otherwise may be sold by Purchaser pursuant to Rule 144
without any restriction as to the public resale thereof, the certificates for
the Conversion Shares and Warrant Shares will bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under
said Act, or an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable
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<PAGE>
transactions, that registration is not required under said Act or unless
sold pursuant to Rule 144(k) under said Act.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the cost of which
shall be borne by such holder), to the effect that a public sale or transfer of
such Security may be made without registration under the Securities Act or (c)
such holder provides the Company with reasonable assurances that such Security
can be sold pursuant to Rule 144 without any restriction as to the number of
Securities acquired as of a particular date that can then be immediately sold.
Purchaser agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of the
Securities Act. In the event the above legend is removed from any Security and
thereafter the effectiveness of a registration statement covering such Security
is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Purchaser the Company may require that the above legend be placed on any such
Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold, which legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or Rule 144 without any restriction as to the number of
Securities acquired as of a particular date that can then be immediately sold.
h. Authorization; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
i. Residency. Purchaser is a resident of the jurisdiction set forth under
such Purchaser's name on the signature page hereto executed by such Purchaser.
j. No Brokers. Other than dealings with JMS and SFG (each, as defined
below), the Purchasers have taken no action which would give rise to any claim
by any person for brokerage commissions, finder fees or similar payments by the
Company relating to this Agreement or the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its subsidiaries
is a corporation duly organized and existing in good standing under the laws of
the jurisdiction in which
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it is incorporated, and has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure so to qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on the operations, properties or financial condition of the Company and
its subsidiaries on a consolidated basis or on the transactions contemplated
hereby.
b. Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Debentures,
the Warrants and the Registration Rights Agreement, to issue and sell the
Debentures and Warrants in accordance with the terms hereof, to issue the
Conversion Shares and Warrants upon conversion of the Debentures and to issue
the Warrant Shares upon exercise of the Warrants, in accordance with the terms
thereof; (ii) the execution, delivery and performance of this Agreement, the
Debentures, the Warrants and the Registration Rights Agreement by the Company
and the consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Debentures, the issuance and
reservation for issuance of the Conversion Shares and Warrants issuable upon
conversion thereof and the issuance and reservation for issuance of the Warrant
Shares issuable upon exercise of the Warrants) have been duly authorized by the
Company's Board of Directors and, except as set forth on Schedule 3(b) hereof,
no further consent or authorization of the Company, its Board or Directors, and
its stockholders is required (under Rule 4460(i) promulgated by the National
Association of Securities Dealers or otherwise); (iii) this Agreement has been
duly executed and delivered by the Company; and (iv) this Agreement constitutes,
and, upon execution and delivery by the Company of the Registration Rights
Agreement, the Debentures and the Warrants, such agreements will constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date hereof,
including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Debentures, the Preferred Shares and the
Warrants) exercisable for, or convertible into or exchangeable for any shares of
Common Stock and the number of shares to be reserved for issuance upon
conversion of the Debentures (or the Preferred Shares) and exercise of the
Warrants is set forth on Schedule 3(c). All of such outstanding shares of
capital stock have been, or upon issuance will be, validly issued, fully paid
and nonassessable. No shares of capital stock of the Company (including the
Conversion Shares and the Warrant Shares) are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances. Except as disclosed in Schedule 3(c) or as contemplated herein, as
of the date of this Agreement, (i) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is
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<PAGE>
obligated to register the sale of any of its or their securities under the
Securities Act (except the Registration Rights Agreement). The Company has
furnished to each Purchaser true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof ("Certificate of
Incorporation"), the Company's By-laws as in effect on the date hereof (the
"By-laws"), and all other instruments and agreements governing securities
convertible into or exercisable or exchangeable for Common Stock of the Company.
The Company shall provide each Purchaser with a written update of this
representation signed by the Company's Chief Executive Officer or Chief
Financial Officer on behalf of the Company as of the date of each closing
hereunder.
d. Issuance of Shares. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion of the Debentures
(and the Preferred Shares, when issued) and exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances and will
not be subject to preemptive rights or other similar rights of stockholders of
the Company.
e. No Conflicts. The execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by the
Company, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Debentures, Warrants, Conversion Shares and
Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation or By-laws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible defaults
or rights as would not, individually or in the aggregate, have a Material
Adverse Effect. The businesses of the Company and its subsidiaries are not being
conducted, and shall not be conducted so long as a Purchaser owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations the sanctions for which either singly or
in the aggregate would not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in
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<PAGE>
order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Debentures or the Warrants, in
each case in accordance with the terms hereof or thereof. The Company is not in
violation of the listing requirements of the Nasdaq National Market ("NASDAQ")
and does not reasonably anticipate that the Common Stock will be delisted by
NASDAQ in the foreseeable future.
f. SEC Documents, Financial Statements. Except as disclosed in Schedule
3(f), since April 30, 1994, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (all of the foregoing filed prior to the date
hereof and after April 30, 1994, and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered to each Purchaser true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, as amended or supplemented, at the
time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
g. Absence of Certain Changes. Since February 1, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company, except as disclosed in Schedule 3(g) or in the SEC Documents.
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<PAGE>
h. Absence of Litigation. Except as disclosed in the SEC Documents or
Schedule 3(h), there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such.
i. Disclosure. All information relating to or concerning the Company set
forth in this Agreement or provided to the Purchasers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to
Company or its subsidiaries or their respective businesses, properties,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
j. Acknowledgment Regarding Purchasers' Purchase of the Convertible
Securities. The Company acknowledges and agrees that none of the Purchasers are
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement or the transactions contemplated
hereby, and any advice given by any Purchaser, or any of their representatives
or agents, in connection with this Agreement and the transactions contemplated
hereby is merely incidental to each Purchaser's purchase of Convertible
Securities. The Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on an independent
evaluation by the Company and its representatives.
k. Current Public Information. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form S-3
under the Securities Act.
l. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
m. No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has directly or indirectly made
any offers or sales of any security or solicited any offerers to buy any
security under circumstances that would require registration of the Securities
being offered hereby under the Securities Act.
n. No Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by any Purchaser relating to this Agreement or the transactions contemplated
hereby, except for dealings with Janney Montgomery Scott ("JMS") and Susquehanna
Financial Group, Inc. ("SFG") whose commissions
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and fees (in the aggregate amount of $250,000) will be paid by the Company to
JMS as follows: (i) $150,000 at the First Closing and (ii) $100,000 at the
Second Closing.
o. Acknowledgment of Dilution. The number of Conversion Shares and Warrants
issuable upon conversion of the Debentures and Preferred Shares may increase
substantially in certain circumstances, including the circumstance wherein the
trading price of the Common Stock declines. The Company acknowledges that its
obligation to issue Conversion Shares and Warrants upon conversion of the
Debentures and the Preferred Shares in accordance with the Debentures and the
Certificate of Designation, respectively, is absolute and unconditional,
regardless of the dilution that such issuance may have on the ownership
interests of other stockholders.
p. Intellectual Property. Each of the Company and its subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted and as described in the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1996. Neither the Company nor
any subsidiary of the Company infringes or is in conflict with any right of any
other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
q. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
4. COVENANTS.
a. Commercially Reasonable Efforts. The parties shall use all commercially
reasonable efforts timely to satisfy each of the conditions described in Section
6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to the Purchasers promptly after such filing. The Company shall, on or before
the date of the First Closing, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the date
of the First Closing.
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c. Reporting Status. So long as any Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of the
Convertible Securities as set forth on Schedule 4(d); provided, however, that
the Company shall not, directly or indirectly, use such proceeds for any loan to
or investment in any other corporation, partnership, enterprise or other person
(except in connection with its direct subsidiaries).
e. Additional Equity Capital; Right of First Offer. The Company agrees that
during the period beginning on the date of the First Closing and ending one
hundred and eighty (180) days following the First Closing (the "Lock-Up
Period"), the Company will not, without the prior written consent of SFG,
contract with any party to obtain additional equity financing (including debt
financing with an equity component) in any form having common stock registration
rights and/or public resale rights effective within 270 days of the date of the
First Closing ("Future Offerings"). In addition, the Company will not conduct
any Future Offering during the period beginning on the first day immediately
after the conclusion of the Lock-Up Period and ending 270 days thereafter unless
it shall have first delivered to each Purchaser at least five (5) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof, and
providing each Purchaser and its affiliates, an option during the five (5)
business day period following delivery of such notice to purchase all or any
portion of such Purchaser's Applicable Percentage (as defined below) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this and
the immediately preceding sentence are collectively referred to as the "Capital
Raising Limitations"). The Capital Raising Limitations shall not apply to any
commercial bank loan or the issuance of securities in connection with a
strategic merger, consolidation, acquisition or sale of assets, or in connection
with any strategic partnership or joint venture, or in connection with the
disposition or acquisition of a business, product or license by the Company or
exercise of options by employees, consultants or directors. The Capital Raising
Limitations also shall not apply to (i) the issuance of securities pursuant to
an underwritten public offering, (ii) the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or (iii) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees,
directors or consultants. For purposes of this Section 4(e), "Applicable
Percentage" at any time with respect to any Purchaser shall mean the percentage
obtained by dividing (x) the aggregate number of Conversion Shares then owned
by, or issuable upon conversion of Debentures and Preferred Shares to, such
Purchaser by (y) the aggregate number of Conversion Shares then outstanding or
issuable to all Purchasers (determined as set forth in clause (x) of this
sentence).
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f. Expenses. The Company shall pay all accountable expenses incurred by SFG
(excluding salaries of SFG employees) in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
attorneys' fees and expenses. The Company's obligation to pay SFG's accountable
expenses under this Section 4(f) shall be limited to Twenty Thousand Dollars
($20,000) in the aggregate.
g. Financial Information. The Company agrees to send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K; and (ii) within three (3) days
after release, copies of all press releases issued by the Company or any of its
subsidiaries. In addition, the Company shall send to each Purchaser a draft of
the Company's proxy statement for review, for informational purposes only,
(prior to the filing thereof with the SEC) with respect to the upcoming meeting
of shareholders at which the approval of blank check preferred stock will be
sought.
h. Reservation of Shares. The Company shall at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the full conversion of the outstanding Debentures and
Preferred Shares and issuance of the Conversion Shares in connection therewith
and the full exercise of the Warrants and the issuance of the Warrant Shares in
connection therewith and as otherwise required by the Debentures, the
Certificate of Designation and the Warrants. The Company shall not reduce the
number of shares reserved for issuance upon conversion of the Debentures and
Preferred Shares and the full exercise of the Warrants without the consent of
the Purchasers holding a majority of the principal amount of the Debentures then
held by all Purchasers and the Purchasers holding a majority of the Preferred
Shares then held by all Purchasers.
i. Listing. The Company shall promptly secure the listing of the Conversion
Shares and Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares from time to time issuable upon conversion of the Debentures and
Preferred Shares and Warrant Shares from time to time issuable upon exercise of
the Warrants. The Company will take all action necessary to continue the listing
and trading of its Common Stock on the NASDAQ, the New York Stock Exchange
("NYSE") or the American Stock Exchange ("AMEX") and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable.
j. Corporate Existence. So long as a Purchaser beneficially owns any
Debentures, Preferred Shares or Warrants, the Company shall maintain its
corporate existence, except in the event of a merger, consolidation or sale of
all or substantially all of the Company's assets, as long as the
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<PAGE>
surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Debentures and Preferred
Shares and exercise in full of all Warrants outstanding as of the date of such
transaction and (ii) is a publicly traded corporation whose common stock is
listed for trading on the NASDAQ, NYSE or AMEX.
k. No Dividends, Etc. So long as a Purchaser beneficially owns at least ten
percent (10%) of the original principal amount or face amount, as applicable, of
the Convertible Securities, the Company shall not redeem, or declare or pay any
cash dividend or distribution on, any capital stock of the Company (other than
the Preferred Shares).
l. Sales of Common Stock. So long as such Purchaser beneficially owns any
Convertible Securities, the Purchaser agrees to be responsive to reasonable
inquiries by the Company regarding sales of Common Stock.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by such
Purchaser to the Company upon conversion of the Debentures and Preferred Shares
or exercise of the Warrants. Prior to registration of the Conversion Shares and
Warrant Shares under the Securities Act or resale of such Securities under Rule
144, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than such instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof in the case of the Conversion
Shares and Warrant Shares prior to registration of the Conversion Shares and
Warrant Shares under the Securities Act, will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section shall
affect in any way each Purchaser's obligations and agreement set forth in
Section 2(g) hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities law. If a Purchaser provides the Company with an opinion
of counsel, which opinion of counsel shall be in form, substance and scope
customary for opinions of counsel in comparable transactions (the cost of which
shall be borne by the Purchaser), to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from
registration, the Company shall permit the transfer, and, in the case of the
Conversion Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by a Purchaser. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees,
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<PAGE>
in the event of a breach or threatened breach by the Company of the provisions
of this Section 5, that a Purchaser shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Convertible
Securities to a Purchaser at the closings is subject to the satisfaction, at or
before the appropriate closing, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion. The obligation of the
Company to issue and sell the Convertible Securities to any Purchaser hereunder
is distinct and separate from its obligation to issue and sell Convertible
Securities to any other Purchaser hereunder and any failure by one or more
Purchasers to fulfill the conditions set forth herein or to consummate the
purchase of Convertible Securities hereunder will not relieve the Company of its
obligations with respect to any other Purchaser.
(a) With respect to the First Closing:
(i) The applicable Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Company.
(ii) The applicable Purchaser shall have paid the Purchase Price for
the Convertible Securities purchased in accordance with Section 1(b) above.
(iii) The representations and warranties of the applicable Purchaser
shall be true and correct in all material respects as of the date when made and
as of the date and time of the First Closing as though made at that time (except
for representations and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of such date), and
the applicable Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to the First Closing.
(iv) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(b) With respect to the Second Closing:
(i) The applicable Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Company.
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<PAGE>
(ii) The applicable Purchaser shall have paid the Purchase Price for
the Convertible Securities purchased in accordance with Section 1(b) above.
(iii) The representations and warranties of the applicable Purchaser
shall be true and correct in all material respects as of the date when made and
as of the date and time of such closing as though made at that time (except for
representations and warranties that speak as of a specific date), and the
applicable Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to such closing.
(iv) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase Convertible
Securities at the closings is subject to the satisfaction, at or before the
appropriate closing date, of each of the following conditions, provided that
these conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
(a) With respect to the First Closing:
(i) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to such
Purchaser.
(ii) The Company shall have delivered duly executed Debentures (in
such denominations as such Purchaser shall request) to such Purchaser in
accordance with Section 1(b) above.
(iii) The Common Stock shall be authorized for quotation on NASDAQ and
trading in the Common Stock (or NASDAQ generally) shall not have been suspended
by the SEC or NASDAQ.
(iv) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the date
of the First Closing as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the date of the First Closing.
Such Purchaser shall have received a certificate, executed by the chief
executive officer of the Company, dated as of the date of the First
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<PAGE>
Closing, to the foregoing effect and as to such other matters as may be
reasonably requested by such Purchaser.
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(vi) Such Purchaser shall have received the officer's certificate
described in Section 3(c) above, dated as of the date of the First Closing.
(vii) Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the date of the First Closing, in form, scope and substance
reasonably satisfactory to such Purchaser and in substantially the form of
Exhibit D-1 attached hereto.
(viii) The Company shall have delivered evidence reasonably
satisfactory to the Purchasers that the Company's transfer agent has agreed to
act in accordance with irrevocable instructions in the form attached hereto as
Exhibit E.
(b) With respect to the Second Closing:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to such Purchaser.
(ii) The Company shall have delivered duly executed Debentures (or
certificates representing the Preferred Shares) (each in such denominations as
such Purchaser shall request) to such Purchaser in accordance with Section 1(b)
above.
(iii) The Common Stock shall be authorized for quotation on NASDAQ and
trading in the Common Stock (or NASDAQ generally) shall not have been suspended
by the SEC or NASDAQ.
(iv) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the date
of the Second Closing as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the date of the Second Closing.
Such Purchaser shall have received a certificate, executed by the chief
executive officer of the Company, dated as of the date of the Second Closing, to
the foregoing effect and as to such other matters as may be reasonably requested
by such Purchaser (including, but not limited to, certifications related to and
with respect to the Preferred Shares and the Conversion Shares issuable upon
conversion thereof).
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<PAGE>
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(vi) Such Purchaser shall have received the officer's certificate
described in Section 3(c) above, dated as of the date of the Second Closing.
(vii) Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the date of the Second Closing, in form, scope and
substance reasonably satisfactory to such Purchaser and in substantially the
form of Exhibit D-1 attached hereto (if Debentures are to be issued and sold) or
in the form of Exhibit D-2 attached hereto (if Preferred Shares are to be issued
and sold).
(viii) The Registration Statement required to be filed by the Company
pursuant to Section 2(a) of the Registration Rights Agreement shall have been
declared effective by the SEC no later than the one hundred and eightieth
(180th) day after the First Closing and shall be effective and available for use
by such Purchaser as of the date of the Second Closing.
(ix) No material adverse change or development in the business,
operations, financial condition or results of operations of the Company shall
have occurred since the First Closing.
(x) No Event of Default (as defined in Article VIII of the Debentures)
shall have occurred.
(xi) If Preferred Shares are to be issued and sold, the Certificate of
Designation shall have been accepted for filing with the Secretary of State of
Virginia, and a copy thereof certified by such Secretary of State shall have
been delivered to such Purchaser.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company and
each Purchaser irrevocably consent to the jurisdiction of the United States
federal courts located in New York, New York in any suit or proceeding based on
or arising under this Agreement and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
and each Purchaser irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company and each Purchaser further
agree that service of process upon the Company mailed by first class mail shall
be deemed in every respect effective service of process upon the Company in any
suit or proceeding based on or arising under this Agreement. Nothing
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<PAGE>
herein shall affect any party's right to serve process in any other manner
permitted by law. The Company agrees that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Purchasers.
f. Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
FastComm Communications Corporation
45472 Holiday Drive
Sterling, VA 20166
Telecopy: (703) 318-4315
Attn: President
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<PAGE>
with a copy to:
Amon & Sabatini, L.L.P.
437 Madison Avenue
New York, NY 10022
Telecopy: (212) 980-3075
Attn: Thomas Amon, Esquire
If to Capital Ventures International:
Capital Ventures International
c/o Heights Capital Management
425 California Street
Suite 1100
San Francisco, CA 94104
Telecopy: (415) 403-6525
Attention: Michael Spolan
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Stephen T. Burdumy, Esquire
If to any other Purchaser, to such address set forth under such Purchaser's
name on the signature page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Neither the
Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Purchaser may assign its rights hereunder to
any of its "affiliates," as that term is defined under the Exchange Act, without
the consent of the Company. This provision shall not limit a Purchaser's right
to transfer the Securities pursuant to the terms and conditions of the
Debentures, the Certificate of Designation, the Warrants and this Agreement or
to assign such Purchaser's rights hereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.
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<PAGE>
i. Survival. The representations and warranties of the Company and the
Purchasers and the agreements and covenants set forth in Sections 2, 3, 4, 5 and
8 shall survive the closings hereunder notwithstanding any due diligence
investigation conducted by or on behalf of any Purchasers. The Company agrees to
indemnify and hold harmless each Purchaser and each of such Purchaser's
officers, directors, employees, partners, agents and affiliates for loss or
damage (including, without limitation, all legal costs and expenses and other
out-of-pocket expenses) arising as a result of or related to any material breach
by the Company of any of its representations or covenants set forth herein.
j. Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
l. Termination. In the event that the First Closing shall not have occurred
on or before April 12, 1997, unless the parties agree otherwise, this Agreement
shall terminate at the close of business on such date.
m. Force Majeure. Neither the Company nor any Purchaser shall be
responsible for any delay or failure to perform any part of this Agreement to
the extent that such delay or failure is solely caused by fire, flood,
earthquake, explosion, war, labor strike, riot, act of governmental, civil or
military authority which imposes a moratorium on the performance of the specific
obligation in question or other comparable extraordinary event beyond the
Corporation's or Purchaser's control. Notice with full details of any such event
shall be given to the other party as promptly as practicable after its
occurrence. The affected party shall use its best efforts to minimize the
effects of or end any such event so as to facilitate the resumption of full
performance hereunder.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, as authorized agent
By:________________________________
Name:______________________________
Title:_____________________________
RESIDENCE: Cayman Islands
ADDRESS:
c/o Heights Capital Management
425 California Street
Suite 1100
San Francisco, California 94104
Telecopy: (415) 403-6525
Attention: Michael Spolan
AGGREGATE SUBSCRIPTION AMOUNT(1)
Principal Amount of Debentures (or Face
Amount of Preferred Shares) $3,000,000(1)
----------
Purchase Price: $3,000,000(1)
----------
FASTCOMM COMMUNICATIONS CORPORATION
By:___________________________
Name:_________________________
Title:________________________
- ------------
(1) Note: 60% of the purchase price is due at the First Closing (at which
closing 60% of the Debentures will be issued) and 40% of the purchase price is
due at the Second Closing (at which closing the remainder of the Convertible
Debentures will be issued).
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER:
NELSON PARTNERS
By:________________________________
Name:______________________________
Title:_____________________________
RESIDENCE: Bermuda
ADDRESS:
c/o Leeds Management Services, Ltd.
129 Front Street
Hamilton HM12
AGGREGATE SUBSCRIPTION AMOUNT(1)
Principal Amount of Debentures (or Face
Amount of Preferred Shares) $500,000(1)
--------
Purchase Price: $500,000(1)
--------
FASTCOMM COMMUNICATIONS CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
- --------------
(1) Note: 60% of the purchase price is due at the First Closing (at which
closing 60% of the Debentures will be issued) and 40% of the purchase price is
due at the Second Closing (at which closing the remainder of the Convertible
Debentures will be issued).
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER:
OLYMPUS SECURITIES, LTD.
By:________________________________
Name:______________________________
Title:_____________________________
RESIDENCE: Bermuda
ADDRESS:
c/o Leeds Management Services, Ltd.
129 Front Street
Hamilton HM12
AGGREGATE SUBSCRIPTION AMOUNT(1)
Principal Amount of Debentures (or Face
Amount of Preferred Shares) $500,000(1)
--------
Purchase Price: $500,000(1)
--------
FASTCOMM COMMUNICATIONS CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
- ------------
(1) Note: 60% of the purchase price is due at the First Closing (at which
closing 60% of the Debentures will be issued) and 40% of the purchase price is
due at the Second Closing (at which closing the remainder of the Convertible
Debentures will be issued).
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER:
CC INVESTMENTS, LDC
By: CSS Corporation Ltd., Corporate Secretary
By:________________________________
Name:______________________________
Title:_____________________________
RESIDENCE: Cayman Islands
ADDRESS:
CC Investments, LDC
c/o Citco Fund Services (Cayman Islands) Ltd.
Corporate Center, West Bay Road
P.O. Box 31106
SMB Grand Cayman, Cayman Islands
AGGREGATE SUBSCRIPTION AMOUNT(1)
Principal Amount of Debentures (or Face
Amount of Preferred Shares) $1,000,000(1)
----------
Purchase Price: $1,000,000(1)
----------
FASTCOMM COMMUNICATIONS CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
- ------------
(1) Note: 60% of the purchase price is due at the First Closing (at which
closing 60% of the Debentures will be issued) and 40% of the purchase price is
due at the Second Closing (at which closing the remainder of the Convertible
Debentures will be issued).
REGISTRATION RIGHTS AGREEMENT
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of January 31, 1997 between
FASTCOMM COMMUNICATIONS CORPORATION, a Virginia corporation (the "Company"), and
Richard L. Apel (the "Hder").
1.
(a)furnish to the Holder of such Registrable Securities a copy of each such
amendment and supplement thereto (in each case including all exhibits), and such
documents, if any, incorporated by reference in such registration statement or
prospectus, and such other documents, as the Holder may reasonably request;
(b)use best efforts to register or qualify all Registrable Securities and other
securities covered by such registration statement under such other securities or
blue sky laws of the states of the United States as the Holder shall reasonably
request, to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and do any and all other acts and
things which may be necessary or advisable to enable the Holder to consummate
the disposition in such jurisdictions of his Registrable Securities offered by
such registration statement, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
subsection (d) be obligated to be so qualified, or to subject itself to taxation
in any such jurisdiction, or to consent general service of process in any such
jurisdiction;
In addition, the Company shall not be required to qualify the Registrable
Shares or any portion thereof in any jurisdiction where the Registrable Shares
do not meet the requirements of such jurisdiction.
(c)upon request, furnish to the Holder of Registrable Securities a signed
counterpart, addressed to the Holder, an opinion of counsel for the Company,
dated the effective date of such registration statement covering such items that
are customarily covered in the opinion of issuer's counsel delivered to
underwriters in underwritten public offerings of securities;
(d)provide and cause to be maintained a transfer agent and registrar for all
Registrable Securities covered by such registration statement from and after a
date not later than the effective date of such registration statement;
(e)use best efforts to list all Registrable Securities covered by such
registration statement on each securities exchange on which any of the Company's
Common Stock is then listed or, if the Common Stock is not then quoted on NASDAQ
or listed on any national securities exchange, use its best efforts to have such
Company's Common Stock covered by such registration statement quoted by NASDAQ
or, at the option of the Company, listed on a national securities exchange; and
(f)Expenses. Except as otherwise required by applicable law, the Company shall
pay all Registration Expenses in connection with the registration of the
Registrable Securities pursuant to Section 2.1.
1Piggy-Back Registration.
(a)Right to Include Registrable Shares. If the Company at any time proposes to
register any of its securities under the Securities Act (other than a
registration on Form S-4, S-8, S-14 or S-15 or any successor or similar forms
and other than pursuant to Section 2.1), for sale in a Primary
2
<PAGE>
Registration it will each such time give prompt written notice to the Holder of
its intention to do so and of the Holder's rights under this Section 2.2. Upon
the written request of the Holder made within thirty (30) days after the receipt
of the notice (which request shall specify the Registrable Shares intended to be
disposed of by the Holder and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Shares which the Company has been so requested
to register by the Holder, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Shares so to be registered, by inclusion of such Registrable Shares in the
registration statement and, in the case of an underwritten offering, the
underwriting which covers the securities which the Company proposes to register;
provided, however, that if, at any time after giving written notice or its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason either not to register or to delay registration
of such securities, the Company may, at its election, give written notice of
such determination to the Holder and, upon the giving of such notice, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Shares in connection with such registration (but shall
pay all Registration Expenses in connection therewith), and (ii) in the case of
a determination to delay registering, shall be permitted to delay registering
such other securities. No registration effected under this Section 2.2 shall
relieve the Company of its obligation to effect the Primary Registration under
Section 2.1. The Holder's participation in any such piggyback registration shall
not require that he pay any portion of the Registration Expenses incurred by the
Company but such Holder shall pay the proportional amount of all state and
federal registration and filing fees and underwriting discounts and commissions
applicable to Registrable Shares sold by him and fees and disbursements of any
legal counsel or accountants retained by such Holder.
(b)Priority in Piggy-Back Registrations. If (i) a registration pursuant to this
Section 2.2 involves an underwritten offering of the securities so being
registered to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized standing under underwriting terms appropriate
for such a transaction, and (ii) the managing underwriter of such underwritten
offering shall inform the Company and the Holder (if any Registrable Shares held
by the Holder have been requested to be included in such underwritten offering)
by letter of its belief that the distribution of all or a specified number of
the Registrable Shares requested to be included concurrently with the securities
being distributed by such underwriters would interfere with the successful
marketing of the securities being distributed by such underwriters (such writing
to state the basis of such belief and the approximate number of the Registrable
Shares requested to be included which may be distributed without such effect),
then the Company may, upon written notice to the Holder, reduce (if and to the
extent stated by such managing underwriter to be necessary to eliminate such
effect) the number of the Registrable Shares, if any, requested to be included
so that the resultant aggregate number of the Registrable Shares requested to be
included that will be included in such registration shall be equal to the number
of shares stated in such managing underwriter's letter; provided, however, that
the priority in such registration shall be as follows, (i) first, securities
offered for the account of the Company or, if such registration is for a
security holder exercising a contractual request for registration, then
securities offered for the account of such security holder, and (ii) second, the
Registrable Shares on a proportional basis.
3
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(c)Expiration of Piggy-Back Rights. The Company shall not be obligated to
include Registrable Shares in any registration statement pursuant to this
Section 2.2 that will become effective during a period when the Holder thereof
is eligible to sell such Registrable Shares pursuant to the Commission's Rule
144.
(d)Lack of Information. The Company shall not be required to register or cause
the registration of the Registrable Shares or any portion thereof pursuant to
this Section 2.2 hereof if the Holder shall not promptly supply the Company with
any information which the Company may reasonably and timely request in written
form in order to permit the preparation, filing and effectiveness of a
registration statement in accordance with the Securities Act and any rules and
regulations promulgated by the Commission thereunder.
2Registration Procedures.
If and whenever the Company is required to use best efforts to effect the
registration of any Registrable Shares under the Securities Act as provided in
Sections 2.1 and 2.2 the Company shall, as expeditiously as possible:
(i)prepare and (within sixty (60) days after the end of the period within which
requests for registration may be given to the Company or in any event as soon
thereafter as possible) file with the Commission the requisite registration
statement to effect such registration and thereafter use best efforts to cause
such registration statement to become and remain effective; provided, however,
that the Company may discontinue any registration of its securities which are
not Registrable Shares (and, under the circumstances specified in Section
2.2(a), its securities which are Registrable Shares) at any time prior to the
effective date of the registration statement relating thereto;
(ii)prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Shares covered by such registration statement until the earlier of
such time as all of such securities have been disposed of in accordance with the
intended methods of disposition by the Holder thereof set forth in such
registration statement or (a) in the case of a registration pursuant to Section
2.1, the period of time specified in Section 2.1, or (b) in the case of a
registration pursuant to Section 2.2, the expiration of one hundred eighty (180)
days after such registration statement becomes effective;
(iii)furnish to the Holder of the Registrable Shares covered by such
registration statement and each underwriter, if any, of the securities being
sold by such seller such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus contained in
such registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents, as the Holder and underwriter, if any, may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Shares owned by such seller;
(iv)use best efforts to register or qualify all Registrable Shares and other
securities covered by such registration statement under such other securities
laws or blue sky laws of such jurisdiction
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the Holder and any underwriter of the securities being sold by such underwriter
and the Holder shall reasonably request, to keep such registration statement in
effect, and take any other action which may be reasonably necessary or advisable
to enable the Holder and underwriter to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the Company
shall not for any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(v)notify each seller of Registrable Shares covered by such registration
statement and the Holder, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon the Company's discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the request of any
such seller or the Holder promptly prepare and furnish to such seller or the
Holder and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made; and
The Holder agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (v) of this Section
2.3, the Holder will forthwith discontinue his disposition of Registrable Shares
until the Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (v) of this Section 2.3 and, if so
directed by the Company (at the Company's expense) all copies, other than
permanent file copies, then in the Holder's possession of the prospectus
relating to such Registrable Shares current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in paragraph (ii) of this Section 2.3 shall be extended by the length
of the period from and including the date when each seller of any Registrable
Shares covered by such registration statement shall have received such notice to
the date on which each such seller has received the copies of the supplemented
or amended prospectus contemplated by paragraph (v) of this Section 2.3.
3Underwritten Offerings.
(a)Underwritten Piggy-Back Offerings. The Holder of Registrable Shares to be
distributed by underwriters in a registration pursuant to Section 2.2 shall be
parties to the underwriting agreement between the Company and such underwriters
and may require that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement also be conditions
precedent to the obligations of the Holder of Registrable Shares. The Holder
agrees to make such representations or warranties to or agreements with the
Company or the underwriters as are customarily given to the underwriters and any
other representation required by law.
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(b)Holdback Agreements. Holder agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of any securities of
the Company during the seven days prior to and the one hundred eighty (180) days
(or such longer period as the managing underwriter may reasonably require for
all holdback agreements entered into with holders of Common Stock) after any
underwritten registration pursuant to Section 2.2 has become effective (the
"Holdback"), except as part of such underwritten registration, whether or not
such Holder participates in such registration; provided however, that if a
Holder does not participate in a registration, such Holder shall not be subject
to the Holdback beyond the expiration of this Agreement, unless agreed to in
writing.
4Preparation; Reasonable Investigation. Notwithstanding Section 2.1 hereof and
despite a Request, the Company shall not be required to file any registration
statement, or if filed cause any registration statement to become effective, if
at the time the Holder makes a Request, or during the period after filing but
before effectiveness, the Company is engaged in negotiations to acquire the
stock or assets of any business entity which would be required to make any
public announcement thereof; provided, however, no such delay occasioned under
this Section shall exceed sixty (60) days. If, however, the Company shall take
any action with respect to the acquisition of the stock or assets of any
business entity which would require the Company to amend any prospectus included
in a registration statement which became effective under the provisions of
Section 2.1 hereof by including therein financial statements which conform to
the requirements of Regulation S-X promulgated by the Commission, the Holder
agrees to suspend the offering or sale of the Registrable Shares or any portion
thereof for a period not to exceed 60 days so that the Company may prepare such
financial statements, provided that the Company uses best efforts to prepare
such financial statements as promptly as possible and provided further that the
sixty (60) day period referred to in the first sentence of this Section shall be
extended for a period equivalent to the delay.
The Company shall furnish the Holder with a printer's proof of Part I of
any registration statement sufficiently in advance of its filing with the
Commission to provide the Holder with a reasonable opportunity for review and
comment, which proof shall not be materially different in content from Part I of
the registration statement as filed. In addition, the Company shall furnish to
the Holder, promptly after the filing thereof, a copy of any registration
statement as filed with the Commission and any amendments thereto, including if
requested, copies of any exhibits and consents filed therewith and of any
exhibits incorporated therein by reference, and shall not circulate any
preliminary prospectus until five (5) days after a copy of the same has been
furnished to the Holder. In addition, the Company shall furnish the Holder as
many copies of any prospectuses (and of any preliminary, amended or supplemented
prospectuses) in connection with such registration as the Holder may reasonably
request.
2.Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Merger Agreement: As defined in Section 1 of this Agreement.
Closing Date: As defined in Section 3 of the Merger Agreement.
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Commission: The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
Common Stock: The common stock, $0.01 par value, of the Company.
Company: As defined in the introductory paragraph of this Agreement.
Holder: As defined in the introductory paragraph to this Agreement.
Person: A corporation, an association, a partnership, an organization,
business, an individual, a governmental or political subdivision thereof or a
governmental agency.
Registrable Shares or Registrable Securities: (a) Any shares of Common
Stock received by Holder pursuant to the Merger Agreement, and (b) any
additional shares of Common Stock receivable or received by the Holder upon the
payment of stock dividends thereon and (c) any securities issued or issuable
with respect to the Common Stock referred to in the foregoing subdivision by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise,
excepting any of the aforementioned shares which, in the opinion of Amon &
Sabatini (or if such firm is not counsel to the Company, counsel to the Holder),
may at the time of proposed sale or registration be sold pursuant to Rule 144(k)
of the Securities Act or any exemption to the same effect which permits such
shares to be freely sold. Any particular Registrable Shares shall cease to be
Registrable Shares when (i) a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) they may be distributed to the public pursuant to Rule 144 (or
any successor provision) under the Securities Act, or (iii) three years shall
have expired since the Closing Date.
Registration Expenses: All expenses incident to the Company's performance
of or compliance with Section 2, including, without limitation, all
registration, filing and National Association of Securities Dealers, Inc. fees,
all fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursement of counsel for the Company and of its independent
public accountants any fees and disbursements of underwriters customarily paid
by issuers of securities, but excluding underwriting discounts and commissions,
transfer taxes, if any and fees and disbursements of legal counsel and
accountants, if any, retained by the Holders.
Request: The act of the Holder to either demand or request registration by
the Company of either all or any portion thereof of his Registrable Shares.
Securities Act: The Securities Act of 1933, or any similar Federal statute,
and the rules and regulations of the Commission thereunder, all as of the same
shall be in effect at the time. References to a particular section of the
Securities Act of 1933 shall include a reference to the comparable section, if
any, of any such similar Federal statute.
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3.Rule 144. The Company shall timely file the reports required to be filed by it
under the Securities Exchange Act of 1934 (including but not limited to the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities
Act) and the rules and regulations adopted by the Commission thereunder and will
take such further action as any Holder of Registrable Shares may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Shares without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of the Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
4.Amendments and Waivers. This Agreement may be amended only by written
instrument signed by the parties hereto.
5.Nominees for Beneficial Owners. In the event that any Registrable Shares are
held by a nominee for the beneficial owner thereof, the beneficial owner thereof
may, at his election, be treated as the Holder of such Registrable Shares for
purposes of any request or other action by any Holder or the Holders pursuant to
this Agreement. If the beneficial owner of any Registrable Shares so elects, the
Company may require assurance reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Shares.
6.Notices. Any notice or other communication required or permitted to be given
hereunder shall be deemed to have been given if delivered, or five (5) days
after mailing by certified or registered mail, return receipt requested, first
class postage prepaid, or one business day after the time dispatched by
telecopy; in every case addressed as follows:
(a)If to the Company:
FastComm Communications Corporation
45472 Holiday Drive
Sterling, Virginia 20166
Attn: Mark H. Rafferty
(b)If to a Holder:
3332 Dogwood Lane
Duluth, Georgia 30136
or at such address as the party addressed may from time to time designate in
writing to the other parties in like manner. Any communication dispatched by
telecopy shall be confirmed by letter.
7.Indemnification. The Company and the Holder agree to indemnify each other on
the terms and conditions set forth below:
(a)Indemnification by the Company. The Company will indemnify and hold harmless
the Holder and each underwriter employed by the Holder (including any broker or
dealer through whom the shares may be sold) and each person, if any, who
controls the Holder or any such underwriter within the meaning of Section 15 of
the Act from and against any and all losses,
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claims, damages, expenses or liabilities, joint or several, to which they or any
of them may become subject under the Act or under any other statute or at common
law or otherwise, including the Blue Sky laws of the various jurisdictions, and,
except as hereinafter provided, will reimburse the Holder and each of the
underwriters and each such controlling person, if any, for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement of a material fact,
or omission to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, contained in any
registration statement, preliminary or amended prospectus or any prospectus (or
any registration statement or prospectus as from time to time amended or
supplemented by the Company) which the Company shall file pursuant to either
Sections 2.1 or 2.2 hereof, unless such untrue statement or omission was made in
such registration statement, preliminary or amended preliminary prospectus or
prospectus (or any registration statement or prospectus as from time to time
amended or supplemented by the Company) in reliance upon and in conformity with
information furnished in writing to the Company by the Holder or any underwriter
employed by the Holder. Promptly after receipt by the Holder or any underwriter
or any person controlling the Holder or such underwriter of notice of the
commencement of any action (but in no event later than ten (10) days prior to
the time any notice of appearance or any response thereto is required) in
respect of which indemnity may be sought against the Company, the Holder or such
underwriter, as the case may be, shall notify the Company in writing of the
commencement thereof, and, subject to the provisions hereinafter stated, the
Company shall assume the defense of such action (including the employment of
counsel) insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against the Company. The Holder or any
underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
Company unless the employment of such counsel has been specifically authorized
by it. The Company shall not be liable to indemnify any person, as required by
this Section, for any settlement of any such action effected without its
consent, nor shall it be liable to indemnify any person unless it shall be
notified of the commencement of any action within the time limits and as set
forth above.
(b)Indemnification by the Holder. The Holder will indemnify and hold harmless
the Company, each of its directors and officers who have signed the registration
statement and each person, if any, who controls the Company with the meaning of
Section 15 of the Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act or under any other statute or at common
law or otherwise, including the Blue Sky laws of the various jurisdictions, and
except as hereinafter provided, will reimburse the Company and each such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement of material fact, or an omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, contained in any registration
statement, any preliminary or amended preliminary prospectus or in any
prospectus (or the registration statement or prospectus as from time to time
amended or supplemented) which the Company shall file pursuant to Sections 2.1
or 2.2 hereof,
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but only insofar as any such statement or omission was made in reliance upon and
in conformity with information furnished in writing to the Company by the Holder
or any underwriter employed by the Holder. Promptly after receipt of notice of
the commencement of any action in respect of which indemnity may be sought
against the Holder (but in no event later than ten (10) days prior to the time
any notice of appearance or any response thereto is required) the Company shall
notify the Holder in writing of the commencement thereof, and the Holder shall,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel) insofar as such action shall relate to any
alleged liability in respect of which indemnity may be sought against the
Holder. The Company and each director, officer or controlling person shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the Holder unless the employment of such counsel has been
specifically authorized by him. The Holder shall not be liable to indemnify any
person, as required by this Section, for any settlement of any such action
effected without the Holder's consent, nor shall he be liable to indemnify any
person unless he shall be notified of the commencement of any action within the
time limits and as set forth above.
8.Miscellaneous.
(a)Assignment. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns. In addition, and whether or not any express assignment shall have been
made, the provisions of this Agreement which are for the benefit of the parties
hereto other than the Company shall also be for the benefit of and enforceable
by any subsequent Holder of any Registrable Shares. Any assignment pursuant
hereto by either party shall be consented in writing, and any such written
consent shall not be unreasonably withheld by either party.
(b)Descriptive Headings. The descriptive headings of the several sections and
paragraphs of this Agreement are inserted for reference only and shall not limit
or otherwise affect the meaning hereof.
(c)Governing Law. This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the
Commonwealth of Virginia without reference to the principles of conflicts of
laws.
(d)Counterparts. This Agreement may be executed simultaneously in any number of
counterparts, and may be executed in any number of counterparts, each of which
shall be deemed an original, but all such counterparts shall together constitute
one and the same instrument.
(e)Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto and supersedes all
prior agreements and understandings related to the subject matter hereof.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
"THE COMPANY"
FASTCOMM COMMUNICATIONS CORPORATION
By:________________________________
Name:________________
Title:_______________
"THE HOLDER"
____________________________________
Richard L. Apel C
EXHIBIT C
to
Securities Purchase
Agreement
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 9, 1997
by and among FASTCOMM COMMUNICATIONS CORPORATION, a corporation organized under
the laws of the Commonwealth of Virginia, with headquarters located at 45472
Holiday Drive, Sterling, Virginia 20166 (the "Company"), and the undersigned
(together with affiliates, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (the "Securities
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors (i)
convertible debentures ("Debentures") in the aggregate principal amount of Five
Million Dollars ($5,000,000) due April 9, 2001, which are convertible into (a)
(x) shares (the "Conversion Shares") of the Company's common stock, par value
$.01 per share (the "Common Stock") and (y) warrants (the "Warrants") to acquire
shares of Common Stock (the "Warrant Shares") or (b) if authorized by the Board
of Directors and/or the shareholders of the Company, shares of a to-be-created
class of Series A preferred stock of the Company (the "Preferred Shares") which
are convertible into Conversion Shares and Warrants or (ii) if authorized by the
Board of Directors and/or the shareholders of the Company, Preferred Shares;
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the following
meanings:
<PAGE>
(i) "Investors" means the Initial Investors and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and the
Warrant Shares (including any Conversion Shares or Warrant Shares issuable with
respect to Conversion Default Payments under the Debentures and Preferred Shares
or with respect to any prepayment or redemption of the Debentures or Preferred
Shares) issued or issuable with respect to the Debentures, the Preferred Shares
and the Warrants and any shares of capital stock issued or issuable, from time
to time (with any adjustments), on or in exchange for or otherwise with respect
to any of the foregoing.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or prior to
the date (the "Filing Date") which is twenty (20) days after the date of the
First Closing (as defined in the Securities Purchase Agreement), file with the
Securities and Exchange Commission ("SEC") a Registration Statement on Form S-3
(or, if Form S-3 is not then available, on such form of Registration Statement
as is then available to effect a registration of all of the Registrable
Securities (including, without limitation, the Registrable Securities issuable
with respect to any Debentures or Preferred Shares (or Warrants issuable upon
conversion of either the Debentures or the Preferred Shares) issuable pursuant
to the Securities Purchase Agreement after the First Closing thereunder),
subject to the consent of the Initial Investors (as determined pursuant to
Section 11(j) hereof)) covering the resale of at least 3,000,000 shares of
Registrable Securities, which Registration Statement, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Debentures and the Preferred Shares and exercise of the
Warrants (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions or (ii) by reason of changes in the Conversion Price of the
Debentures and the Preferred Shares or the Exercise Price of the Warrants
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in accordance with the terms thereof. The Registrable Securities included in the
Registration Statement shall be allocated to the Investors as set forth in
Section 11(k) hereof. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission.
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of the Initial Investors, shall
have the right to select a total of one legal counsel to represent the Investors
and an investment banker or bankers and manager or managers to administer the
offering, the identification of which investment banker or bankers or manager or
managers shall be subject to the Company's prior written consent (which consent
shall not be unreasonably withheld).
c. Payments by the Company. The Company shall cause the registration
statement to become effective as soon as practicable, but in no event later than
the one hundred and twentieth (120th) day after the date of the First Closing
(the "Registration Deadline"). If (i) the registration statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective by the SEC on or before the Registration
Deadline or if, after the registration statement has been declared effective by
the SEC, sales of all the Registrable Securities (including any Registrable
Securities required to be registered pursuant to Section 3(b) hereof) cannot be
made pursuant to the registration statement (by reason of a stop order or the
Company's failure to update the registration statement or any other reason
outside the control of the Investors) or (ii) the Common Stock is not listed or
included for quotation on the Nasdaq National Market ("Nasdaq"), the New York
Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at any
time after the Registration Deadline, then the Company will make payments to the
Investors in such amounts and at such times as shall be determined pursuant to
this Section 2(c) as partial relief for the damages to the Investors by reason
of any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). The Company shall pay to each Investor an amount equal to
the aggregate principal amount of the Debentures (and aggregate face amount of
the Preferred Shares) held by such Investor (including, without limitation,
Debentures and Preferred Shares that have been converted into Conversion Shares
and Warrants (including Warrant Shares) then held by such Investor) (the
"Aggregate Principal Amount"), multiplied by one and one half percent (1.5%),
multiplied by the sum of (y) the number of months (prorated for partial months)
after the Registration Deadline and prior to the date the Registration Statement
filed pursuant to Section 2(a) is declared effective by the SEC and (z) the
number of months (prorated for partial months) that sales cannot be made
pursuant to the registration statement after the Registration Statement has been
declared effective or the Common Stock is not listed or included for quotation
on Nasdaq, the NYSE or AMEX; provided, however, that the aggregate payment
pursuant to this sentence shall not exceed nine percent (9%) of the Aggregate
Principal Amount; and provided, further, however, that there shall be excluded
from each such period any delays which are primarily attributable to (A) changes
(other than corrections of Company mistakes with respect to information
previously provided by the
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Investors) required by the Investors or Susquehanna Financial Group, Inc.
("SFG") in the Registration Statement with respect to information relating to
the Investors or SFG, respectively, including, without limitation, changes to
the plan of distribution or (B) a change in the policies, procedures,
interpretations, positions, practices or rules of the SEC made public after
March 6, 1997. (For example, if the Registration Statement is not effective by
the Registration Deadline, the Company would pay $15,000 for each $1,000,000 of
Aggregate Principal Amount until the date the Registration Statement becomes
effective (but not more than $450,000 in the aggregate.) Such amounts shall be
paid in cash or, at each Investor's option, may be convertible into Common Stock
and Warrants at the "Conversion Price" (as defined in the Debentures). Any
shares of Common Stock issued upon conversion of such amounts (or upon exercise
of such Warrants) shall be Registrable Securities. If the Investor desires to
convert the amounts due hereunder into Registrable Securities it shall so notify
the Company in writing within two (2) business days of the date on which such
amounts are first payable in cash and such amounts shall be so convertible
(pursuant to the mechanics set forth under Article IV of the Debentures or the
comparable article of the Certificate of Designation in respect of the Preferred
Shares (the "Certificate of Designation")), beginning on the last day upon which
the cash amount would otherwise be due in accordance with the following
sentence. Payments of cash pursuant hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, interim payments
shall be made for each such thirty (30) day period.
d. Piggy-Back Registrations. If at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall file with the SEC
a Registration Statement relating to a firm commitment underwritten offering for
its own account or the account of others under the Securities Act of any of its
equity securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days after
the date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, marketing or other factors dictate
such limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
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proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.
e. Eligibility for Form S-3. The Company represents and warrants that it
meets the requirements for the use of Form S-3 for registration of the sale by
the Initial Investors and any other Investor of the Registrable Securities and
the Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for the use of Form
S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2(a), and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, but in no event later than the Registration
Deadline, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the reasonable opinion of counsel to the Initial Investors) may
be immediately sold to the public without registration (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein and all documents incorporated by
reference therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number of
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shares available under a Registration Statement filed pursuant to this Agreement
is, for any three (3) consecutive trading days (the last of such three (3)
trading days being the "Registration Trigger Date"), insufficient to cover one
hundred thirty-five percent (135%) of the Registrable Securities issued or
issuable upon conversion of the Debentures and the Preferred Shares and exercise
of the Warrants held by any Investor, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover two hundred percent (200%) of
the Registrable Securities issued or issuable to such Investor, in each case, as
soon as practicable, but in any event within fifteen (15) days after the
Registration Trigger Date (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. In the event the
Company fails to obtain the effectiveness of any such Registration Statement
within ninety (90) days after a Registration Trigger Date, each Investor shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a written notice to the Company (a "Redemption
Notice"), to require the Company to purchase for cash, a portion of the
Investor's Debentures and Preferred Shares such that the total number of shares
of Common Stock issuable to such Investor upon conversion of its Debentures and
Preferred Shares and exercise of its Warrants does not exceed 135% of the
Registrable Securities issued or issuable upon conversion of such Investor's
Debentures and Preferred Shares and exercise of such Investor's Warrants. The
purchase price per Debenture shall be equal to the Default Amount (as defined in
Article VI.A of the Debentures) therefor and the purchase price per Preferred
Share shall be equal to the Redemption Amount therefor provided in the
Certificate of Designation. If the Corporation fails to purchase any of such
Debentures or Preferred Shares within five (5) business days after its receipt
of a Redemption Notice, then such Investor shall be entitled to the remedies
provided in Article VIII.C of the Debentures or the comparable article of the
Certificate of Designation, as applicable.
c. The Company shall furnish to each Investor whose Registrable Securities
are included in the Registration Statement and its legal counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States as each
Investor who holds Registrable Securities
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<PAGE>
being offered reasonably requests, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest of the
Registrable Securities being offered in an offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use reasonable commercial efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and not file any document to which such counsel reasonably objects.
i. The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act)
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<PAGE>
covering a twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of the Registration
Statement.
j. At the request of any Investor, the Company shall furnish, on the date
of effectiveness of the Registration Statement (i) an opinion, dated as of such
date, from counsel representing the Company addressed to the Investors and in
form, scope and substances as is customarily given in an underwritten public
offering and (ii) in the case of an underwriting, a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and the Investors.
k. The Company shall make available for inspection by (i) any Investor,
(ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector and
any Investor having access to information, shall hold in confidence and shall
not make any disclosure (except to an Investor) of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement, (b) the release of such Records is ordered pursuant
to a subpoena or other order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein shall be deemed to limit
the Investor's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, (iv) such information has been
made
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<PAGE>
generally available to the public other than by disclosure in violation of this
or any other agreement, or (v) such Investor consents to the form and content of
any such disclosure. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor prior to making such disclosure, and allow the
Investor, at its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
m. The Company shall use reasonable commercial efforts either to (i) cause
all the Registrable Securities covered by the Registration Statement to be
listed on the NYSE or the AMEX or another national securities exchange and on
each additional national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such exchange,
or (ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on the Nasdaq and, without limiting the
generality of the foregoing, to arrange for or maintain at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement.
o. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Investors may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or the
Investors may request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
opinion of such counsel in the form attached hereto as Exhibit 1.
p. At the request of any Investor, the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
a Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
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a. It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least three (3) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority in interest of the Registrable
Securities being offered determine to engage the services of an underwriter,
each Investor agrees to enter into and perform such Investor's obligations under
an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f) or 3(g),
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements in usual and customary
form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
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5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees and disbursements
of counsel for the Company, shall be borne by the Company. The Investors shall
be responsible for all cost incurred by them or their advisors and other
professionals (including, without limitation, their legal counsel, accountants
and investment bankers) in connection with any registration hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, members, employees, agents and each
person who control any Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), if any, (each, an "Indemnified Person"), against any joint
or several losses, claims, damages, liabilities or expenses (collectively,
together with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement
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thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees severally and not jointly to indemnify,
hold harmless and defend, to the same extent and in the same manner set forth in
Section 6(a), the Company, each of its directors, each of its officers who signs
the Registration Statement, its employees, agents and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such stockholder or underwriter within the meaning of
the Securities Act or the Exchange Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against any Claim to which any of
them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, and the Indemnified Party failed to utilize
such corrected prospectus.
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c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Investors if it holds Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification or
other
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obligations under this Agreement) by any seller of Registrable Securities shall
be limited in amount to the net amount of proceeds received by such seller from
the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. file with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall limit the Company's obligations under
Section 4(c) of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
b. furnish to each Investor so long as such Investor owns Debentures,
Preferred Shares, Warrants or Registrable Securities, promptly upon request, (i)
a written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the Debentures, the Preferred Shares, the Warrants or the Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this sentence, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein, and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.
14
<PAGE>
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, the Initial
Investors (to the extent the Initial Investors still own Debentures, Preferred
Shares, Warrants or Registrable Securities) and Investors who hold a majority
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
b. Any notices required or permitted to be given under the terms of this
Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
FastComm Communications Corporation
45472 Holiday Drive
Sterling, Virginia 20166
Telecopy: (703) 318-4315
Attn: Chief Financial Officer
with a copy to:
Amon & Sabatini, L.L.P.
437 Madison Avenue
New York, NY 10022
Telecopy: (212) 980-3075
Attn: Thomas Amon, Esquire
15
<PAGE>
If to Capital Ventures International:
Capital Ventures International
c/o Heights Capital Management
425 California Street
Suite 1100
San Francisco, CA 94104
Telecopy: (415) 403-6525
Attention: Michael Spolan
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Attention: Stephen T. Burdumy, Esquire
and if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
in the State of New York. The Company irrevocably consents to the jurisdiction
of the United States federal courts located in New York, New York in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company further agrees that
service of process upon the Company, mailed by first class mail shall be deemed
in every respect effective service of process upon the Company in any such suit
or proceeding. Nothing herein shall affect the Investors' right to serve process
in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
e. This Agreement, the Securities Purchase Agreement, the Debentures and
the Warrants (including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
16
<PAGE>
This Agreement, the Securities Purchase Agreement, the Debentures and the
Warrants supersede all prior agreements and understandings among the parties
hereto and thereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
g. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
j. All consents and other determinations to be made by the Investors or the
Initial Investors pursuant to this Agreement shall be made by the Investors or
the Initial Investors holding a majority of the Registrable Securities
(determined as if all Debentures, Preferred Shares and Warrants then outstanding
had been converted into or exercised for Registrable Securities) held by all
Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors.
l. Neither the Company nor any Investor shall be responsible for any delay
or failure to perform any part of this Agreement to the extent that such delay
or failure is solely caused by fire, flood, earthquake, explosion, war, labor
strike, riot, act of governmental, civil or military authority which imposes a
moratorium on the performance of the specific obligation in question or
17
<PAGE>
other comparable extraordinary event beyond the Corporation's or Investor's
control. Notice with full details of any such event shall be given to the other
party as promptly as practicable after its occurrence. The affected party shall
use its best efforts to minimize the effects of or end any such event so as to
facilitate the resumption of full performance hereunder.
[Remainder of Page Intentionally Left Blank]
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
FASTCOMM COMMUNICATIONS CORPORATION
By:________________________
Name:______________________
Its:_______________________
Initial Investors:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, as authorized agent
By:________________________
Name:______________________
Its:_______________________
NELSON PARTNERS
By:________________________
Name:______________________
Its:_______________________
OLYMPUS SECURITIES, LTD.
By:________________________
Name:______________________
Its:_______________________
CC INVESTMENTS, LDC
By: CSS Corporation Ltd., Corporate Secretary
By:________________________
Name:______________________
Its:_______________________
19
<PAGE>
EXHIBIT 1
to
Registration
Rights
Agreement
[Date]
[Name and address
of transfer agent]
RE: FASTCOMM COMMUNICATIONS CORPORATION
Ladies and Gentlemen:
We are counsel to FASTCOMM COMMUNICATIONS CORPORATION, a corporation
organized under the laws of the Commonwealth of Virginia (the "Company"), and we
understand that [Name of Investor] (the "Holder") has purchased from the Company
(i) convertible debentures due April 9, 2001 (the "Debentures") which are
convertible into (a) (x) shares (the "Conversion Shares") of the Company's
common stock, par value $.01 per share (the "Common Stock") and (y) Warrants
(the "Warrants") to acquire shares of Common Stock (the "Warrant Shares") or (b)
shares of a to-be-created class of Series A preferred stock of the Company (the
"Preferred Shares", together with the Debentures, the "Convertible Securities")
which are convertible into Conversion Shares, upon the terms and subject to the
limitations and conditions set forth in the Debentures or (ii) Preferred Shares.
The Convertible Securities were purchased by the Holder pursuant to a Securities
Purchase Agreement, dated as of April 9, 1997, by and among the Company and the
signatories thereto (the "Agreement"). Pursuant to a Registration Rights
Agreement, dated as of April 9, 1997, by and among the Company and the
signatories thereto (the "Registration Rights Agreement"), the Company agreed
with the Holder, among other things, to register the Registrable Securities (as
that term is defined in the Registration Rights Agreement) under the Securities
Act of 1933, as amended (the "Securities Act"), upon the terms provided in the
Registration Rights Agreement. In connection with the Company's obligations
under the Registration Rights Agreement, on _____ __, 1997, the Company filed a
Registration Statement on Form S-___ (File No. 333- _____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities, which names the Holder as a
selling stockholder thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: [Name of Investor]
EXHIBIT A
to
Securities
Purchase
Agreement
THIS CONVERTIBLE TERM DEBENTURE AND THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
CONVERTIBLE TERM DEBENTURE
April 9, 1997 $ _________
FOR VALUE RECEIVED, FASTCOMM COMMUNICATIONS CORPORATION, a Virginia
corporation (hereinafter called the "Borrower" or the "Corporation") hereby
promises to pay to the order of ______________ or registered assigns (the
"Holder") the sum of ______________________Dollars ($________) on April 9, 2001
(the "Scheduled Maturity Date"), and to pay interest on the unpaid principal
balance hereof at the rate of five percent (5%) per annum from the date hereof
(the "Issue Date") until the same becomes due and payable (which interest shall
accrue on a daily basis based on a 360 day year), whether at maturity or upon
acceleration or otherwise. Any amount of principal of or interest on this
Debenture which is not paid when due shall bear interest at the rate of fifteen
percent (15%) per annum from the due date thereof until the same is paid.
Interest shall commence accruing on the Issue Date and, to the extent not
converted in accordance with the provisions of Article IV below, shall be
payable on the date the principal amount in respect of which it has accrued is
paid, whether at maturity or upon acceleration or by prepayment or otherwise.
Except as otherwise provided in Article VIII hereof, all payments of principal
and interest shall be made in shares of Common Stock and Warrants (each, as
defined below) at a conversion price equal to the average of the Closing Bid
Prices for the ten (10) consecutive trading days ending on the trading day
immediately preceding the Scheduled Maturity Date (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such ten (10) trading day period). All payments shall be made at
such address as the
<PAGE>
Holder shall hereafter give to the Borrower by written notice made in accordance
with the provisions of this Debenture.
This Debenture is being issued by the Borrower along with similar
convertible term debentures (the "Other Debentures" and together with this
Debenture, the "Debentures") delivered to other holders (if any) (together with
the Holder referred to herein, the "Holders") pursuant to that certain
Securities Purchase Agreement, dated as of the date hereof, by and among the
Borrower and the Holders (the "Purchase Agreement").
ARTICLE I
PREPAYMENT
A. Limited Right to Prepay. Upon the occurrence of an Event of Default (as
defined herein), this Debenture shall be prepaid by the Borrower in accordance
with the provisions of Article VIII hereof. Except as provided in Paragraph B of
this Article I, this Debenture may not be prepaid without the prior written
consent of the Holder.
B. Prepayment at Borrower's Option.
(i) So long as no Event of Default shall have occurred, during the
thirty (30) calendar day period beginning on the trading day following the first
ten (10) consecutive trading day period (if any) that the average of the Closing
Bid Prices (as defined below) for the Common Stock is less than $3.02 per share
(subject to equitable adjustments for stock splits, stock dividends,
reclassifications or similar events) and provided the Borrower is not in
material violation of any of its obligations under the Securities Purchase
Agreement or the Registration Rights Agreement, then the Borrower shall have the
right to prepay ("Prepayment at Borrower's Election") all or any portion of the
then outstanding Debentures (other than Debentures which are the subject of a
Notice of Conversion delivered prior to the delivery date of the Optional
Prepayment Notice (as defined below)) for the Optional Prepayment Amount (as
defined below), which right shall be exercisable one time during the term of
this Debenture by the Borrower in its sole discretion by delivery of an Optional
Prepayment Notice during such thirty (30) day period and otherwise in accordance
with the prepayment procedures set forth below. Any optional prepayment pursuant
to this Paragraph B shall be made ratably among the holders of Debentures in
proportion to the principal amount of Debentures then outstanding. Holders of
Debentures may convert all or any part of their Debentures selected for
prepayment hereunder into Common Stock and Warrants at a conversion price equal
to the average of the Closing Bid Prices for the ten (10) consecutive trading
days ending on the trading day immediately preceding the Conversion Date
(subject to equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such ten (10) trading day period) by
delivering a Notice of Conversion to the Borrower at any time prior to the
Effective Date of Prepayment as defined in subparagraph (iii). The "Optional
Prepayment Amount" with respect to each Debenture means (a) 120% multiplied by
the sum of the principal amount thereof plus all
2
<PAGE>
accrued and unpaid interest and Conversion Default Payments (if any) through the
date of prepayment plus (b) Warrants to purchase forty percent (40%) of the
number of shares of Common Stock which would have been issuable to the holder of
such Debenture had such Debenture been converted into Common Stock and Warrants
in accordance with Article IV.A on the date of delivery of the Optional
Prepayment Notice.
(ii) The Borrower may not deliver an Optional Prepayment Notice to a
holder of Debentures unless on or prior to the date of delivery of such Optional
Prepayment Notice, the Borrower shall have deposited with NationsBank, N.A. or
another escrow agent reasonably satisfactory to the Holder, as a trust fund,
cash and Warrants sufficient in amount to pay all amounts to which the holders
of Debentures are entitled upon such prepayment pursuant to subparagraph (i) of
this Paragraph B, with irrevocable instructions and authority to such transfer
agent or escrow agent to complete the prepayment thereof in accordance with this
Paragraph B. Any Optional Prepayment Notice delivered in accordance with the
immediately preceding sentence shall be accompanied by a statement executed by a
duly authorized officer of its transfer agent or escrow agent, certifying the
amount of funds and Warrants which have been deposited with such transfer agent
or escrow agent and that the transfer agent or escrow agent has been instructed
and agrees to act as prepayment agent hereunder.
(iii) The Borrower shall effect each prepayment under this Article I.B
by giving at least five (5) business days but not more than ten (10) business
days prior written notice (the "Optional Prepayment Notice") of the date which
such prepayment is to become effective (the "Effective Date of Prepayment"), the
Debentures selected for prepayment and the Optional Prepayment Amount to (i) the
holders of Debentures selected for prepayment at the address and facsimile
number of such holder appearing in the Borrower's register for the Debentures
and (ii) the transfer agent for the Common Stock, which Optional Prepayment
Notice shall be deemed to have been delivered on the business day after the
Borrower's fax (with a copy sent by overnight courier to the holders of
Debentures) of such notice to the holders of Debentures.
(iv) The Optional Prepayment Amount shall be paid to the holder of the
Debentures being prepaid within three (3) business days of the Effective Date of
Prepayment; provided, however, that the Borrower shall not be obligated to
deliver any portion of the Optional Prepayment Amount until either the
Debentures being prepaid are delivered to the office of the Borrower or the
transfer agent, or the holder notifies the Borrower or the transfer agent that
such Debentures have been lost, stolen or destroyed and delivers the
documentation in accordance with Article X.H hereof. Notwithstanding anything
herein to the contrary, in the event that the Debentures being prepaid are not
delivered to the Borrower or the transfer agent prior to the 3rd business day
following the Effective Date of Prepayment, the prepayment of the Debentures
pursuant to this Article I.B shall still be deemed effective as of the Effective
Date of Prepayment and the Optional Prepayment Amount shall be paid to the
holder of Debentures being prepaid within five (5) business days of the date the
Debentures are actually delivered to the Borrower or the transfer agent.
3
<PAGE>
ARTICLE II
[INTENTIONALLY OMITTED]
ARTICLE III
CERTAIN DEFINITIONS
The following terms shall have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets (or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the aggregate principal amount represented by the then outstanding Debentures
("Majority Holders") if Bloomberg Financial Markets is not then reporting
closing bid prices of such security) (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to the Majority Holders,
with the costs of such appraisal to be borne by the Corporation.
B. "Conversion Amount" means the portion of the principal amount of this
Debenture being converted, plus the accrued interest thereon through the
Conversion Date as specified in the notice of conversion in the form attached
hereto (the "Notice of Conversion").
C. "Conversion Date" means, for any Optional Conversion, the date specified
in the Notice of Conversion so long as the copy of the Notice of Conversion is
faxed (or delivered by other means resulting in notice) to the Corporation
before Midnight, New York City time, on the Conversion Date indicated in the
Notice of Conversion. If the Notice of Conversion is not so faxed or otherwise
delivered before such time, then the Conversion Date shall be the date the
holder faxes or otherwise delivers the Notice of Conversion to the Corporation.
4
<PAGE>
D. "Conversion Percentage" shall have the following meaning and shall be
subject to adjustment as provided herein:
If the Conversion Date is: Then the Conversion Percentage is:
- -------------------------- ----------------------------------
Prior to October 6, 1997 100%
On or after October 6, 1997 90%
E. "Conversion Price" means, (a) with respect to any Conversion Date
occurring prior to October 6, 1997, the Variable Conversion Price and (b) with
respect to any Conversion Date occurring on or after October 6, 1997, the lower
of the Fixed Conversion Price and the Variable Conversion Price, each in effect
as of such date and subject to adjustment as provided herein.
F. "Fixed Conversion Price" means $7.54, and shall be subject to adjustment
as provided herein.
G. "N" means the number of days from, but excluding, the Issuance Date
through and including the Conversion Date.
H. "Variable Conversion Price" means, as of any date of determination, the
amount obtained by multiplying the Conversion Percentage then in effect by the
average of the Closing Bid Prices for the Common Stock for the ten (10)
consecutive trading days ending on the trading day immediately preceding such
date of determination (subject to equitable adjustment for any stock splits,
stock dividends, reclassifications or similar events during such ten (10)
trading day period), and shall be subject to adjustment as provided herein.
I. "Warrant Coverage Percentage" shall have the following meaning and shall
be subject to adjustment as provided herein:
If the Conversion Date is: Then the Warrant Coverage Percentage is:
- -------------------------- ----------------------------------------
Prior to October 6, 1997 0%
On or after October 6, 1997 20%
and prior to April 4, 1998
On or after April 4, 1998 40%
5
<PAGE>
IV CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, the Holder may, at any
time and from time to time, convert (an "Optional Conversion") all or any part
of the outstanding principal amount of this Debenture, plus all accrued interest
thereon through the Conversion Date, into:
(i) a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula:
Conversion Amount
-----------------
Conversion Price
Plus
(ii) warrants, in the form attached as Exhibit B to the Securities
Purchase Agreement, to purchase a number of shares of Common Stock equal to the
Warrant Coverage Percentage multiplied by the number of shares of Common Stock
issuable pursuant to clause (i) above (the "Warrants") .
B. Mechanics of Conversion. In order to effect an Optional Conversion,
Holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation for the Common Stock and (y) surrender or cause
to be surrendered, this Debenture duly endorsed, along with a copy of the Notice
of Conversion as soon as practicable thereafter to the Corporation. Upon receipt
by the Corporation of a facsimile copy of a Notice of Conversion from Holder,
the Corporation shall immediately send, via facsimile, a confirmation to Holder
stating that the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver the Common Stock and Warrants upon a conversion
and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares
of Common Stock and Warrants issuable upon such conversion unless either this
Debenture is delivered to the Corporation as provided above, or the holder
notifies the Corporation that this Debenture has been lost, stolen or destroyed
(and the requirements of Article X.H are complied with).
(i) Delivery of Common Stock and Warrants Upon Conversion. Upon the
surrender of this Debenture and a Notice of Conversion, the Corporation shall,
no later than the later of the (a) second business day following the Conversion
Date and (b) the date of such surrender (or, if this Debenture is lost, stolen
or destroyed certificates, after provision of indemnity pursuant to Article X.H)
(the "Delivery Period"), issue and deliver to the Holder (x) that number of
shares of Common Stock and Warrants issuable upon conversion of the portion of
this Debenture being converted and (y) a new Debenture in the form hereof
representing the balance of the principal amount hereof not being converted, if
any.
6
<PAGE>
(ii) Taxes. The Corporation shall pay any and all taxes (other than
transfer taxes) which may be imposed upon it with respect to the issuance and
delivery of the shares of Common Stock and Warrants upon the conversion of this
Debenture.
(iii) No Fractional Shares. If any conversion of this Debenture would
result in the issuance of either a fractional share of Common Stock or a Warrant
to purchase a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion of
this Debenture or upon exercise of the Warrant shall be the nearest whole number
of shares.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of Common
Stock and Warrants as are not disputed in accordance with subparagraph (i)
above. If such dispute only involves the calculation of the Conversion Price,
the Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion. The accountant shall audit the calculations and notify the
Corporation and the Holder of the results no later than two (2) business days
from the date it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive, absent manifest error. The Corporation
shall then issue the appropriate number of shares of Common Stock and Warrants
in accordance with subparagraph (i) above.
C. Limitations on Conversions. The Conversions of this Debenture shall be
subject to the following limitations (each of which limitations shall be applied
independently):
(i) Volume Limitations. During the first 360 days following the
Closing Date (except during a Prepayment Conversion Period), Holder may not
during any ninety (90) calendar day period ending on a Conversion Date, convert
at the Variable Conversion Price more than seventy-five percent (75%) of the
original principal amount of this Debenture. For the avoidance of doubt, the
conversion of any portion of this Debenture into Common Stock and Warrants
subject to an Optional Prepayment Notice shall not be counted as a conversion at
the Variable Conversion Price for purposes of this subparagraph (i).
(ii) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of this Debenture and the Other Debentures exceed the
maximum number of shares of Common Stock that the Corporation can so issue
pursuant to Rule 4460(i) of the Nasdaq National Market ("Nasdaq") (or any
successor rule) (the "Cap Amount") which, as of the Issue Date is 2,016,261
shares. The portion of the Cap Amount allocable to this Debenture shall be
40,325 shares and shall be subject to adjustment as provided in Article X.D. In
the event the Corporation is prohibited from issuing shares of Common Stock as a
result of the operation of this subparagraph (i), the Corporation shall comply
with Article VII.
7
<PAGE>
(iii) No Five Percent Holders. In no event shall Holder be entitled to
receive shares of Common Stock upon a conversion to the extent that the sum of
(x) the number of shares of Common Stock beneficially owned by Holder and its
affiliates (exclusive of shares issuable upon conversion of the unconverted
portion of any Debentures or the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, the Warrants)
subject to a limitation on conversion or exercise analogous to the limitations
contained herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the portion of this Debenture with respect to which the
determination of this subparagraph is being made, would result in beneficial
ownership by the holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of this subparagraph, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise
provided in clause (x) above. The restriction contained in this subparagraph
(iii) shall not be altered, amended, deleted or changed in any manner whatsoever
unless the holders of a majority of the Common Stock and the Holder shall
approve such alteration, amendment, deletion or change.
V RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On the Issue Date, the Corporation shall have reserved
60,000 authorized but unissued shares of Common Stock for issuance upon
conversion of this Debenture and exercise of the Warrants issuable upon
conversion hereof and thereafter the number of authorized but unissued shares of
Common Stock so reserved (the "Reserved Amount") shall not be decreased and
shall at all times be sufficient to provide for the conversion of the
outstanding principal amount of this Debenture (and accrued interest thereon) at
the then current Conversion Price and exercise of the Warrants then issuable
upon conversion hereof.
B. Increases to Reserved Amount. If the Reserved Amount for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Authorization Trigger Date") shall be less than 135% of the number of shares of
Common Stock issuable upon conversion of this Debenture and exercise of the
Warrants issuable upon conversion hereof on such trading days, the Corporation
shall immediately notify Holder of such occurrence and shall take immediate
action (including, if necessary, seeking shareholder approval to authorize the
issuance of additional shares of Common Stock) to increase the Reserved Amount
to 200% of the number of shares of Common Stock then issuable upon conversion of
this Debenture and exercise of the Warrants issuable upon conversion hereof. In
the event the Corporation fails to so increase the Reserved Amount within ninety
(90) days after an Authorization Trigger Date, Holder shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Default Notice (as defined in Article VIII.C) to the Corporation,
to require the Corporation to prepay for cash, at the Default Amount (as defined
in Article VIII.B), a portion of the principal amount of this Debenture (plus
accrued interest thereon) such that, after giving effect to such prepayment, the
Reserved Amount exceeds 135% of the total number of shares of Common Stock
issuable to Holder upon conversion of this Debenture (and exercise of the
Warrants issuable upon conversion hereof) on the
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date of the Default Notice. If the Corporation fails to pay such Default Amount
within five (5) business days after its receipt of a Default Notice, then Holder
shall be entitled to the remedies provided in Article VIII.C.
VI FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) Holder submits a
Notice of Conversion and the Corporation fails for any reason (other than
because such issuance would exceed Holder's Reserved Amount or allocated portion
of the Cap Amount, for which failures the Holder shall have the remedies set
forth in Articles V and VII) to deliver, on or prior to the fourth business day
following the expiration of the Delivery Period for such conversion, such number
of Warrants or freely tradeable shares of Common Stock to which Holder is
entitled upon such conversion, or (y) the Corporation provides notice to any
Holder at any time of its intention not to issue Warrants or freely tradeable
shares of Common Stock upon exercise by any Holder of its conversion rights in
accordance with the terms of the Debentures (other than because such issuance
would exceed such Holder's Reserved Amount or allocated portion of the Cap
Amount) (each of (x) and (y) being a "Conversion Default"), then the Corporation
shall pay to Holder, payments for the first ten (10) business days following the
expiration of the Delivery Period, in the case of a Conversion Default described
in clause (x), and for the first ten (10) business days of a Conversion Default
described in clause (y), an amount equal to $500 per day. In the event any
Conversion Default continues beyond such ten (10) business day period, the
Corporation shall pay to Holder an additional amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the ten (10) business
day period described above through and including the Default Cure Date;
"Default Amount" means the outstanding principal amount of all Debentures
held by Holder plus all accrued and unpaid interest thereon as of the first day
of the Conversion Default.
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the portion of this Debenture submitted for conversion and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable Common Stock in
satisfaction of all conversions of Debentures in accordance with their terms.
The payments to which Holder shall be entitled pursuant to this Paragraph A
are referred to herein as "Conversion Default Payments." Holder may elect to
receive accrued Conversion Default Payments in cash or to convert all or any
portion of such accrued Conversion Default
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Payments, at any time, into Common Stock and Warrants at the lowest Conversion
Price in effect during the period beginning on the date of the Conversion
Default through the Conversion Date for such conversion. In the event Holder
elects to receive any Conversion Default Payments in cash, it shall so notify
the Corporation in writing. Such payment shall be made in accordance with and be
subject to the provisions of Article X.J. In the event Holder elects to convert
all or any portion of the Conversion Default Payments, Holder shall indicate on
a Notice of Conversion such portion of the Conversion Default Payments which
Holder elects to so convert and such conversion shall otherwise be effected in
accordance with the provisions of Article IV.
B. Adjustment to Conversion Price. If Holder has not received certificates
for all shares of Common Stock and Warrants prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
any portion of any of Holder's Debentures for any reason (other than because
such issuance would exceed Holder's Reserved Amount or allocated portion of the
Cap Amount, for which failures Holder shall have the remedies set forth in
Articles V and VII), then the Fixed Conversion Price shall thereafter be the
lesser of (i) the Fixed Conversion Price on the Conversion Date specified in the
Notice of Conversion which resulted in the Conversion Default and (ii) the
lowest Conversion Price in effect during the period beginning on, and including,
such Conversion Date through and including the day such shares of Common Stock
and Warrants are delivered to the Holder. If there shall occur a Conversion
Default of the type described in clause (y) of Article VI.A., then the Fixed
Conversion Price with respect to any conversion thereafter shall be the lowest
Conversion Price in effect at any time during the period beginning on, and
including, the date of the occurrence of such Conversion Default through and
including the Default Cure Date. The Fixed Conversion Price shall thereafter be
subject to further adjustment for any events described in Article IX.
C. Buy-In Cure. Unless the Corporation has notified the Holder in writing
that the Corporation is unable to honor conversions, if (i) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to Holder upon a conversion of this Debenture and (ii) after the
applicable Delivery Period with respect to such conversion, Holder purchases (in
an open market transaction or otherwise) shares of Common Stock to make delivery
upon a sale by Holder of the shares of Common Stock (the "Sold Shares") which
Holder anticipated receiving upon such conversion (a "Buy-In"), the Corporation
shall pay Holder (in addition to any other remedies available to Holder) the
amount by which (x) Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y) the
net proceeds received by the Holder from the sale of the Sold Shares. For
example, if a holder purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to shares of Common Stock sold
for $10,000, the Corporation will be required to pay the Holder $1,000. Holder
shall provide the Corporation written notification indicating any amounts
payable to Holder pursuant to this Paragraph C. The Corporation shall make any
payments required pursuant to this Paragraph C in accordance with and subject to
the provisions of Article X.J.
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D. Right to Require Prepayment. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by Holder, for any reason (other than because such
issuance would exceed Holder's Reserved Amount or its allocated portion of the
Cap Amount, for which failures Holder shall have the remedies set forth in
Articles V and VII) to issue shares of Common Stock or Warrants within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of this Debenture, then Holder may elect at any time and from time to
time prior to the Default Cure Date for such Conversion Default, by delivery of
a Default Notice (as defined in Article VIII.C) to the Corporation, to have all
or any portion of Holder's outstanding Debentures prepaid by the Corporation for
cash, the Default Amount (as defined in Article VIII.B). If the Corporation
fails to pay such Default Amount within five (5) business days after its receipt
of a Prepayment Notice, then Holder shall be entitled to the remedies provided
in Article VIII.C.
VII INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of Holder's
Cap Amount is less than 135% of the number of shares of Common Stock then
issuable upon conversion of this Debenture (a "Trading Market Trigger Event"),
the Corporation shall immediately notify the Holders of such occurrence and
shall take immediate action (including, if necessary, seeking the approval of
its shareholders to authorize the issuance of the full number of shares of
Common Stock which would be issuable upon the conversion of this Debenture but
for the Cap Amount) to eliminate any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Cap Amount. In the event the Corporation fails to eliminate all
such prohibitions within ninety (90) days after the Trading Market Trigger
Event, Holder shall thereafter have the option, exercisable in whole or in part
at any time and from time to time by delivery of a Default Notice (as defined in
Article VIII.C) to the Corporation, to require the Corporation to pay for cash,
at the Default Amount (as defined in Article VIII.B), a portion of the principal
amount of this Debenture (and accrued and unpaid interest thereon) such that,
after giving effect to such prepayment, Holder's allocated portion of the Cap
Amount exceeds 135% of the total number of shares of Common Stock issuable to
Holder upon conversion of this Debenture on the date of such Default Notice. If
the Corporation fails to pay the Default Amount within five (5) business days
after its receipt of a Default Notice, then Holder shall be entitled to the
remedies provided in Article VIII.C.
B. Remedies. If the Corporation fails to eliminate the applicable
prohibitions within the ninety (90) day cure period referred to in Paragraph A
of this Article VII and thereafter the Corporation is prohibited, at any time,
from issuing shares of Common Stock or Warrants upon conversion of this
Debenture because such issuance would exceed Holder's allocated portion of the
Cap Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, Holder may elect any
or both of the following additional remedies:
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(i) to require, with the consent of the Majority Holders, the
Corporation to terminate the listing of its Common Stock on Nasdaq (or any other
stock exchange, interdealer quotation system or trading market) and to cause its
Common Stock to be eligible for trading on the Nasdaq SmallCap Market or on the
over-the-counter electronic bulletin board, at the option of the Holder; or
(ii) to require the Corporation to issue shares of Common Stock and
Warrants in accordance with Holder's Notice of Conversion at a conversion price
equal to the average of the Closing Bid Prices of the Common Stock for the five
(5) consecutive trading days (subject to equitable adjustment for any stock
splits, stock dividends, reclassifications or similar events during such five
(5) trading day period) preceding the date of Holder's written notice to the
Corporation of its election to receive shares of Common Stock and Warrants
pursuant to this subparagraph (ii).
ARTICLE VIII
EVENTS OF DEFAULT
A. Events of Default. If any of the following events of default (each, an
"Event of Default" ) shall occur:
(i) the Corporation fails (i) to pay the principal hereof when due,
whether at maturity, upon acceleration or otherwise or (ii) to pay interest
hereon at maturity and such failure continues for a period of five (5) business
days after the due date thereof,
(ii) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of this Debenture and exercise of the Warrants issuable
upon conversion hereof) is suspended from trading on any of, or is not listed
(and authorized) for trading on at least one of, the New York Stock Exchange,
the American Stock Exchange or Nasdaq for an aggregate of ten (10) trading days
in any nine (9) month period,
(iii) the Corporation fails, and any such failure continues uncured
for five (5) business days after the Corporation has been notified thereof in
writing by the Holder, to remove any restrictive legend on any certificate or
any shares of Common Stock issued to the Holder upon conversion of any Debenture
or any Warrant as and when required by the Debentures, the Warrants, the
Securities Purchase Agreement or the Registration Rights Agreement, dated as of
April 9, 1997, by and among the Corporation and the other signatories thereto
(the "Registration Rights Agreement"),
(iv) the Corporation provides notice to any of the Holders, including
by way of public announcement, at any time, of its intention not to issue shares
of Common Stock or Warrants to any of the Holders upon conversion in accordance
with the terms of the Debentures (other than
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due to the circumstances contemplated by Articles V or VII for which the Holders
shall have the remedies set forth in such Articles);
(v) the Corporation breaches any material covenant or other material
term or condition of this Debenture (other than as specifically provided in
subparagraphs (i)-(iv) of this Paragraph A), the Securities Purchase Agreement,
the Warrants or the Registration Rights Agreement and such breach continues for
a period of fifteen (15) business days after written notice thereof to the
Corporation;
(vi) any representation or warranty of the Corporation made herein or
in any agreement, statement or certificate given in writing pursuant hereto or
in connection herewith (including, without limitation, the Securities Purchase
Agreement and the Registration Rights Agreement), shall be false or misleading
in any material respect when made and the breach of which would have a material
adverse effect on the Corporation or the rights of the Corporation with respect
to any of the Debentures or the shares of Common Stock or Warrants issuable upon
conversion of the Debentures;
(vii) the Corporation or any subsidiary of the Corporation shall make
an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed, or
(viii) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation (and such proceedings shall continue unstayed
for thirty (30) days);
Then, upon the occurrence and during the continuation of any Event of Default
specified in subparagraphs (i)-(vi) of this Paragraph A, at the option of the
Holder hereof, and upon the occurrence of any Event of Default specified in
subparagraph (vii) or (viii) of this Paragraph A, the Corporation shall pay to
the Holder, in satisfaction of its obligation to pay the outstanding principal
amount of this Debenture and accrued and unpaid interest thereon, an amount
equal to the Default Amount and such Default Amount, together with all other
ancillary amounts payable hereunder shall immediately become due and payable,
all without demand, presentment or notice, all of which hereby are expressly
waived, together with all costs, including, without limitation, reasonable legal
fees and expenses of collection, and the Holder shall be entitled to exercise
all other rights and remedies available at law or in equity.
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B. Definition of Default Amount. The "Default Amount" with respect to any
portion of this Debenture means an amount equal to:
A X M
----------
C P
where:
"A" means the principal amount of this Debenture being paid plus all
accrued and unpaid interest thereon through the payment date;
"CP" means the Conversion Price in effect on the date of the Default
Notice; and
"M" means the highest Closing Bid Price of the Company's Common Stock
during the period beginning on the date of the Default Notice and ending on the
payment date, as reported on the principal securities exchange or trading market
on which the Common Stock is traded.
C. Failure to Pay Default Amount. If the Corporation fails to pay the
Default Amount within five (5) business days of its receipt of a notice
requiring such payment (a "Default Notice"), then the Holder (i) shall be
entitled to interest on the Default Amount at a per annum rate equal to the
lower of twenty-four percent (24%) and the highest interest rate permitted by
applicable law from the date of the Default Notice until the date of payment
hereunder, and (ii) shall have the right, at any time and from time to time, to
require the Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article IV) all or any portion of
the Default Amount, plus interest as aforesaid, into shares of Common Stock and
Warrants at the lowest Conversion Price in effect during the period beginning on
the date of the Default Notice and ending on the Conversion Date with respect to
the conversion of such Default Amount. In the event the Corporation is not able
to pay all amounts due and payable with respect to all Debentures subject to
Default Notices, the Corporation shall pay the Holders such amounts pro rata,
based on the total amounts payable to such Holder relative to the total amounts
payable to all Holders.
ARTICLE IX
ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the date
of issuance of this Debenture, the number of outstanding shares of Common Stock
is increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed
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Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. [Intentionally Omitted]
C. Adjustment Due to Merger, Consolidation, Etc. If, at any time there
shall be (i) any reclassification or change of the outstanding shares of Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
(ii) any consolidation or merger of the Corporation with any other entity (other
than a merger in which the Corporation is the surviving or continuing entity and
its capital stock is unchanged), (iii) any sale or transfer of all or
substantially all of the assets of the Corporation or (iv) any share exchange
pursuant to which all of the outstanding shares of Common Stock are converted
into other securities or property, then the Holder shall thereafter have the
right to receive upon conversion, in lieu of the shares of Common Stock and
Warrants immediately theretofore issuable, such shares of stock, securities
and/or other property as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock and Warrants immediately theretofore
issuable upon conversion had such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event not taken place, and in
any such case, appropriate provisions shall be made with respect to the rights
and interests of the Holder to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and of the
number of shares of Common Stock and Warrants issuable upon conversion of this
Debenture) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this Paragraph C unless (i) the Holder has received written notice of such
transaction at least thirty (30) days prior thereto, but in no event later than
ten (10) days prior to the record date for the determination of shareholders
entitled to vote with respect thereto; provided, however, that the Corporation
shall not be required to disclose any material inside information to the Holder
prior to the public disclosure thereof, and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this Debenture. The above provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of the Debentures
outstanding and the Warrants issuable upon conversion thereof as of the date of
such transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
D. Adjustment Due to Distribution. If the Corporation shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Corporation's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (i.e. a spin-off)) (a "Distribution"), then the Holder shall be
entitled, upon any conversion of this Debenture after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had Holder been the holder
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of such shares of Common Stock on the record date for the determination of
shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If, at any
time when prior to the first annual anniversary of the Closing Date (as defined
in the Securities Purchase Agreement), the Corporation shall issue any
securities which are convertible into or exchangeable for Common Stock
("Convertible Securities") at a conversion or exchange rate based on a discount
from the market price of the Common Stock at the time of conversion or exercise,
then the Variable Conversion Price in respect of any conversion of any portion
of this Debenture after such issuance shall be calculated utilizing the greatest
discount applicable to any such Convertible Securities.
F. Purchase Rights. If the Corporation issues any Convertible Securities or
rights to purchase stock, warrants, securities or other property (the "Purchase
Rights") pro rata to the record holders of any class of Common Stock, then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
Holder had held the number of shares of Common Stock acquirable upon complete
conversion of this Debenture immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article IX, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to the Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of Holder, furnish to Holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time
in effect and (iii) the number of shares of Common Stock and Warrants and the
amount, if any, of other securities or property which at the time would be
received upon conversion of this Debenture.
ARTICLE X
MISCELLANEOUS
A. Failure or Indulgency Not Waiver. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
B. Notices. Any notice herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier and shall be deemed
to have been given upon
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receipt (which shall include telephone line facsimile transmission). For the
purposes hereof, the address of the Holder shall be as shown on the records of
the Corporation; and the address of the Corporation shall be 45472 Holiday
Drive, Sterling, Virginia 20166, Attention: Chief Financial Officer; Facsimile
Number: (703) 318-4315, with a copy to Amon & Sabatini, L.L.P., 437 Madison
Avenue, New York, New York 10022, Attention: Thomas Amon; Facsimile Number:
(212) 980- 3075. Both the Holder and the Corporation may change the address or
facsimile number for service by service of written notice to the other as herein
provided.
C. Amendment Provision. This Debenture and any provision hereof may only be
amended by an instrument in writing signed by the Corporation and the Majority
Holders. The term "Debenture" and all references thereto, as used throughout
this instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented.
D. Assignability. This Debenture shall be binding upon the Corporation and
its successors and assigns and shall inure to the benefit of the Holder and its
successors and assigns. The Holder shall notify the Corporation upon the
assignment of this Debenture. In the event a Holder shall sell or otherwise
transfer any portion of this Debenture, each transferee shall be allocated a pro
rata portion of such transferor's Cap Amount and Reserved Amount. Any portion of
the Cap Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Debentures shall be allocated to the remaining
holders of Debentures, pro rata based on the total principal amount of
Debentures then held by such Holders. Each Holder agrees that it will not
transfer less than $200,000 of principal amount of Debentures to any transferee.
E. Cost of Collection. If default is made in any manner with respect to
this Debenture, the Corporation shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
F. Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York. The Corporation irrevocably
consents to the jurisdiction of the United States federal courts located in New
York, New York in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Corporation irrevocably waives
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Corporation further agrees that service of process upon the
Corporation, mailed by first class mail shall be deemed in every respect
effective service of process upon the Corporation in any such suit or
proceeding. Nothing herein shall affect the Holder's right to serve process in
any other manner permitted by law. The Corporation agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
G. Denominations. At the request of the Holder, upon surrender of this
Debenture, the Corporation shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $100,000 as the Holder shall request.
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H. Lost or Stolen Debentures. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of this Debenture and
(ii) (y) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Corporation, or (z) in the case of mutilation, upon
surrender and cancellation of this Debenture, the Corporation shall execute and
deliver new Debentures, in the form hereof, in such denominations of at least
$100,000 as the Holder may request. However, the Corporation shall not be
obligated to reissue such lost or stolen Debentures if the Holder
contemporaneously requests the Corporation to convert this Debenture.
I. Statements of Available Shares. Upon request, the Corporation shall
deliver to Holder a written report notifying the Holder of any occurrence which
prohibits the Corporation from issuing Common Stock or Warrants upon any such
conversion. The report shall also specify (i) the total principal amount of all
outstanding Debentures as of the date of the request, (ii) the total number of
shares of Common Stock and Warrants issued upon all conversions of Debentures
through the date of the request, (iii) the total number of shares of Common
Stock issued upon exercise of all Warrants through the date of the request, (iv)
the total number of shares of Common Stock which are reserved for issuance upon
conversion of Debentures and exercise of Warrants as of the date of the request
and (v) the total number of shares of Common Stock which may thereafter be
issued by the Corporation upon conversion of Debentures and exercise of Warrants
before the Corporation would exceed the Cap Amount and the Reserved Amount. The
Corporation shall provide, within fifteen (15) days after delivery to the
Corporation of a written request by Holder, all of the information enumerated in
clauses (i) - (v) of this Paragraph I.
J. Payment of Cash; Defaults. Whenever the Corporation is required to make
any cash payment to Holder under this Debenture (as a Conversion Default
Payment, Default Amount or otherwise), such cash payment shall be made to the
Holder within five (5) business days after delivery by Holder of a notice
specifying that the Holder elects to receive such payment in cash and the method
(e.g., by check, wire transfer) in which such payment should be made. If such
payment is not delivered within such five (5) business day period, Holder shall
thereafter be entitled to interest on the unpaid amount at a per annum rate
equal to the lower of twenty-four percent (24%) and the highest interest rate
permitted by applicable law until such amount is paid in full to the Holder.
Payment of interest under this Article X.J. is in lieu of and not in addition to
the interest provided for in clause (i) of Article VIII.C.
K. Restrictions on Shares. The shares of Common Stock and Warrants issuable
upon conversion of this Debenture may not be sold or transferred unless (i) they
first shall have been registered under the Securities Act and applicable state
securities laws, (ii) the Corporation shall have been furnished with an opinion
of legal counsel (in form, substance and scope customary for opinions in such
circumstances) to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act or (iii) they are sold pursuant
to Rule 144 under the Act. Except as otherwise provided in the Securities
Purchase Agreement, each certificate for shares of Common Stock and Warrants
issuable upon conversion of this Debenture that have not been so registered and
that have not been sold pursuant to an exemption that permits removal of the
legend, shall bear a legend substantially in the following form, as appropriate:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS IN SUCH
CIRCUMSTANCES THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY
SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock or Warrants issuable upon conversion of this Debenture, the Corporation
shall remove the foregoing legend from the certificate or issue to such holder a
new certificate therefor free of any transfer legend, if (i) with such request,
the Corporation shall have received either (A) an opinion of counsel, in form,
substance and scope customary for opinions in such circumstances, to the effect
that any such legend may be removed from such certificate, or (B) satisfactory
representations from the Holder that Holder is eligible to sell such security
pursuant to Rule 144 or (ii) a registration statement under the Securities Act
covering such securities is in effect. Nothing in this Debenture shall (i) limit
the Corporation's obligation under the Registration Rights Agreement, or (ii)
affect in any way the Holder's obligations to comply with applicable securities
laws upon the resale of the securities referred to herein.
L. Status as Debentureholder. Upon submission of a Notice of Conversion by
Holder, the principal amount of this Debenture and the interest thereon covered
thereby shall be deemed converted into shares of Common Stock and the holder's
rights with respect thereto shall cease and terminate, excepting only the right
to receive certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to Holder because of
a failure by the Corporation to comply with the terms of this Debenture.
Notwithstanding the foregoing, if Holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion for any reason,
then (unless Holder otherwise elects to retain its status as a holder of Common
Stock) the portion of the principal amount and interest thereon subject to such
conversion shall be deemed outstanding under this Debenture and the Corporation
shall, as soon as practicable, return this Debenture to the Holder. In all
cases, Holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments pursuant to
Article VI.A to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance with Article
VI.B) for the Corporation's failure to convert this Debenture.
19
<PAGE>
M. Remedies Cumulative. The remedies provided in this Debenture shall be
cumulative and in addition to all other remedies available under this Debenture,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit Holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Debenture. The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, the Holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
N. Required Conversion Into Preferred Stock.
(i) At any time during the first six (6) months following the Issuance
Date (the "Required Conversion Period") that the Required Conversion Conditions
(as defined in subparagraph (iii) below) are satisfied, the Corporation shall
have the right to require the conversion of all (but not less than all) of the
outstanding principal amount of this Debenture into that number of shares of a
to-be created series of the Company's preferred stock having the designations,
preferences and rights set forth in the Certificate of Designations, Preferences
and Rights attached to the Securities Purchase Agreement as Exhibit F (the
"Series A Preferred Stock") which have a total face amount equal to such
principal amount (a "Required Conversion"). The Corporation may exercise such
right by delivery of a Required Conversion Notice (as defined in subparagraph
(ii) below) during the Required Conversion Period in accordance with the
procedures set forth below. Holder may convert all or any portion of this
Debenture into Common Stock by delivering a Notice of Conversion to the
Corporation at any time prior to the Effective Date of Required Conversion (as
defined in subparagraph (ii) below).
(ii) The Corporation shall effect a Required Conversion under this
Paragraph N by giving at least five (5) business days but not more than ten (10)
business days prior written notice (the "Required Conversion Notice") of the
date which such Required Conversion is to become effective (the "Effective Date
of Required Conversion") to Holder, which Required Conversion Notice shall be
deemed to have been delivered on the business day after the Corporation's fax
(with a copy sent by overnight courier) of such notice to Holder. Upon the
surrender of this Debenture, the Corporation shall issue and deliver to Holder
the shares of Series A Preferred Stock to which Holder is entitled upon the
Required Conversion.
(iii) The "Required Conditions" shall consist of the following:
(a) no Event of Default shall have occurred;
(b) the Common Stock shall be authorized for quotation on Nasdaq
and trading in the Common Stock (or Nasdaq generally) shall not have been
suspended;
20
<PAGE>
(c) Holder shall have received an officer's certificate in the
form attached as Exhibit A attached hereto;
(d) the Certificate of Designation shall have been accepted for
filing with the Secretary of State of Virginia and a copy thereof certified by
the Secretary of State of Virginia shall have been delivered to Holder;
(e) Holder shall have received an opinion of the Company's
counsel, dated as of the Effective Date of Required Conversion, in form, scope
and substance reasonably satisfactory to Holder and in substantially the form of
Exhibit B attached hereto;
O. Force Majeure. Neither the Corporation nor the Holder shall be
responsible for any delay or failure to perform any part of this Debenture to
the extent that such delay or failure is solely caused by fire, flood,
earthquake, explosion, war, labor strike, riot, act of governmental, civil or
military authority which imposes a moratorium on the performance of the specific
obligation in question or other comparable extraordinary event beyond the
Corporation's or Holder's control. Notice with full details of any such event
shall be given to the other party as promptly as practicable after its
occurrence. The affected party shall use its best efforts to minimize the
effects of or end any such event so as to facilitate the resumption of full
performance hereunder.
[Remainder of Page Intentionally Left Blank]
21
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its
name by its duly authorized officer this 9th day of April, 1997.
FASTCOMM COMMUNICATIONS CORPORATION
By:______________________________________
Name:
Title:
22
<PAGE>
Exhibit 1
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert $____________ principal
amount of the Debenture and all accrued and unpaid interest on such principal
amount (i.e., $_________) (the "Conversion"), into shares of common stock
("Common Stock") and Warrants of FastComm Communications Corporation (the
"Corporation") according to the conditions of the Convertible Term Debenture
dated April 9, 1997 (the "Debenture"), as of the date written below. If
securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the holder for any conversion, except for transfer taxes, if
any. A copy of the Debenture is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of
this Debenture shall be made pursuant to registration of the Common Stock under
the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption
from registration under the Act.
In the event of partial exercise, please reissue an appropriate Debenture(s) for
the principal balance which shall not have been converted.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Amount of Conversion Default Payments
to be Converted, if any:______________________
Number of Shares of
Common Stock to be Issued:_____________________
Number of Warrants to be Issued:_________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
ACKNOWLEDGED AND AGREED:
FASTCOMM COMMUNICATIONS CORPORATION
BY:___________________________
NAME:________________________
TITLE:________________________ DATE:___________________
* The Corporation is not required to issue shares of Common Stock or Warrants
until the original Debenture (or evidence of loss, theft or destruction thereof
and reasonable indemnity, if requested) to be converted are received by the
Corporation or its transfer agent. The Corporation shall issue and deliver
shares of Common Stock and Warrants to an overnight courier not later than the
later of (a) two (2) business days following receipt of this Notice of
Conversion and (b) the date of surrender of this Debenture (or evidence of loss,
theft or destruction thereof), and shall make payments pursuant to the Debenture
for the failure to make timely delivery.
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON [INSERT DATE] EXHIBIT B
to Securities
Purchase
Agreement
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF
ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase _______Shares of
Common Stock, par value $.01 per share
Date: _________ ___, _____
FASTCOMM COMMUNICATIONS CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _____________________________ or
its registered assigns, is entitled to purchase from FASTCOMM COMMUNICATIONS
CORPORATION, a Virginia corporation (the "Company"), at any time or from time to
time during the period specified in Section 2 hereof, ___________ (_______)
fully paid and nonassessable shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), at an exercise price per share (the
"Exercise Price") equal to one hundred and twenty five percent (125%) of the
Market Price (as defined in Section 4(1)(ii) hereof) of the Common Stock on the
date of issuance hereof. The number of shares of Common Stock purchasable
hereunder (the "Warrant Shares") and the Exercise Price are subject to
adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued upon conversion of (i) the
Company's convertible debentures due April 9, 2001 (the "Debentures") and (ii)
shares of Series A Convertible Preferred Stock of the Company.
<PAGE>
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in any part consisting of not less than ten percent (10%) of
the then issuable Warrant Shares, by the surrender of this Warrant, together
with a completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a Cashless Exercise (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above. Certifi cates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an Exercise
Agreement and payment to the Company of the Exercise Price for each of the
Warrant Shares specified in the Exercise Agreement, and the Company does not
have sufficient authorized but unissued shares of Common Stock available to
effect such exercise in accordance with the provisions of this Section 1 (an
"Exercise Default"), the Company shall issue to the holder all of the shares of
Common Stock which are available to effect such exercise and, within five (5)
business days of the attempted exercise of this Warrant, refund to the holder
that portion of the holder's payment of the Exercise Price allocable to the
number of shares of Common Stock included in the Exercise Agreement which
exceeds the amount which is then issuable by the Company (the "Excess Amount").
The Excess Amount shall, notwithstanding anything to the contrary contained
herein, not be exercisable for Common Stock in accordance with the terms hereof
until (and at the holder's option on or at any
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<PAGE>
time after) the date additional shares of Common Stock are authorized by the
Company to permit such exercise. The Company shall pay to the holder payments
("Exercise Default Payments") for an Exercise Default in the amount of (a)
(N/365), multiplied by (b) the difference between the Market Price (as defined
in Section 4(1) below) on the Exercise Default Date (as defined below) less the
Exercise Price, multiplied by (c) the Excess Amount on the date the Exercise
Agreement giving rise to the Exercise Default is transmitted in accordance with
this Section 1 (the "Exercise Default Date"), multiplied by (d) .24, where N =
the number of days from the Exercise Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to effect exercise of this Warrant in full. The Company shall
send notice to the holder of the authorization of additional shares of Common
Stock, the Authorization Date and the amount of holder's accrued Exercise
Default Payments. The accrued Exercise Default Payment for each calendar month
shall be paid in cash or shall be convertible into Common Stock at the Exercise
Price, at the holder's option, as follows:
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth (5th) day of the month following
the month in which it has accrued; and
(b) In the event holder elects to take such payment in Common Stock,
the holder may convert such payment amount into Common Stock at the Exercise
Price (as in effect at the time of conversion) at any time after the fifth (5th)
day of the month following the month in which it has accrued as computed in
accordance with the terms contained in Article VI of the Debentures.
Nothing herein shall limit the holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock as required pursuant to the terms of Section 4(f) of that
certain Securities Purchase Agreement, dated as of April 9, 1997, by and between
the Company and the purchaser listed on the execution page thereof (the
"Securities Purchase Agreement"), or to otherwise issue shares of Common Stock
upon exercise of this Warrant in accordance with the terms hereof, and each
holder shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).
2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date on which this Warrant is issued and before 5:00
p.m. New York City time on the fifth (5th) anniversary of the date of issuance
(the "Exercise Period").
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<PAGE>
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant as specified in Section 4 below. Without limiting the general ity
of the foregoing, the Company (i) will not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, and (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.
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<PAGE>
4. Antidilution Provisions. After the initial issuance of this Warrant, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up or down
to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Sections 4(c) and 4(e) hereof, if
and whenever after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the Market Price (as hereinafter defined) on the date of
issuance (a "Dilutive Issuance"), then effective immediately upon the Dilutive
Issuance, the Exercise Price will be adjusted in accordance with the following
formula:
E' = E x O + P/M
------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section 4(1));
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section 4(b)
hereof, received by the Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding (as
defined in Section 4(l)) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on
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<PAGE>
the date of issuance of such Options ("Below Market Options"), then the maximum
total number of shares of Common Stock issuable upon the exercise of all such
Below Market Options (assuming full exercise, conversion or exchange of
Convertible Securities, if applicable) will, as of the date of the issuance or
grant of such Below Market Options, be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
the exercise of such Below Market Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or granting of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Market Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon such exercise,
conversion or exchange" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
-6-
<PAGE>
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Convertible Security was 75% of the Market Price on such
date (the "Assumed Variable Market Price"). Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 4 with respect to
any Variable Rate Convertible Security, the Exercise Price in effect at such
time shall be readjusted to equal the Exercise Price which would have resulted
if the Assumed Variable Market Price at the time of issuance of the Variable
Rate Convertible Security had been 75% of the Market Price existing at the time
of the adjustment required by this sentence.
(iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable
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<PAGE>
expenses paid or incurred by the Company in connection with such issuance, grant
or sale. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company will be the
fair market value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of receipt. In case
any Common Stock, Options or Convertible Securities are issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
market value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any consideration other
than cash or securities will be determined in good faith by an investment banker
or other appropriate expert of national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the costs of such appraisal to
be borne by the Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible securities issued and outstanding on the date of issuance hereof
in accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the grant of such stock or options is made
by a majority of the non-employee members of the Board of Directors of the
Company or a majority of the members of a committee of non-employee directors
established for such purpose; (iii) upon the issuance of Preferred Stock in
accordance with terms of the Securities Purchase Agreement or Warrants upon
conversion of such Preferred Stock; or (iv) upon the exercise of the Warrants or
conversion of the Preferred Stock.
(c) Subdivision or Combination of Common Stock. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the initial issuance of this Warrant, combines (by
reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price
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<PAGE>
in effect immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any consolidation of the
Company with, or merger of the Company into any other corporation, or in case of
any sale or conveyance of all or substantially all of the assets of the Company
other than in connection with a plan of complete liquidation of the Company at
any time after the initial issuance of this Warrant, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of this Warrant had such consolidation, merger or sale
or conveyance not taken place. In any such case, the Company will make
appropriate provision to insure that the provisions of this Section 4 hereof
will thereafter be applicable as nearly as may be in relation to any shares of
stock or securities thereafter deliverable upon the exercise of this Warrant.
The Company will not effect any consolidation, merger or sale or conveyance
unless prior to the consummation thereof, the successor corporation (if other
than the Company) assumes by written instrument the obligations under this
Section 4 and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Company's shareholders
of cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets (or rights) which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to such
Distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
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<PAGE>
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution (other
than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date
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<PAGE>
or the date on which the Company's books are closed in respect thereto;
provided, however, that the Company shall not be required to disclose any
material information to the holder hereof prior to the public disclosure
thereof. Failure to give any such notice or any defect therein shall not affect
the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv)
above.
(k) Certain Events. If, at any time after the initial issuance of this
Warrant, any event occurs of the type contemplated by the adjustment provisions
of this Section 4 but not expressly provided for by such provisions, the Company
will give notice of such event as provided in Section 4(g) hereof, and the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of shares of Common Stock acquirable upon exercise of this
Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
closing bid prices for the shares of Common Stock as reported on the Nasdaq
National Market for the ten (10) consecutive trading days immediately preceding
such date, or (ii) if the Nasdaq National Market is not the principal trading
market for the shares of Common Stock, the average of the last reported bid
prices on the principal trading market for the Common Stock during the same
period, or, if there is no bid price for such period, the last reported sales
price for such period, or (iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Market Price shall be the average fair
market value as reasonably determined by an investment banking firm selected by
the Corporation and reasonably acceptable to the holder, with the costs of the
appraisal to be borne by the Company. The manner of determining the Market Price
of the Common Stock set forth in the foregoing definition shall apply with
respect to any other security in respect of which a determination as to market
value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company having no
preference as to
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<PAGE>
dividends or distributions on liquidation, provided that the shares purchasable
pursuant to this Warrant shall include only Common Stock, par value $.01 per
share, in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Section 7(f) and (g) hereof and to the provisions of
Sections 2(f) and 2(g) of the Securities Purchase Agreement; provided, further,
however, that the Warrants may not be transferred to more than twenty five
transferees in the aggregate. Until due presentment for registration of transfer
on the books of the Company, the Company may treat the registered holder hereof
as the owner and holder hereof for all purposes, and the Company shall not be
affected by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 8 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of April 9, 1997, by and among the Company and the
other signatory thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 7(e) below, for new Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which
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<PAGE>
may be purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
in connection with any transfer, exchange, or replacement as provided in this
Section 7, this Warrant shall be promptly canceled by the Company. The Company
shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 7.
(e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such exercise, transfer, or exchange, (i) that the
holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that such exercise, transfer, or exchange may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company and
(iii) that the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter,
status as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise or Transfer. Notwithstanding
anything contained herein to the contrary, in no event shall the holder hereof
exercise Warrants to the extent
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<PAGE>
that (a) the number of shares of Common Stock beneficially owned by such holder
and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised portion of the
Warrants or the unexercised or unconverted portion of any other securities
(including, without limitation, the Preferred Stock) of the Company subject to a
limitation on conversion or exercise analogous to the limitation contained
herein) and (b) the number of shares of Common Stock issuable upon exercise of
the Warrants (or portion thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by such
holder and its affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise
provided in clause (a) hereof. The first holder of this Warrant, by taking and
holding the same, represents to the Company that such holder is acquiring this
Warrant for investment only and not with a view to the distribution thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
9. Notices. Any notices required or permitted to be given under the terms
of this Warrant shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
FastComm Communications Corporation
45472 Holiday Drive
Sterling, VA 20166
Telecopy: (703) 318-4315
Attn: Chief Financial Officer
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<PAGE>
with copy to:
Amon & Sabatini, L.L.P.
437 Madison Avenue
New York, NY 10022
Telecopy: (212) 980-3075
Attn: Thomas Amon, Esquire
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in New York, New York in any suit or proceeding based on or arising
under this Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company agrees that service of process upon the Company mailed
by first class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding. Nothing herein shall
affect the holder's right to serve process in any other manner permitted by law.
The Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised at any time after the first (1st)
anniversary of the date hereof until the end of the Exercise Period, by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares
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<PAGE>
of Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the holder shall surrender this Warrant for
that number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market Price
per share of the Common Stock and the Exercise Price, and the denominator of
which shall be the then current Market Price per share of Common Stock.
(d) Force Majeure. Neither the Company nor the holder hereof shall be
responsible for any delay or failure to perform any part of this Warrant to the
extent that such delay or failure is solely caused by fire, flood, earthquake,
explosion, war, labor strike, riot, act of governmental, civil or military
authority which imposes a moratorium on the performance of the specific
obligation in question or other comparable extraordinary event beyond the
Company's or holder's control. Notice with full details of any such event shall
be given to the other party as promptly as practicable after its occurrence. The
affected party shall use its best efforts to minimize the effects of or end any
such event so as to facilitate the resumption of full performance hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
FASTCOMM COMMUNICATIONS
CORPORATION
By: ________________________
Name:___________________
Title:____________________
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<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
_____________ of the shares of common stock of FastComm Communications
Corporation, a Virginia corporation (the "Company"), evidenced by the attached
Warrant, and herewith makes payment of the Exercise Price with respect to such
shares in full, all in accordance with the conditions and provisions of said
Warrant.
i. The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144(k) is
unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR
AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS SOLD PURSUANT TO RULE 144(K) UNDER SAID ACT.
ii. The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_________________ _____________________________________
Signature of Holder
_____________________________________
Name of Holder (Print)
Address:
_____________________________________
_____________________________________
_____________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant in accordance with
the conditions and provisions of said Warrant, with respect to the number of
shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
__________________
Name: ____________________________
Signature: _______________________
Title of Signing Officer or Agent (if any):
Address: ________________________
________________________
________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
EXHIBIT F
to Securities
Purchase
Agreement
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
FASTCOMM COMMUNICATIONS CORPORATION
Pursuant to Section 13.1-639 of the
Virginia Stock Corporation Act
FastComm Communications Corporation, a corporation organized and existing
under the laws of the Commonwealth of Virginia (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation pursuant to authority of the Board of Directors as required
by Section 13.1-639 of the Virginia Stock Corporation Act.
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Certificate of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the "Preferred Stock"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
<PAGE>
Series A Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 5,000 shares of Preferred
Stock, is the Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and the face amount shall be One Thousand U.S. Dollars ($1,000.00) per
share (the "Face Amount").
II. NO DIVIDENDS
The Series A Preferred Stock will bear no dividends, and the holders of the
Series A Preferred Stock shall not be entitled to receive dividends on the
Series A Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall
have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series A Preferred Stock if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series A Preferred Stock, with the costs of such appraisal
to be borne by the Corporation.
B. "Conversion Date" means, for any Optional Conversion, the date specified
in the notice of conversion in the form attached hereto (the "Notice of
Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before
Midnight, New York City time, on the Conversion Date indicated in the Notice of
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of
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<PAGE>
Conversion to the Corporation. The Conversion Date for the Required Conversion
at Maturity shall be the Maturity Date (as such terms are defined in Paragraph D
of Article IV).
C. "Conversion Percentage" shall have the following meaning and shall be
subject to adjustment as provided herein:
If the Conversion Date is: Then the Conversion Percentage is:
- -------------------------- ----------------------------------
Prior to October 6, 1997 100%
On or after October 6, 1997 90%
D. "Conversion Price" means, (a) with respect to any Conversion Date
occurring prior to October 6, 1997, the Variable Conversion Price and (b) with
respect to any Conversion Date occurring on or after October 6, 1997, the lower
of the Fixed Conversion Price and the Variable Conversion Price, each in effect
as of such date and subject to adjustment as provided herein.
E. "Fixed Conversion Price" means $7.54, and shall be subject to adjustment
as provided herein.
F. "N" means the number of days from, but excluding, the Closing Date (the
"Closing Date") of the First Closing under that certain Securities Purchase
Agreement (the "Securities Purchase Agreement") dated April 9, 1997 by and among
the Corporation and the Purchasers of the Corporation's 5% Convertible Term
Debentures due 2001 (the "Debentures") through and including the Conversion Date
for such share of Series A Preferred Stock.
G. "Premium" means an amount equal to (.05)x(N/365)x(1,000).
H. "Variable Conversion Price" means, as of any date of determination, the
amount obtained by multiplying the Conversion Percentage then in effect by the
average of the Closing Bid Prices for the Common Stock for the ten (10)
consecutive trading days ending on the trading day immediately preceding such
date of determination (subject to equitable adjustment for any stock splits,
stock dividends, reclassifications or similar events during such ten (10)
trading day period), and shall be subject to adjustment as provided herein.
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<PAGE>
I. "Warrant Coverage Percentage" shall have the following meaning and shall
be subject to adjustment as provided herein:
If the Conversion Date is: Then the Warrant Coverage Percentage is:
- -------------------------- ----------------------------------------
Prior to October 6, 1997 0%
On or after October 6, 1997 20%
and prior to April 4, 1998
On or after April 4,1998 40%
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each holder of shares
of Series A Preferred Stock may, at any time and from time to time, convert (an
"Optional Conversion") each of its shares of Series A Preferred Stock into:
(i) a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula:
1,000 + the Premium
--------------------------
Conversion Price Plus
(ii) warrants, in the form attached as Exhibit B to the Securities
Purchase Agreement, to purchase a number of shares of Common Stock equal to the
Warrant Coverage Percentage multiplied by the number of shares of Common Stock
issuable pursuant to clause (i) above (the "Warrants").
B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation and (y) surrender or cause to be surrendered
the original certificates representing the Series A Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed, along with a copy
of the Notice of Conversion as soon as practicable thereafter to the
Corporation. Upon receipt by the Corporation of a facsimile copy of a Notice of
Conversion from a holder, the Corporation shall immediately send, via facsimile,
a confirmation to such holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock and Warrants issuable upon such conversion and the name and telephone
number of a contact person at the Corporation regarding the conversion. The
Corporation shall not be obligated to issue
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<PAGE>
shares of Common Stock or Warrants upon a conversion unless either the Preferred
Stock Certificates are delivered to the Corporation as provided above, or the
holder notifies the Corporation that such certificates have been lost, stolen or
destroyed (and the requirements of Article XIV.B are complied with).
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of
Preferred Stock Certificates from a holder of Series A Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall, no later than the
later of (a) the second business day following the Conversion Date and (b) the
date of such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of indemnity pursuant to Article XIV.B) (the
"Delivery Period"), issue and deliver to the holder (x) that number of shares of
Common Stock and Warrants issuable upon conversion of such shares of Series A
Preferred Stock being converted and (y) a certificate representing the number of
shares of Series A Preferred Stock not being converted, if any.
(ii) Taxes. The Corporation shall pay any and all taxes (other than
transfer taxes) which may be imposed upon it with respect to the issuance and
delivery of the shares of Common Stock upon the conversion of the Series A
Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series A Preferred
Stock would result in the issuance of either a fractional share of Common Stock
or a Warrant to purchase a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock or upon exercise of the Warrant
shall be the nearest whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of Common
Stock and Warrants as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to its outside accountant via
facsimile within two (2) business days of receipt of the Notice of Conversion.
The accountant shall audit the calculations and notify the Corporation and the
holder of the results no later than two (2) business days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of Common Stock and Warrants in accordance with
subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series A
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Volume Limitations. During the first 360 days following the
Closing Date, a holder of Series A Preferred Stock may not during any ninety
(90) calendar day period ending on a Conversion Date, convert at the Variable
Conversion Price more than seventy-five percent (75%) of the Total Face Amount
of all shares of Series A Preferred Stock acquired by such holder. For the
avoidance of doubt, the conversion of any shares of Series A Preferred Stock
into Common Stock
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and Warrants subject to an Optional Redemption Notice (as defined in Article
VIII.D) shall not be counted as a conversion at the Variable Conversion Price
for purposes of this subparagraph (i).
(ii) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of the Series A Preferred Stock exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the Nasdaq National Market ("Nasdaq") (or any successor rule) (the
"Cap Amount") which, as of the date of issuance of the Series A Preferred Stock,
shall be 2,016,261 shares. The Cap Amount shall be allocated pro-rata to the
holders of Series A Preferred Stock as provided in Article XIV.D. In the event
the Corporation is prohibited from issuing shares of Common Stock as a result of
the operation of this subparagraph (i), the Corporation shall comply with
Article VII.
(iii) No Five Percent Holders. Except in a Required Conversion at
Maturity, in no event shall a holder of shares of Series A Preferred Stock be
entitled to receive shares of Common Stock upon a conversion to the extent that
the sum of (x) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (exclusive of shares issuable upon conversion of the
unconverted portion of the shares of Series A Preferred Stock or the unexercised
or unconverted portion of any other securities of the Corporation (including,
without limitation, the Warrants) subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (y) the number of
shares of Common Stock issuable upon the conversion of the shares of Series A
Preferred Stock with respect to which the determination of this subparagraph is
being made, would result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of this subparagraph, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (x) above. The restriction contained in this subparagraph (iii) shall not
be altered, amended, deleted or changed in any manner whatsoever unless the
holders of a majority of the Common Stock and each holder of Series A Preferred
Stock shall approve such alteration, amendment, deletion or change.
D. Required Conversion at Maturity. Subject to the limitations set forth in
Paragraph C(ii) of this Article IV and provided all shares of Common Stock
issuable upon conversion of all outstanding shares of Series A Preferred Stock
and all Warrants issuable upon conversion thereof are then (i) authorized and
reserved for issuance, (ii) registered under the Securities Act of 1933, as
amended (the "Securities Act") for resale by the holders of such shares of
Series A Preferred Stock and (iii) eligible to be traded on either the Nasdaq,
the New York Stock Exchange or the American Stock Exchange, each share of Series
A Preferred Stock issued and outstanding on April 9, 2001 (the "Maturity Date")
(and any accrued and unpaid Conversion Default Payments), automatically shall be
converted into shares of Common Stock and Warrants on such date in accordance
with the conversion formulas set forth in Paragraph A of this Article IV (the
"Required Conversion at Maturity"). If a Required Conversion at Maturity occurs,
the Corporation and the holders of Series A Preferred Stock shall follow the
applicable conversion procedures set forth in Paragraph B of this Article IV;
provided, however, that the holders of Series
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A Preferred Stock are not required to deliver a Notice of Conversion to the
Corporation or its transfer agent.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series A
Preferred Stock, all of the authorized but unissued shares of Common Stock
reserved for issuance upon conversion of the Debentures shall be reserved for
issuance upon conversion of the Series A Preferred Stock and exercise of the
Warrants and thereafter the number of authorized but unissued shares of Common
Stock so reserved (the "Reserved Amount") shall not be decreased and shall at
all times be sufficient to provide for the conversion of the Series A Preferred
Stock outstanding at the then current Conversion Price and exercise of the
Warrants then issuable upon conversion. The Reserved Amount shall be allocated
to the holders of Series A Preferred Stock as provided in Article XIV.D.
B. Increases to Reserved Amount. If the Reserved Amount for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Authorization Trigger Date") shall be less than 135% of the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock and
exercise of Warrants issuable upon such conversion on such trading days, the
Corporation shall immediately notify the holders of Series A Preferred Stock of
such occurrence and shall take immediate action (including, if necessary,
seeking shareholder approval to authorize the issuance of additional shares of
Common Stock) to increase the Reserved Amount to 200% of the number of shares of
Common Stock then issuable upon conversion of the outstanding Series A Preferred
Stock and exercise of Warrants issuable upon such conversion. In the event the
Corporation fails to so increase the Reserved Amount within ninety (90) days
after an Authorization Trigger Date, each holder of Series A Preferred Stock
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time by delivery of a Redemption Notice (as defined in Article
VIII.C) to the Corporation, to require the Corporation to purchase for cash, at
an amount per share equal to the Redemption Amount (as defined in Article
VIII.B), a portion of the holder's Series A Preferred Stock such that, after
giving effect to such purchase, the holder's allocated portion of the Reserved
Amount exceeds 135% of the total number of shares of Common Stock issuable to
such holder upon conversion of its Series A Preferred Stock (and exercise of the
Warrants issuable upon such conversion). If the Corporation fails to redeem any
of such shares within five (5) business days after its receipt of a Redemption
Notice, then such holder shall be entitled to the remedies provided in Article
VIII.C.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares of
Series A Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap
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Amount, for which failures the holders shall have the remedies set forth in
Articles V and VII) to deliver, on or prior to the fourth business day following
the expiration of the Delivery Period for such conversion, such number of
Warrants or freely tradeable shares of Common Stock to which such holder is
entitled upon such conversion, or (y) the Corporation provides notice to any
holder of Series A Preferred Stock at any time of its intention not to issue
Warrants or freely tradeable shares of Common Stock upon exercise by any holder
of its conversion rights in accordance with the terms of this Certificate of
Designation (other than because such issuance would exceed such holder's
allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y)
being a "Conversion Default"), then the Corporation shall pay to the affected
holder, in the case of a Conversion Default described in clause (x) above, and
to all holders, in the case of a Conversion Default described in clause (y)
above, payments for the first ten (10) business days following the expiration of
the Delivery Period, in the case of a Conversion Default described in clause
(x), and for the first ten (10) business days of a Conversion Default described
in clause (y), an amount equal to $500 per day. In the event any Conversion
Default continues beyond such ten (10) business day period, the Corporation
shall pay to the holder an additional amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the ten (10) business
day period described above through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of Series A
Preferred Stock held by such holder plus (ii) the total Premium as of the first
day of the Conversion Default on all shares of Series A Preferred Stock included
in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series A Preferred Stock and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable Common Stock in
satisfaction of all conversions of Series A Preferred Stock in accordance with
Article IV.A.
The payments to which a holder shall be entitled pursuant to this Paragraph
A are referred to herein as "Conversion Default Payments." A holder may elect to
receive accrued Conversion Default Payments in cash or to convert all or any
portion of such accrued Conversion Default Payments, at any time, into Common
Stock and Warrants at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date for
such conversion. In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing. Such payment
shall be made in accordance with and be subject to the provisions of Article
XIV.F. In the event a holder elects to convert all or any portion of the
Conversion Default Payments, the holder shall indicate on a Notice of Conversion
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such portion of the Conversion Default Payments which such holder elects to so
convert and such conversion shall otherwise be effected in accordance with the
provisions of Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock or Warrants prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of Series A Preferred Stock for any reason (other than because such
issuance would exceed such holder's allocated portion of the Reserved Amount or
Cap Amount, for which failures the holders shall have the remedies set forth in
Articles V and VII), then the Fixed Conversion Price in respect of any shares of
Series A Preferred Stock held by such holder shall thereafter be the lesser of
(i) the Fixed Conversion Price on the Conversion Date specified in the Notice of
Conversion which resulted in the Conversion Default and (ii) the lowest
Conversion Price in effect during the period beginning on, and including, such
Conversion Date through and including the day such shares of Common Stock are
delivered to the holder. If there shall occur a Conversion Default of the type
described in clause (y) of Article VI.A., then the Fixed Conversion Price with
respect to any conversion thereafter shall be the lowest Conversion Price in
effect at any time during the period beginning on, and including, the date of
the occurrence of such Conversion Default through and including the Default Cure
Date. The Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable holder
in writing that the Corporation is unable to honor conversions, if (i) the
Corporation fails for any reason to deliver during the Delivery Period shares of
Common Stock to a holder upon a conversion of shares of Series A Preferred Stock
and (ii) after the applicable Delivery Period with respect to such conversion,
such holder purchases (in an open market transaction or otherwise) shares of
Common Stock to make delivery in satisfaction of a sale by such holder of the
shares of Common Stock (the "Sold Shares") which such holder anticipated
receiving upon such conversion (a "Buy-In"), the Corporation shall pay such
holder (in addition to any other remedies available to the holder) the amount by
which (x) such holder's total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (y) the net proceeds
received by such holder from the sale of the Sold Shares. For example, if a
holder purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to shares of Common Stock it sold for $10,000,
the Corporation will be required to pay the holder $1,000. A holder shall
provide the Corporation written notification indicating any amounts payable to
such holder pursuant to this Paragraph C. The Corporation shall make any
payments required pursuant to this Paragraph C in accordance with and subject to
the provisions of Article XIV.F.
D. Redemption Right. If the Corporation fails, and such failure continues
uncured for five (5) business days after the Corporation has been notified
thereof in writing by the holder, for any reason (other than because such
issuance would exceed such holder's allocated portion of the Reserved Amount or
Cap Amount, for which failures the holders shall have the remedies set forth in
Articles V and VII) to issue shares of Common Stock or Warrants within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of Series A Preferred Stock, then the holder may elect at any time
and from time to time prior to the Default Cure Date
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for such Conversion Default, by delivery of a Redemption Notice (as defined in
Article VIII.C) to the Corporation, to have all or any portion of such holder's
outstanding shares of Series A Preferred Stock purchased by the Corporation for
cash, at an amount per share equal to the Redemption Amount (as defined in
Article VIII.B). If the Corporation fails to redeem any of such shares within
five (5) business days after its receipt of a Redemption Notice, then such
holder shall be entitled to the remedies provided in Article VIII.C.
VII. INABILITY TO CONVERT SHARES OF SERIES A PREFERRED STOCK DUE
TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of any
holder's Cap Amount is less than 135% of the number of shares of Common Stock
then issuable upon conversion of such holder's shares of Series A Preferred
Stock (a "Trading Market Trigger Event"), the Corporation shall immediately
notify the holders of Series A Preferred Stock of such occurrence and shall take
immediate action (including, if necessary, seeking the approval of its
shareholders to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon the conversion of Series A Preferred Stock
but for the Cap Amount) to eliminate any prohibitions under applicable law or
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Cap Amount. In the event the Corporation fails to eliminate all
such prohibitions within ninety (90) days after the Trading Market Trigger
Event, each holder of Series A Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a Redemption Notice (as defined in Article VIII.C) to the Corporation, to
require the Corporation to purchase for cash, at an amount per share equal to
the Redemption Amount (as defined in Article VIII.B), a portion of the holder's
Series A Preferred Stock such that, after giving effect to such purchase, the
holder's allocated portion of the Cap Amount exceeds 135% of the total number of
shares of Common Stock issuable to such holder upon conversion of its Series A
Preferred Stock on the date of such Redemption Notice. If the Corporation fails
to redeem any of such shares within five (5) business days after its receipt of
a Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C.
B. Remedies. If the Corporation fails to eliminate the applicable
prohibitions within the ninety (90) day cure period referred to in Paragraph A
of this Article VII and thereafter the Corporation is prohibited, at any time,
from issuing shares of Common Stock or Warrants upon conversion of Series A
Preferred Stock to any holder because such issuance would exceed such holder's
allocated portion of the Cap Amount because of applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or its
securities, any holder who is so prohibited from converting its Series A
Preferred Stock may elect any or both of the following additional remedies:
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(i) to require, with the consent of holders of at least fifty percent
(50%) of the outstanding shares of Series A Preferred Stock (including any
shares of Series A Preferred Stock held by the requesting holder), the
Corporation to terminate the listing of its Common Stock on the Nasdaq National
Market ("Nasdaq") (or any other stock exchange, interdealer quotation system or
trading market) and to cause its Common Stock to be eligible for trading on the
Nasdaq SmallCap Market or on the over-the-counter electronic bulletin board, at
the option of the requesting holder; or
(ii) to require the Corporation to issue shares of Common Stock and
Warrants in accordance with such holder's Notice of Conversion at a conversion
price equal to the average of the Closing Bid Prices of the Common Stock for the
five (5) consecutive trading days (subject to equitable adjustment for any stock
splits, stock dividends, reclassifications or similar events during such five
(5) trading day period) preceding the date of the holder's written notice to the
Corporation of its election to receive shares of Common Stock and Warrants
pursuant to this subparagraph (ii).
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Redemption Event"):
(i) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock and exercise of the
Warrants issuable upon conversion thereof) is suspended from trading on any of,
or is not listed (and authorized) for trading on at least one of, the New York
Stock Exchange, the American Stock Exchange or Nasdaq for an aggregate of ten
(10) trading days in any nine (9) month period,
(ii) the Corporation fails, and any such failure continues uncured for
five (5) business days after the Corporation has been notified thereof in
writing by the holder, to remove any restrictive legend on any certificate or
any shares of Common Stock or any Warrants issued to the holders of Series A
Preferred Stock upon conversion of the Series A Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement,
the Warrants or the Registration Rights Agreement, dated as of April 9, 1997, by
and among the Corporation and the other signatories thereto (the "Registration
Rights Agreement"),
(iii) the Corporation provides notice to any holder of Series A
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock or Warrants to any holder of
Series A Preferred Stock upon conversion in accordance with the terms of this
Certificate of Designation (other than due to the circumstances contemplated by
Articles V or VII for which the holders shall have the remedies set forth in
such Articles),
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(iv) the Corporation breaches any material covenant or other material
term or condition of this Certificate of Designation (other than as specifically
provided in subparagraphs (i)(v) of this Paragraph A), the Securities Purchase
Agreement or the Registration Rights Agreement and such breach continues for a
period of fifteen (15) business days after written notice thereof to the
Corporation, or
(v) any representation or warranty of the Corporation made in any
agreement, statement or certificate given in writing in connection with the
issuance of the Series A Preferred Stock (including, without limitation, the
Securities Purchase Agreement and the Registration Rights Agreement), shall be
false or misleading in any material respect when made and the breach of which
would have a material adverse effect on the Corporation or the rights of the
Corporation with respect to any of the shares of Series A Preferred Stock or the
shares of Common Stock issuable upon conversion thereof;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series A Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series A Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i) or (iii) above shall
immediately constitute a Redemption Event and there shall be no cure period.
B. Definition of Redemption Amount. The "Redemption Amount" with respect to
a share of Series A Preferred Stock means an amount equal to:
1,000 + P X M
-----------------
C P
where:
"P" means the accrued Premium on such share of Series A Preferred Stock
through the date of redemption;
"CP" means the Conversion Price in effect on the date of the Redemption
Notice; and
"M" means the highest Closing Bid Price of the Company's Common Stock
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption, as reported on the principal securities exchange or
trading market on which the Common Stock is traded.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series A Preferred Stock within
five (5) business days of its
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receipt of a notice requiring such redemption (a "Redemption Notice"), then the
holder of Series A Preferred Stock delivering such Redemption Notice (i) shall
be entitled to interest on the Redemption Amount at a per annum rate equal to
the lower of twenty-four percent (24%) and the highest interest rate permitted
by applicable law from the date of the Redemption Notice until the date of
redemption hereunder, and (ii) shall have the right, at any time and from time
to time, to require the Corporation, upon written notice, to immediately convert
(in accordance with the terms of Paragraph A of Article IV) all or any portion
of the Redemption Amount, plus interest as aforesaid, into shares of Common
Stock and Warrants at the lowest Conversion Price in effect during the period
beginning on the date of the Redemption Notice and ending on the Conversion Date
with respect to the conversion of such Redemption Amount. In the event the
Corporation is not able to redeem all of the shares of Series A Preferred Stock
subject to Redemption Notices, the Corporation shall redeem shares of Series A
Preferred Stock from each holder pro rata, based on the total number of shares
of Series A Preferred Stock included by such holder in the Redemption Notice
relative to the total number of shares of Series A Preferred Stock in all of the
Redemption Notices.
D. Redemption by Corporation.
(i) During the thirty (30) calendar day period beginning on the
trading day following the first ten (10) consecutive trading day period (if any)
that the average of the Closing Bid Prices for the Common Stock is less than
$3.02 per share (subject to equitable adjustments for stock splits, stock
dividends, reclassifications or similar events) and provided the Corporation has
not previously had the opportunity to prepay any portion of the Debentures
pursuant to Article I thereof and is not in material violation of any of its
obligations under this Certificate of Designations, the Securities Purchase
Agreement or the Registration Rights Agreement, then the Corporation shall have
the right to redeem ("Redemption at Corporation's Election") all or any portion
of the then outstanding Series A Preferred Stock (other than Series A Preferred
Stock which is the subject of a Notice of Conversion delivered prior to the
delivery date of the Optional Redemption Notice (as defined below)) for the
Optional Redemption Amount (as defined below), which right shall be exercisable
one time while any Series A Preferred Stock are outstanding by the Corporation
in its sole discretion by delivery of an Optional Redemption Notice during such
thirty (30) day period and otherwise in accordance with the redemption
procedures set forth below. Any optional redemption pursuant to this Paragraph D
shall be made ratably among the holders of Series A Preferred Stock in
proportion to the number of shares of Series A Preferred Stock then outstanding.
Holders of Series A Preferred Stock may convert all or any part of their shares
of Series A Preferred Stock selected for redemption hereunder into Common Stock
and Warrants at a conversion price equal to the average of the Closing Bid
Prices for the ten (10) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (subject to equitable adjustment for
any stock splits, stock dividends, reclassifications or similar events during
such ten (10) trading day period) by delivering a Notice of Conversion to the
Corporation at any time prior to the Effective Date of Redemption as defined in
subparagraph (iii). The "Optional Redemption Amount" with respect to each share
of Series A Preferred Stock means (a) 120% multiplied by the sum of the Face
Amount thereof plus all accrued and unpaid Premium and Conversion Default
Payments (if any) through the date of redemption plus (b) Warrants to purchase
forty percent (40%)
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of the number of shares of Common Stock which would have been issuable to the
holder of such share of Series A Preferred Stock had such share of Series A
Preferred Stock been converted into Common Stock and Warrants in accordance with
Article IV.A on the date of delivery of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional Redemption Notice to
a holder of Series A Preferred Stock unless on or prior to the date of delivery
of such Optional Redemption Notice, the Corporation shall have deposited with
NationsBank, N.A. or another escrow agent reasonably acceptable to holders of a
majority of the outstanding shares of Series A Preferred Stock, as a trust fund,
cash and Warrants sufficient in amount to pay all amounts to which the holders
of Series A Preferred Stock are entitled upon such redemption pursuant to
subparagraph (i) of this Paragraph D, with irrevocable instructions and
authority to such transfer agent or escrow agent to complete the redemption
thereof in accordance with this Paragraph D. Any Optional Redemption Notice
delivered in accordance with the immediately preceding sentence shall be
accompanied by a statement executed by a duly authorized officer of its transfer
agent or escrow agent, certifying the amount of funds and Warrants which have
been deposited with such transfer agent or escrow agent and that the transfer
agent or escrow agent has been instructed and agrees to act as redemption agent
hereunder.
(iii) The Corporation shall effect each redemption under this Section
VIII.D by giving at least five (5) business days but not more than ten (10)
business days prior written notice (the "Optional Redemption Notice") of the
date which such redemption is to become effective (the "Effective Date of
Redemption"), the shares of Series A Preferred Stock selected for redemption and
the Optional Redemption Amount to (i) the holders of Series A Preferred Stock
selected for redemption at the address and facsimile number of such holder
appearing in the Corporation's register for the Series A Preferred Stock and
(ii) the transfer agent for the Common Stock, which Optional Redemption Notice
shall be deemed to have been delivered on the business day after the
Corporation's fax (with a copy sent by overnight courier to the holders of
Series A Preferred Stock) of such notice to the holders of Series A Preferred
Stock.
(iv) The Optional Redemption Amount shall be paid to the holder of the
Series A Preferred Stock being redeemed within three (3) business days of the
Effective Date of Redemption; provided, however, that the Corporation shall not
be obligated to deliver any portion of the Optional Redemption Amount until
either the certificates evidencing the Series A Preferred Stock being redeemed
are delivered to the office of the Corporation or the transfer agent, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation in accordance
with Article XIV.D hereof. Notwithstanding anything herein to the contrary, in
the event that the certificates evidencing the Series A Preferred Stock being
redeemed are not delivered to the Corporation or the transfer agent prior to the
3rd business day following the Effective Date of Redemption, the redemption of
the Series A Preferred Stock pursuant to this Article VIII.D shall still be
deemed effective as of the Effective Date of Redemption and the Optional
Redemption Amount shall be paid to the holder of Series A Preferred Stock being
redeemed within five (5) business days of the date the certificates
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evidencing the Series A Preferred Stock being redeemed are actually delivered to
the Corporation or the transfer agent.
IX. RANK
All shares of the Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.01 per share (the "Common Stock"); (ii)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article XIII hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
A Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article XIII hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock (the "Pari Passu
Securities"); and (iv) junior to any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series A
Preferred Stock obtained in accordance with Article XIII hereof) specifically
ranking, by its terms, senior to the Series A Preferred Stock (the "Senior
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto the holders of
shares of Series A Preferred Stock shall have received the Liquidation
Preference with respect to each share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of the
Series A Preferred Stock and holders of Pari Passu Securities shall be
insufficient to permit the payment to
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such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series A
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Corporation of stock of any class, in
any manner permitted by law, shall not, for the purposes hereof, be regarded as
a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series A
Preferred Stock means an amount equal to the Face Amount thereof plus the
Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. [Intentionally Omitted]
C. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
Closing Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, then the
holders of Series A Preferred Stock shall thereafter have the right to receive
upon conversion, in lieu of the shares of Common Stock and Warrants immediately
theretofore issuable, such shares of stock, securities and/or other
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property as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock and Warrants immediately theretofore issuable
upon conversion had such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event not taken place, and in
any such case, appropriate provisions shall be made with respect to the rights
and interests of the holders of the Series A Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the Conversion Price and of the number of shares of Common Stock and Warrants
issuable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the conversion thereof. The
Corporation shall not effect any transaction described in this Paragraph C
unless (i) each holder of Series A Preferred Stock has received written notice
of such transaction at least thirty (30) days prior thereto, but in no event
later than ten (10) days prior to the record date for the determination of
shareholders entitled to vote with respect thereto; provided, however, that the
Corporation shall not be required to disclose any material inside information to
a holder of Series A Preferred Stock prior to the public disclosure thereof, and
(ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of this Paragraph C. The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series A Preferred Stock outstanding
and the Warrants issuable upon conversion thereof as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
D. Adjustment Due to Distribution. If at any time after the Closing Date
the Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the holders of Series A Preferred Stock shall be entitled,
upon any conversion of shares of Series A Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion had such
holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If, at any
time after the Closing Date and prior to the first annual anniversary of the
Closing Date, the Corporation shall issue any securities which are convertible
into or exchangeable for Common Stock ("Convertible Securities") at a conversion
or exchange rate based on a discount from the market price of the Common Stock
at the time of conversion or exercise, then the Variable Conversion Price in
respect of any conversion of Series A Preferred Stock after such issuance shall
be calculated utilizing the greatest discount applicable to any such Convertible
Securities.
F. Purchase Rights. If at any time after the Closing Date, the Corporation
issues any Convertible Securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holders
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of Series A Preferred Stock will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete conversion of the Series A Preferred Stock
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series A Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and Warrants and the amount, if
any, of other securities or property which at the time would be received upon
conversion of a share of Series A Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Virginia General Corporation Law
(the "General Corporate Law"), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for the
purpose of determining shareholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the General Corporate Law the vote of the holders
of the Series A Preferred Stock, voting separately as a class or series, as
applicable, is required to authorize a given
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action of the Corporation, the affirmative vote or consent of the holders of at
least a majority of the shares of the Series A Preferred Stock represented at a
duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series A Preferred Stock (except as otherwise may be
required under the General Corporate Law) shall constitute the approval of such
action by the class. To the extent that under the General Corporate Law holders
of the Series A Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the General Corporate Law) of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock;
(b) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the Series A
Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking pari passu
with the Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of Series A Preferred
Stock;
(f) issue any shares of Series A Preferred Stock other than in
exchange for the Debentures in accordance with the terms of the Debentures as in
effect on October 6, 1997; or
(g) redeem, or declare or pay any cash dividend or distribution on,
any Junior Securities.
If holders of at least a majority of the then outstanding shares of Series A
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series
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A Preferred Stock pursuant to subsection (a) above, then the Corporation shall
deliver notice of such approved change to the holders of the Series A Preferred
Stock that did not agree to such alteration or change (the "Dissenting Holders")
and the Dissenting Holders shall have the right, for a period of thirty (30)
days, to convert pursuant to the terms of this Certificate of Designation as
they existed prior to such alteration or change or to continue to hold their
shares of Series A Preferred Stock.
XIV. MISCELLANEOUS
A. Cancellation of Series A Preferred Stock. If any shares of Series A
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series A Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series A
Preferred Stock.
C. [Intentionally Omitted]
D. Allocations of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated to the holders of Series A Preferred
Stock in the same proportion as the Reserved Amount and the Cap Amount were
allocated to the holders of the Debentures on the date such Debentures were
converted into Series A Preferred Stock. Each increase to the Cap Amount and
Reserved Amount shall be allocated pro rata among the holders of Series A
Preferred Stock based on the number of shares of Series A Preferred Stock held
by each holder at the time of the increase in the Cap Amount or Reserved Amount,
as the case may be. In the event a holder shall sell or otherwise transfer any
of such holder's shares of Series A Preferred Stock, each transferee shall be
allocated a pro rata portion of such transferor's Cap Amount and Reserved
Amount. Any portion of the Cap Amount or Reserved Amount which remains allocated
to any person or entity which does not hold any Series A Preferred Stock shall
be allocated to the remaining holders of shares of Series A Preferred Stock, pro
rata based on the number of shares of Series A Preferred Stock then held by such
holders.
E. Statements of Available Shares. Upon request, the Corporation shall
deliver to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock or Warrants upon any
such conversion. The report shall also specify (i) the total number of shares of
Series A Preferred Stock outstanding as of the date of the request, (ii) the
total number of shares of Common Stock and Warrants issued upon all conversions
of Series A
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Preferred Stock through the date of the request, (iii) the total number of
shares of Common Stock issued upon exercise of all Warrants through the date of
the request, (iv) the total number of shares of Common Stock which are reserved
for issuance upon conversion of the Series A Preferred Stock and exercise of
Warrants as of the date of the request, and (v) the total number of shares of
Common Stock which may thereafter be issued by the Corporation upon conversion
of the Series A Preferred Stock and exercise of Warrants before the Corporation
would exceed the Cap Amount and the Reserved Amount. The Corporation shall
provide, within fifteen (15) days after delivery to the Corporation of a written
request by any holder, all of the information enumerated in clauses (i) - (v) of
this Paragraph E.
F. Payment of Cash; Defaults. Whenever the Corporation is required to make
any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder. Payment of interest under this Article XIV.F is in lieu
of and not in addition to the interest provided for in clause (i) of Article
VIII.C.
G. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series A Preferred Stock, the shares covered thereby shall be deemed
converted into shares of Common Stock and the holder's rights as a holder of
such converted shares of Series A Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a holder
has not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of Series A Preferred Stock for any reason, then (unless the holder
otherwise elects to retain its status as a holder of Common Stock) the holder
shall regain the rights of a holder of Series A Preferred Stock with respect to
such unconverted shares of Series A Preferred Stock and the Corporation shall,
as soon as practicable, return such unconverted shares to the holder. In all
cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article VI.A to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article VI.B) for the Corporation's failure to convert Series A Preferred
Stock.
H. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and
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nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Corporation to comply with the terms of this Certificate of
Designation. The Corporation acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of Series A Preferred Stock
and that the remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or threatened
breach, the holders of Series A Preferred Stock shall be entitled, in addition
to all other available remedies, to an injunction restraining any breach,
without the necessity of showing economic loss and without any bond or other
security being required.
I. Force Majeure. Neither the Corporation nor any holder of Series A
Preferred Stock shall be responsible for any delay or failure to perform any
obligation under this Certificate of Designation to the extent that such delay
or failure is solely caused by fire, flood, earthquake, explosion, war, labor
strike, riot, act of governmental, civil or military authority which imposes a
moratorium on the performance of the specific obligation in question or other
comparable catastrophic event beyond the Corporation's or holder's control.
Notice with full details of any such event shall be given to the other party as
promptly as practicable after its occurrence. The affected party shall use its
best efforts to minimize the effects of or end any such event so as to
facilitate the resumption of full performance hereunder.
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IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this __th day of __________, 1997.
FASTCOMM COMMUNICATIONS CORPORATION
By:________________________________
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series A Preferred Stock (the "Conversion"), represented by stock certificate
Nos(s). ___________ (the "Preferred Stock Certificates") into shares of common
stock ("Common Stock") and Warrants of FastComm Communications Corporation (the
"Corporation") according to the conditions of the Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock (the "Certificate
of Designation"), as of the date written below. If securities are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series A Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to
an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Amount of Conversion Default Payments
to be Converted, if any:______________________
Number of Shares of
Common Stock to be Issued:_____________________
Number of Warrants to be Issued:________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
ACKNOWLEDGED AND AGREED:
FASTCOMM COMMUNICATIONS CORPORATION
BY:___________________________
NAME:________________________
TITLE:________________________ DATE:____________________
* The Corporation is not required to issue shares of Common Stock or Warrants
until the original Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
transfer agent. The Corporation shall issue and deliver shares of Common Stock
and Warrants to an overnight courier not later than the later of (a) two (2)
business days following receipt of this Notice of Conversion and (b) delivery of
the original Preferred Stock Certificates (or evidence of loss, theft or
destruction thereof) and shall make payments pursuant to the Certificate of
Designation for the failure to make timely delivery.
EXHIBIT
5.1
April 28, 1997
Fastcomm Communications Corporation
45472 Holiday Drive
Sterling, Virginia 20166
Re: Registration Statement on Form S-3
Dear Sirs:
We have acted as counsel to FastComm Communications Corporation, a Virginia
Corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933 of a
Registration Statement on Form S-3 (the "Registration Statement") relating to
the registration of 3,190,591 shares (the "Shares") of the Company's Common
Stock, par value $.01 per share.
In so acting, we have examined originals, or copies exchange or otherwise
identified to our satisfaction, of such corporate records, documents,
certificates and other instruments as in our judgement are necessary or
appropriate to enable us to render the opinion expressed below.
We are of the following opinion:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia.
2. The Shares have been duly authorized and when issued will be fully paid
and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the "Legal Matters" in the
Registration Statement. In giving this consent, we do not admit that we are
acting within the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
/s/ Amon & Sabatini
Exhibit 23.1
Accountants' Consent
We consent to the use of our report incorporated by reference in the
registration statement on Form S-3 regarding Fastcomm Communications Corporation
dated June 21, 1996, and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Atlanta, Georgia
April 28, 1997
