<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996.
REGISTRATION NO. 33-______________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FIRST PACIFIC NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 3577 77-0174188
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Number)
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871 FOX LANE
SAN JOSE, CALIFORNIA 95131
(408) 943-7600
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
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M. PETER THOMAS
CHIEF EXECUTIVE OFFICER
FIRST PACIFIC NETWORKS, INC.
871 FOX LANE, SAN JOSE, CALIFORNIA 95131
(408) 943-7600
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copy to:
BRUCE E. SCHAEFFER
GRAY CARY WARE & FREIDENRICH
A PROFESSIONAL CORPORATION
400 HAMILTON AVENUE
PALO ALTO, CA 94301
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to 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. / / _____
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock ($.001 par value). . . . . . . . . . . . 10,237,005 shares $0.61 $6,244,574 $2,153
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee and
based on the average of the high and low prices of the Common Stock of
First Pacific Networks, Inc. as reported on the Nasdaq SmallCap Market
on October 29, 1996.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
<PAGE>
10,237,005 SHARES
FIRST PACIFIC NETWORKS, INC.
COMMON STOCK
The 10,237,005 shares of Common Stock of First Pacific Networks, Inc.
("FPN" or the "Company") offered by this Prospectus are shares of Common Stock
issuable or potentially issuable upon (i) conversion of 3,500 shares of Series G
Preferred Stock of FPN (the "Series G Preferred Shares") and (ii) exercise of
warrants to purchase 350,000 shares of FPN's Common Stock that may be sold from
time to time by or on behalf of certain stockholders or warrantholders
(collectively the "Selling Stockholders") of the Company described in this
Prospectus under "Selling Stockholders."
The Selling Stockholders acquired the Series G Preferred Shares from the
Company in a private offering made in reliance upon Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to initially register under the Securities Act a number of shares of
Common Stock equal to at least 150% of the number of shares of Common Stock that
would be issuable if all the Series G Preferred Shares were converted at the
conversion rate in effect (as defined herein under "Risk Factors -- Need for
Additional Funds and No Assurance of Available Financing") on October 31, 1996,
the date of filing of the Registration Statement of which this Prospectus is a
part (the "Registration Statement"), and to register an additional number of
shares of Common Stock if the number of shares of Common Stock initially
registered is insufficient to cover all of the Common Stock issued or issuable
upon conversion of the Series F Preferred Shares in accordance with the terms
thereof.
The Company issued a warrant to purchase 350,000 shares of the Company's
Common Stock to a placement agent in connection with the Series G Preferred
Share financing (the "Series G Warrants"). The warrant agreement also provided
for certain registration rights. Pursuant to these rights the holders have
elected to include the shares issuable upon exercise of the Series G Warrant in
this Registration Statement.
The number of shares of Common Stock initially registered and any
additional shares of Common Stock registered are hereinafter collectively
referred to as the "Shares". The Company has agreed to use its best efforts to
cause the registration statement(s) covering the Shares to be declared effective
and to remain effective for twelve (12) months from the date of effectiveness of
the Registration Statement. The Company will not receive any of the proceeds
from the sale of the Shares by the Selling Stockholders.
The Company has been advised by the Selling Stockholders that they intend
to sell all or a portion of the Shares from time to time in the Nasdaq SmallCap
Market, in negotiated transactions or otherwise, and on terms and at prices then
obtainable. The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of any of the Shares may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Company and the Selling
Stockholders have agreed to certain indemnification arrangements. See "Plan of
Distribution."
The Company will bear all costs and expenses incident to the offering and
sale of the Shares to the public, including without limitation, registration,
filing and qualification fees, printers' and accounting fees and fees and
disbursements of counsel for the Company. All discounts or commissions will be
borne by the Selling Stockholders.
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES LAWS OF
ANY STATE OR JURISDICTION AS OF THE DATE OF THIS PROSPECTUS. BROKERS OR DEALERS
EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THE REGISTRATION OF THE
SHARES UNDER THE SECURITIES LAWS OF THE STATES IN WHICH SUCH TRANSACTIONS OCCUR,
OR THE EXISTENCE OF ANY EXEMPTIONS FROM SUCH REGISTRATION.
<PAGE>
The Company's Common Stock is listed on the Nasdaq SmallCap Market. On
October ____, 1996, the last sales price of the Company's Common Stock as
reported on the Nasdaq SmallCap Market was $________.
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
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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.
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The date of this Prospectus is October ___, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the Commission
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission. FPN's Common
Stock is traded on the Nasdaq SmallCap Market. Reports and other information
concerning FPN can also be inspected at the offices of the National Association
of Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed
by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
1. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A;
2. Form 10-K for the fiscal year ended March 31, 1996; and
3. Form 10-Q for the period ended June 30, 1996.
4. Form 8-K filed on October 31, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement 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 statement so modified or superseded shall not be deemed, except
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 written or oral request, a copy of any or all of
the foregoing documents incorporated by reference in this Prospectus (other than
any exhibits thereto). Requests for such documents should be directed to First
Pacific Networks, Inc. at 871 Fox Lane, San Jose, California 95131, Attention:
Chief Financial Officer.
3
<PAGE>
THE COMPANY
First Pacific Networks, Inc. has developed a patented
telecommunications technology that enables telephone, data and video
communications to be transmitted simultaneously over a single wiring system to a
large number of users on a cost-effective basis. The Company's strategy is to
use a combination of strategic alliances with network system integrators,
network infrastructure builders, major communications service and equipment
providers, distributors and licensees as well as direct product sales to
telephone service and cable television operators and utilities worldwide to gain
market penetration of its products.
The Company believes that worldwide market and regulatory developments and
technological advancements are contributing to the increased demand by both the
telephone and cable television industries for telecommunications systems capable
of providing multiple and integrated communications services to their
subscribers at a cost below or competitive with that necessary to build
conventional communication systems. In addition, electric utility companies and
municipalities are seeking to develop systems capable of implementing energy
management programs as well as providing other communication services such as
voice and data. The implementation of these systems requires upgrading of the
broadband networks of the cable television industry and replacement and/or
re-engineering of the switched voice and low-speed data networks operated by the
telephone companies and/or, in certain instances, the deployment of new
distribution networks. The Company believes that its technology can provide a
cost-effective means of implementing such re-engineering. The Company's
technology enables multiple communications services to be provided over upgraded
network distribution systems or new hybrid fiber/coaxial cable (HFC) networks on
an incremental user basis. To implement the Company's strategy, the Company is
adapting and incorporating its core technology and family of products into
systems designed to address specific market applications. The Company's current
marketing activities are targeted primarily to cable telephony systems
internationally and to selected domestic telephone markets, and domestic energy
management applications for utility companies.
The Company is conducting ongoing product development and testing to adapt
its technology and products for specific market requirement applications and
evaluate products under operating conditions and to reduce product costs. To
date, no system wide first or commercial deployments of the Company's technology
have been implemented, although field trials and pilot systems that include
Company products are currently ongoing. Revenues have not been material and the
Company has incurred substantial operating losses.
In July 1992, the Company completed its initial public offering. The
Company was incorporated under the laws of the State of Delaware in 1987. In
August 1988, the Company changed its name to First Pacific Networks, Inc.
The principal executive offices of FPN are currently located at 871 Fox
Lane, San Jose, California 95131 and its telephone number is (408) 943-7600.
RISK FACTORS
THE SECURITIES OFFERED HEREBY INCLUDE A HIGH DEGREE OF RISK, AND
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS AND RISK FACTORS IN
CONJUNCTION WITH THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN
THIS PROSPECTUS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS.
NEED FOR ADDITIONAL FUNDS AND NO ASSURANCE OF AVAILABLE FINANCING. The
Company is experiencing negative cash flow from operations and it is expected
that the Company will continue to experience negative cash flow through the end
of fiscal 1997 and potentially thereafter. There can be no assurances that
adequate revenue growth and reduction of operating losses will be achieved, and
even if they are, management may choose to supplement the Company's cash
position.
4
<PAGE>
The Company believes based on its current operating levels that it has
sufficient cash resources at June 30, 1996, together with $1,500,000 and
$3,325,000 raised in private placements in August 1996 and October 1996,
respectively, for operating activities through November 1996, at which time it
will require additional funds from other sources unless and until it obtains
sufficient revenues from product sales or license fees. The Company is
actively seeking additional funding for both near-term and long-term
requirements from private equity or debt financings and from funding by
strategic partners of various operational activities. To the extent the Company
raises additional funding by issuing equity securities or securities convertible
into equity securities ownership dilution to stockholders will result. The
Company may issue an additional series of preferred stock with rights,
preferences or privileges senior to those of the Company's Common Stock.
Pursuant to the approval given by the Company's stockholders at its annual
meeting on September 17, 1996 the Company has filed an amendment to its Restated
Certificate of Incorporation increasing the authorized number of shares of the
Company's Common Stock to 90 million shares. There can be no assurance that
such increase in the authorized shares will be sufficient to fulfill all of the
Company's future financing requirements. The Company does not have any
commitments or arrangements to obtain any funding and there can be no assurance
that any required financing of the Company will be available or if available
will be obtainable on terms favorable to the Company or its stockholders. The
unavailability of any required financing, could prevent or delay the continued
development and marketing of the Company's products, may require curtailment of
the Company's operations and could result in the bankruptcy or insolvency of the
Company.
On May 31, 1996, the Company completed the sale of an aggregate of 5,000
shares of Series E Preferred Stock (the "Series E Preferred Shares") at
$1,000 per share or an aggregate purchase price of $5,000,000 (net proceeds
of $4,900,000 after the payment of placement fees) in a private placement.
The Series E Preferred Shares were offered and sold in reliance on Regulation
S promulgated under the Securities Act of 1933. In August 1996, one investor
converted 2,500 shares of the Series E Preferred Shares into 3,138,000 shares
of the Company's Common Stock and in October 1996 the remaining holder
converted 750 shares of the Series E Preferred Shares into 1,003,937 shares
of the Company's Common Stock. The remaining holder of Series E Preferred
Shares and the Company have entered into an agreement (the "Series E
Agreement") whereby the Company is obligated to use its best efforts, to
effect a "shelf registration" of the Common Stock issuable upon conversion of
the outstanding Series E Preferred Shares and to keep the registration
statement registering such shares effective for a period of not less than six
months in consideration of the willingness of the holder to forebear
conversion of 1,250 Series E Preferred shares, until the shares issuable upon
conversion are registered. A registration statement was filed with the
Commission and became effective in October, 1996. In connection with the
Series E Agreement the Company has agreed to issue warrants to purchase up to
50,000 shares of Common Stock to the remaining holder of Series E Preferred
Shares. The warrants will become exercisable over a three year term and have
an exercise price of $1.52 per share. The shares issuable upon exercise will
be registered pursuant to a separate additional registration statement. A
registration statement related to such shares has been filed with the
Commission in October, 1996. When the remaining Series E Preferred shares
are converted and if the Series E Warrants are exercised they will result in
additional dilution to the stockholders.
On August 27, 1996, the Company completed the sale of an aggregate of
1,500 shares of Series F Preferred Stock (the "Series F Preferred Shares") at
$1,000 per share or an aggregate purchase price of $1,500,000 in a private
placement. The Series F Preferred Shares were offered and sold in reliance on
the exemption from registration under the Securities Act set forth in
Regulation D under the Securities Act. In accordance with the subscription
agreement between the Company and the holder of the Series F Preferred Shares
the Company is obligated to use its best efforts to effect a "shelf"
registration of the Common Stock issuable upon conversion of the Series F
Preferred Shares and to keep the registration statement registering such
shares effective for up to six months. A registration statement was filed
with the Commission and became effective in October, 1996. On October 30,
1996, the Company received notification of conversion of 1,182 shares of
Series F Preferred Stock into 2,364,000 shares of the Company's Common Stock.
In connection with the issuance of the Series F Preferred Shares the Company
has agreed to issue warrants to purchase up to 100,000 shares of the
Company's Common stock to an individual as finder compensation. The
warrants become exercisable over a three year term and have an exercise price
of $1.52 per share. The shares issuable upon exercise will be registered
pursuant to a separate additional registration statement. A registration
statement related to such shares has been filed with the Commission in
October, 1996.
5
<PAGE>
When the remaining Series F Preferred shares are converted and if the Series F
Warrants are exercised they will result in additional dilution to the
stockholders.
On September 26, 1996, the Company entered into stock purchase agreements
with a group of investors for the sale of an aggregate of 3,500 shares of
Series G Preferred Stock (the "Series G Preferred Shares") at $1,000 per share
or an aggregate purchase price of $3,500,000 (net proceeds of $3,325,000) in a
private placement. The sale of the shares closed on October 1 and 2, 1996. The
Series G Preferred Shares were offered and sold in reliance on the exemption
from registration under the Securities Act set forth in Regulation D under the
Securities Act. In accordance with the registration rights agreements between
the Company and the purchasers of the Series G Preferred Shares the Company is
obligated to use its best efforts to effect a "shelf" registration of the Common
Stock issuable upon conversion of the Series G Preferred Shares and to keep the
registration statement registering such shares effective for up to one year. In
connection with the issuance of the Series G Preferred Shares, the Company has
agreed to issue warrants to purchase up to 350,000 shares of the Company's
Common stock to the placement agent. The warrants become exercisable over a
three year term and have an exercise price of $1.34 per share. The shares
issuable upon conversion of the Series G Preferred Shares and exercise of the
warrants will be registered pursuant to a separate additional registration
statement. Should the Registration Statement not be declared effective within
ninety (90) days from the date of closing of the Series G Preferred Share
financing the Company will incur certain penalties payable in cash or the
Company's Common Stock. When the Series G Preferred Shares are converted and if
the Series G Warrants are exercised they will result in additional dilution to
the stockholders.
The Series E Preferred Shares may be converted into the Company's Common
Stock at a conversion price which is the lower of (i) $3.25 (the "Series E Fixed
Conversion Price"), or (ii) 80% of the average closing bid price for the three
trading days prior to the date the investor gives notice of conversion. The
Series E Preferred Shares shall automatically be converted into the Company's
Common Stock, if not previously converted, on May 31, 1998. The Series E
Preferred Shares are entitled to receive dividends only when and if dividends
are declared on the Company's Common Stock. The Company has the right to redeem
outstanding Series E Preferred Shares under certain circumstances.
The Series F Preferred Shares may be converted into the Company's Common
Stock at a conversion price which is the lower of (i) $1.27 (the "Series F Fixed
Conversion Price"), or (ii) 80% of the average closing bid price for the three
trading days prior to the date the investor gives notice of conversion. The
Series F Preferred Shares shall automatically be converted into the Company's
Common Stock, if not previously converted, on August 27, 1998. The Series F
Preferred Shares are entitled to receive dividends only when and if dividends
are declared on the Company's Common Stock. The Company has the right to redeem
outstanding Series F Preferred Shares under certain circumstances.
The Series G Preferred Shares may be converted into the Company's Common
Stock at a conversion price which is the lower of (i) $1.34 (the "Series G Fixed
Conversion Price"), or (ii) 85% of the average closing bid price for the three
trading days prior to the date the investor gives notice of conversion. The
Series G Preferred Shares shall automatically be converted into the Company's
Common Stock, if not previously converted, on October 1, 1998. The Series G
Preferred Shares are entitled to receive dividends only when and if dividends
are declared on the Company's Common Stock. The Company has the right to redeem
outstanding Series G Preferred Shares under certain circumstances.
In addition, the Company has outstanding warrants that contain registration
rights. The warrants are subject to anti-dilution adjustments and are currently
exercisable into approximately 1,495,489 shares of the Company's Common Stock.
The shares issuable upon exercise will be registered pursuant to a separate
additional registration. A registration statement related to such shares has
been filed with the Commission in October, 1996. If exercised the warrants will
result in additional dilution to stockholders.
CONTINUING OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY. The Company has incurred substantial losses since its inception
and, as of June 30, 1996, had an accumulated deficit of approximately
$131,408,000. The Company has incurred and expects to incur, over the
near-term, additional operating losses and will continue to incur operating
losses until such time as product sales generate sufficient
6
<PAGE>
revenues to fund its operations. The timing of achieving profitability is
primarily dependent upon the continued development and commercial acceptance of
the Company's products, and management's ability to strategically focus the
Company. There can be no assurance as to whether or when achievement of
profitable operations will occur.
Numerous factors may materially and unpredictably affect operating results
of the Company including the uncertainties of new product introduction and sales
growth; the timing and extent of field trials of the Company's products; and
recognition of license fees. Accordingly, the Company's operating results are
expected to fluctuate from period to period.
RECEIPT BY THE COMPANY OF A GOING CONCERN OPINION FROM ITS INDEPENDENT
ACCOUNTANTS. The report dated May 17, 1996, of Coopers & Lybrand L.L.P on the
Company's consolidated financial statements for the fiscal year ended March 31,
1996, contains an explanatory paragraph regarding the Company's ability to
continue as a going concern.
LISTING OF THE COMPANY'S COMMON STOCK ON NASDAQ SMALLCAP MARKET. During
1995, the Company received notice from Nasdaq indicating that as a result of
the Company's failure to maintain $4,000,000 of net tangible assets, as
required by the NASD bylaws governing continuance on the Nasdaq National
Market, the Company's Common Stock would be delisted if the required net
tangible assets condition was not satisfied. Subsequently, the NASD moved
the Company to the Nasdaq SmallCap Market commencing August 25, 1995. The
NASD bylaws governing continuance on the Nasdaq SmallCap Market require
companies to, among other things, maintain $1,000,000 of stockholders equity,
or $2,000,000 of stockholders equity in the event the Company's Common Stock
is traded at a bid price below $1 per share. Should the Company not raise
sufficient additional equity financing it is possible that as a result of
fiscal 1997 losses that the Company could fall below this minimum
stockholders' equity requirement. Were such condition to occur and if (a) no
temporary exception was granted by Nasdaq, and (b) further equity financing
or other means of increasing stockholders' equity was not available, the
Company's Common Stock would be delisted from the Nasdaq SmallCap Market. A
delisting of the Company from Nasdaq could adversely affect the value and
liquidity of the shares of the Company's Common Stock and restrict the
Company's future ability to raise equity capital.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's technology and products
relate to an innovative method of providing telecommunications services. Market
acceptance of the Company's technology will depend in large part on the
Company's ability to demonstrate to potential customers and licensees, the
viability, relative cost-effectiveness and other benefits of the Company's
technology compared to competitive solutions or alternative communications
technologies. Many companies have significant investments and vested interests
in existing technologies and, accordingly, may be unwilling to rapidly accept
new communications technologies. Deployment by telephone and cable service
providers and electric utilities, particularly in the United States, may be
prevented or further delayed by regulatory barriers or limitations on new
capital expenditures. The Company believes that the ability to achieve rapid
acceptance of its technology in major telecommunications markets depends on its
establishment of strategic alliances with major equipment suppliers (OEM's),
system integrators and communication service providers as well as the ability to
demonstrate the cost effectiveness and functionality of the Company's products
in a market with evolving requirements.
There can be no assurance that the Company's existing or future products
will be commercially accepted other than as demonstrated by the Company's sales
growth to date. If market acceptance of these products is slower than
anticipated, the Company's product sales and results of operations would be
adversely affected, which may result in continuing losses. In addition, a
slower rate of product commercialization is likely to result in an increased
need for additional outside funding of the Company's operations.
COMPETITION. Many areas of the telecommunications industry are
characterized by intense competition, with a large number of companies offering
or seeking to develop technology or system capabilities similar to those of the
Company's technology or products. Many of these companies have substantially
greater financial, marketing and other resources than the Company, are
significantly more established in the industry and have substantial investments
in their technology. The Company's competitors include manufacturers and
vendors of technology and products which address specific customer or market
needs for each discrete area of the
7
<PAGE>
telecommunications industry. The Company also competes directly with many
companies who are developing or who are forming alliances with companies in the
communications field to develop innovative communications technologies. In
certain markets, the Company will also be indirectly competing with companies
who are also potential customers of its technology and products, such as
original equipment manufacturers. There can be no assurance that competitors
will not succeed in developing technologies or offering products that are
marketed at a lower price than those of the Company or in obtaining market
acceptance for products more rapidly than the Company. Continued deregulation
of the domestic telephone and cable television industries, as well as the
emergence of new telecommunications technologies, can be expected to result in
increased competition.
TECHNOLOGICAL CHANGES; RISK OF PRODUCT OBSOLESCENCE. The market for the
Company's technology and products is characterized by rapidly changing
technology and evolving industry standards. Although the Company believes its
approach to telecommunications requirements to be innovative, current
competitors or market entrants may develop new technologies, products, or
standards which could adversely affect the Company's ability to compete
effectively or which could render the Company's technology and products
obsolete. The Company's success will depend on its ability to anticipate
changes in technology and industry standards and to respond to market and
technological developments on a timely basis.
RELIANCE ON CORPORATE RELATIONSHIPS. From time to time, the Company has
established corporate relationships and intends to enter into future corporate
relationships to test, distribute and market its products. Continued
participation by corporate partners under marketing, distribution and supply
agreements with the Company will depend not only on the timely achievement of
development and marketing objectives by the Company, which cannot be assured,
but also on each corporate partner's own financial, competitive, marketing and
strategic considerations. The Company's agreements with strategic marketing,
distribution and supply partners are generally terminable by their corporate
partners on short notice. Suspension or termination of agreements with certain
corporate partners could have a material adverse affect on the Company.
DEPENDENCE ON SUPPLIERS. The Company relies on outside sources to
manufacture components of its products, none of which are contractually
obligated to meet the long-term requirements of the Company. While the Company
believes there are a number of potential sources of supply for each component,
there can be no assurance that current or alternative sources will be able to
supply all of the Company's demands on a timely basis. Although the Company
believes alternative sources are available, any interruption in the supply by
these suppliers or substitution of an alternative supplier would likely result
in delays in delivery that could adversely affect the Company's business. In
addition, reliance on outside manufacturing sources reduces the Company's
control over production costs.
RELIANCE ON THIRD PARTY MANUFACTURERS. The Companies strategy includes
seeking subcontracts with high volume manufacturers in order to provide the
capacity necessary to support projected demands for the Company's products
without incurring the capital expenditures required in connection with
establishing an internal manufacturing capability. The Company may also seek to
cross-license the manufacture of certain elements of its systems to strategic
alliances when such activity could result in enhancements or cost reductions to
its products being funded by the licensee. There can be no assurance that the
Company will be able to secure subcontract manufacturing. Should it not be able
to do so and significant sales materialize, the Company will incur significant
expenditures in building manufacturing capacity and could experience delays in
fulfilling it's production obligations.
In January 1994, the Company entered into a three-year agreement with Sanyo
Electric Co. Ltd. ("Sanyo") providing for Sanyo to manufacture the customer
interface unit of the FPN1000 system. Sanyo commenced initial manufacturing of
the customer interface unit during the fourth quarter of fiscal 1995. The
Company has outstanding non cancelable commitments with Sanyo to purchase
approximately $2.0 million of customer interface units. The Company and Sanyo
currently have agreed that the Company will purchase this inventory which is
comprised of both finished goods and components through the remainder of fiscal
1997.
RISKS OF INTERNATIONAL OPERATIONS. The Company's strategy includes
marketing its technology to licensees and partners, which may include
governmental entities, and selling products in foreign countries. In addition,
a substantial portion of the components of the Company's products are fabricated
overseas. Accordingly, the
8
<PAGE>
Company's business will be subject to many of the risks of international
operations, including tariffs and other trade barriers, currency control
regulations, political instability, unexpected changes in regulatory
requirements, difficulties in staffing and managing foreign operations, longer
payment cycles, greater difficulty in accounts receivable collection and
potential adverse tax consequences. Also, currency conversion gains and losses
could contribute to fluctuations in the Company's results of operations. If for
any reason exchange or price controls or other restrictions on the conversion or
repatriation of foreign currencies were imposed, the Company's operating results
could be adversely affected. There can be no assurance that these factors will
not have an adverse impact on the Company's international operations and,
consequently, its operating results.
DEPENDENCE ON LICENSEES AND INDEPENDENT DISTRIBUTORS. To the extent the
Company licenses its technology, revenues beyond the initial license fee will be
derived primarily from product component sales to or royalties from licensees or
other revenue-sharing arrangements which are dependent on the successful
marketing of products utilizing Company technology. Principal marketing
activities are expected to be conducted or controlled by licensees of the
Company's technology. Accordingly, the Company's future success will depend to
a significant extent on the commitment of Company licensees to the Company's
technology and products. If the Company licenses its technology and products,
it may also not have control over the manufacturing process, quality assurance
or costs. Although the Company's licensing strategy is based partially on the
Company's assessment that licensees may be more effective than the Company in
penetrating certain markets and obtaining greater market share, there can be no
assurance that this will be the case. Accordingly, revenues which may be
derived by the Company under license arrangements may be less than from sales
which might have been derived by the Company if the Company were marketing its
products directly. In addition, Entergy Enterprises is entitled to receive or
participate in certain license and sublicense fees derived by the Company.
Further, because the Company believes that the success of a telecommunications
technology such as the Company's depends on rapid and widespread market
penetration, the inability of licensees to achieve such penetration will
materially adversely affect the Company's business and prospects. In certain
markets, marketing efforts (including marketing to potential licensees) are or
may in the future be conducted by independent distributors and OEMs who may also
represent entities that are more significant to the distributor's business than
is the Company and who may have no contractual obligation to market the
Company's technology or products.
DEPENDENCE ON PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has twelve
issued United States patents, six issued foreign patents and two additional
United States patent applications pending, all generally covering the Company's
core technology. In addition, more than 20 corresponding patent applications
are pending in various foreign countries. The Company believes these patents
have been and will continue to be important in enabling the Company to compete
in the telecommunications industry. However, there can be no assurance that the
Company's patents will not be challenged or circumvented by competitors or will
provide the Company with any competitive advantages or that other companies will
not be able to market functionally similar products, systems or processes
without violating the Company's patent rights or that any additional patents
will be issued. Failure to obtain patent protection in certain foreign
countries may have a material adverse affect on the Company's ability to compete
effectively in those countries. The Company also relies on trade secrets that
it seeks to protect, in part, through confidentiality agreements with employees
and other parties. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known to or independently
developed by competitors. As the Company intends to enforce its patents,
trademarks and copyrights and protect its trade secrets, it may be involved from
time to time in litigation to determine the enforceability, scope and validity
of these rights. Any such litigation could result in substantial cost to the
Company and diversion of effort by the Company's management and other personnel.
GOVERNMENT REGULATION. The Company's markets in the United States may be
materially affected by regulations and actions of the Federal Communications
Commission ("FCC"), state public service and utility commissions, the United
States Congress, and the courts relating to regulatory barriers between the
telephone service and cable television industries, rate restrictions for
services provided by companies in such industries, or other factors which affect
the market and demand for and availability of communication systems providing a
combination of telephone, computer, and video services. In certain United
States markets, regulatory barriers restrict the ability of some service
providers to provide a full range of communications services. Although
legislation has been proposed to change the current regulations for those who
provide both telephone and video
9
<PAGE>
services, there can be no assurance that such legislation will be implemented
or, if implemented, when such changes will become effective. These restrictions
may be an important factor in decisions by domestic telephone companies or cable
operators in purchasing Company products or licensing Company technology. A
decision by a utility to deploy an energy management system using PowerView-TM-
for use in its existing service territory for energy applications will depend in
part on the evaluation and approval of public utility commissions. There can be
no assurance that public utility commissions will permit utilities to recover
the full costs of PowerView in their customer rate bases.
RISKS RELATING TO FIELD AND PILOT TESTING. Telecommunications technologies
such as the Company's are generally first evaluated through a lengthy process of
testing, field trials and first deployments prior to any commercial deployments.
As a result, the Company has expended and may continue to expend substantial
sums on product development and modifications and for inventory to support field
trials which may not result in any commercial deployments. The Company's
technology and products have been tested in certain field trials which have not
yet resulted in significant purchases of Company products. Field trials are
ongoing and the Company is unable to predict whether or when any commercial
deployments will result, as this may depend on numerous factors beyond the
Company's control, such as regulatory constraints, priorities and limitations on
capital expenditures of the customer.
VOLATILITY OF STOCK PRICE. The trading price of the Company's Common Stock
has been highly volatile and could continue to be subject to significant
fluctuations in response to variations in the Company's quarterly operating
results, general trends in the industry and other factors. The market prices of
stocks of high technology companies often fluctuate based on factors unrelated
to the operating performance of specific companies. Announcements by potential
customers of their plans with respect to field trials or deployment orders for
products of the Company or of competitors of the Company could cause the market
price of the Common Stock to fluctuate substantially. Announcements of
regulatory changes, or the failure to make changes which are anticipated by the
telecommunications industry or the public, may create public perception that the
business prospects of the Company may be adversely affected. Such a perception,
whether or not accurate, may adversely affect the market price of the Common
Stock.
DEPENDENCY ON HARDWARE SUPPLIERS. The Company's PowerView-Registered
Trademark- system is integrated with hardware and software components that
comprise the in-home network. The Company has completed integration of its
current version of PowerView-Registered Trademark- in cooperation with two
hardware suppliers. The Company is currently dependent upon these suppliers for
its continued involvement in certain field trials of PowerView-Registered
Trademark- as well as potential near-term sales activities. Should these
suppliers be unable to supply or discontinue production, the Company could
experience significant delays and costs as a result of identifying and
integrating the PowerView-Registered Trademark- product with a replacement
supplier. Although the Company is investigating and evaluating additional
sources there can be no assurance that such activities will occur or, occur in a
timely enough fashion to avoid delays and incurring significant additional
integration costs.
FLUCTUATION IN REVENUES. The Company's strategy includes licensing
arrangements, which are expected to include a license fee. During the period in
which license fees are derived and retained by the Company, these fees can
represent a substantial portion of the Company's revenues. Because of the
extensive period of time involved in negotiating and obtaining a licensing
arrangement as well as the inability to predict whether or when any licenses
will be entered into, the Company may experience significant fluctuations in
revenues (or periods in which minimal or no revenues are recognized) and
operating results, at least over the near term. In addition, Entergy
Enterprises has the right to receive or participate in certain license or
sublicense fees derived by the Company. Additional variability in revenues and
operating results may arise from timing and extent of field trials, budgeting
and purchasing patterns of customers, regulation of cable television operators
and telephone companies and technological developments in the telecommunications
industry, as well as general economic trends. Notwithstanding the lack of
revenues in certain periods, the Company continues to incur significant expenses
and, accordingly, substantial net losses and cash flow shortfalls from
operations. The continued inability of the Company to generate revenues on a
predictable basis could result in the interruption or cancellation of certain of
the Company's research and product development efforts, and require the Company
to obtain additional funds.
10
<PAGE>
DEPENDENCE UPON KEY PERSONNEL. Because of the specialized technical nature
of the Company's business the Company's success will depend to a significant
extent upon a number of key technical and management employees. While the
Company employees are required to sign standard agreements concerning
confidentiality and ownership of inventions, the employees are generally not
otherwise subject to employment agreements. The loss of the services of any of
the Company's key employees could have a material adverse effect on the
Company's business, financial condition or results of operations. The Company
does not maintain life insurance policies on its key employees.
NO ASSURANCE OF ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. The Company's
ability to maintain its competitive technological position will depend, in part,
upon its ability to attract and retain highly qualified scientific, managerial
and manufacturing personnel. Competition for such personnel is intense. The
loss of a significant group of key employees would adversely affect the
Company's product development effort.
OBLIGATIONS DUE ENTERGY ENTERPRISES. Pursuant to an Amended Product
License Agreement (the "License Agreement") with Entergy Enterprises, Inc.
(Entergy) the Company is obligated to pay Entergy $3,500,000 in March 1998 and
$3,500,000 in March 1999. The amounts due Entergy will be reduced by any
royalty payments paid to Entergy in connection with the License Agreement prior
to their payment. There can be no assurance that the Company will have
generated sufficient cash flow from its operating activities to meet this
obligation and as a result may be required to seek external debt or equity
financing at that time.
ANTI-TAKEOVER PROVISIONS. The Company is subject to agreements and
provisions which could hinder or preclude an unsolicited acquisition of the
Company. The Company has an employment agreement with one of its executive
officers and severance agreements with five of its other officers and employees.
The employment agreement which expires in June 1997, provides for the executive
to be paid the remainder of his contract if it is terminated upon a change of
control. The severance agreements generally provide for six months salary in
the event the officer/employee is terminated without cause. Additional payments
would be due in the event new employment is not secured within a twelve month
period. In addition, the Company's Restated Certificate of Incorporation
authorizes the Board of Directors to issue, without stockholder authorization,
shares of preferred stock, in one or more designated series or classes. The
Restated Certificate of Incorporation and By-laws also provide for the Board of
Directors to be divided into three classes which serve for staggered three-year
terms. The Company is also subject to a Delaware statute regulating business
combinations. In addition, the Company has adopted a preferred stock purchase
plan. Any of these agreements or provisions could discourage, hinder or
preclude an unsolicited acquisition of the Company and could make it less likely
that stockholders receive a premium for their shares as a result of any such
attempt. These provisions may also have a depressive effect on the market price
of the Common Stock.
11
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders holding the Series G Preferred Shares acquired the
Series G Preferred Shares from the Company in a private offering made in
reliance on Regulation D under the Securities Act, in a transaction consummated
on October 1, and October 2, 1996 (See "Risk Factors - Need for Additional Funds
and No Assurance of Available Financing").
The Selling Stockholders who may acquire its shares of Common Stock
pursuant to exercise of the Series G Warrant acquired the warrant in connection
with the Series G financing for which it acted as placement agent. (See "Risk
Factors - Need for Additional Funds and No Assurance of Available Financing").
The following table lists the Selling Stockholders, the number of shares of
the Company's Common Stock which each owns or has the right to acquire upon the
conversion of the Series G Preferred Shares (the "Preferred Shares") purchased
by each or exercise of Series G Warrants acquired by each, the number of Shares
expected to be sold by each, assuming the conversion of all Preferred Shares and
exercise of the Series G Warrant and the number and the percentage of the shares
of the Company's Common Stock which each will own or have the right to acquire
after the offering pursuant to the Registration Statement, assuming the sale of
all the Shares expected to be sold.
<TABLE>
<CAPTION>
Shares
Owned Shares Owned Percentage
Before Shares To After Owned After
Selling Stockholder(1) Offering Be Offered Offering Offering(4)
---------------------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C>
FTS Worldwide Corp.(2) 2,259,887 2,259,887 -0- --
Duroc Holding (2) 2,118,644 2,118,644 -0- --
Euro Factors International Inc. (2) 2,118,644 2,118,644 -0- --
The Law Firm of Bernstein, Leibhard & Lifshitz (2) 1,412,429 1,412,429 -0- --
Gross Foundation Inc. (2) 706,215 706,215 -0- --
Harmen Partners (2) 706,215 706,215 -0- --
Bridge, Ltd. (2) 564,971 564,971 -0- --
First Granite Securities, Inc. (3) 350,000 350,000 -0- --
</TABLE>
- -------------------
(1) The persons named in the table have sole voting and investment power
with respect to all shares of FPN Common Stock shown as beneficially
owned by them.
(2) Represents 150% of the shares issuable upon conversion of the Series G
Preferred Shares had such conversion occurred on October 30, 1996.
The conversion rate at October 30, 1996 was 85% of the average closing
bid price of the Company's Common Stock for the three trading days
prior to October 30, 1996, (See "Risk Factors - Need for Additional
Funds and No Assurance of Available Financing".)
(3) Represents shares issuable upon exercise of Series G Warrants. (See
"Risk Factors - Need for Additional Funds and No Assurance of
Available Financing".)
(4) The number of shares of the Company's Common Stock issued and
outstanding on October 30, 1996 was 39,912,581
12
<PAGE>
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that they, or
their respective pledges, donees, transferees or successors in interest, intend
to sell all or a portion of the Shares from time to time on the Nasdaq SmallCap
Market at prices and at terms prevailing at the time of sale or at prices
related to the then current market price, or in negotiated transactions. The
Shares may be sold by one or more of the following methods: (a) a block trade
in which the broker or dealer so engaged will attempt to sell the Shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its own account pursuant to this Prospectus;
(c) an over-the-counter distribution in accordance with the rules of the Nasdaq
SmallCap Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) in privately negotiated transactions.
There is no assurance that any of the Selling Stockholders will sell any or
all of the Shares offered by them. Pursuant to the terms of the Certificate of
Designation for Series G Preferred Stock, Series G Preferred Shares are
convertible into Common Stock to the extent of one-third of the Series G
Preferred Shares purchased beginning November 30, 1996, an additional one-third
of the Series G Preferred Shares purchased beginning December 15, 1996 and the
balance beginning December 30, 1997 at the option of the holder and are
convertible into shares of Common Stock at a conversion rate which may vary with
the market price of the Company's Common Stock. Therefore, the number of shares
of Common Stock into which the Series G Preferred Shares are convertible and
which may be sold by the Selling Stockholders at a particular time will vary in
accordance with the then applicable conversion rates. See "Risk Factors -- Need
for Additional Funds and No Assurance of Available Financing." The Series G
Warrants become exercisable on November 16, 1996 and expire in October, 1999.
In effecting sales, brokers or dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers
will receive commissions or discounts from the Selling Stockholders in amounts
to be negotiated prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. The Company will
pay all expenses incident to the offering and sale of the Shares to the public,
including without limitation, registration, filing and qualification fees,
printers' and accounting fees and fees and disbursements of counsel of the
Company. All discounts or commissions will be borne by the Selling
Stockholders.
The Company has agreed to indemnify in certain circumstances the Selling
Stockholders against certain liabilities, including certain liabilities under
the Securities Act. The Selling Stockholders have agreed to indemnify in
certain circumstances the Company and certain related persons against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed with the Selling Stockholders to keep the
Registration Statement of which this Prospectus constitutes a part effective for
twelve (12) months. The Company intends to de-register any of the Shares not
sold by the Selling Stockholders at the end of such twelve (12) month period.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders.
LEGAL MATTERS
The legality of the Shares is being passed upon by Gray Cary Ware &
Freidenrich, A Professional Corporation, Palo Alto, California.
13
<PAGE>
EXPERTS
The consolidated balance sheets as of March 31, 1996 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1996 incorporated by
reference in this Prospectus have been incorporated in reliance on the report
(which contains an explanatory paragraph relating to the Company's ability to
continue as a going concern as described in Note 2 of Notes to Consolidated
Financial Statements) of Coopers & Lybrand L.L.P, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
14
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES,
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
-------
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Certain
Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,237,005 SHARES
FIRST PACIFIC NETWORKS,
INC.
COMMON STOCK
--------------
PROSPECTUS
--------------
October ___ ,1996
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees and Nasdaq
filing fee.
SEC Registration Fee. . . . . . . . . . . . . . . . . . . . . $ 2,153
-------
Nasdaq filing fee . . . . . . . . . . . . . . . . . . . . . . 7,500
-------
Accounting fees and expenses. . . . . . . . . . . . . . . . . 2,000
-------
Printing. . . . . . . . . . . . . . . . . . . . . . . . . . . -
-------
Transfer agent and registrar fees and expenses. . . . . . . . -
-------
Blue Sky fees and expenses (including counsel fees) . . . . . -
-------
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 5,000
-------
Miscellaneous expenses. . . . . . . . . . . . . . . . . . . . 1,000
-------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $17,653
-------
-------
The Company will pay all expenses of registration, issuance and
distribution of the shares being sold by the Selling Stockholders, excluding
underwriting discounts and commissions and legal fees.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and By-Laws of the Company provide that
the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporate Law (the "GCL"). Section 145 of the GCL, relating to
indemnification, is hereby incorporated herein by reference.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Company eliminates the personal liability of directors to
the Company or its shareholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
The Registrant has also entered into indemnification agreements with each
of its executive officers and directors, as well as several of its officers, the
form of which is filed as Exhibit 10.1 and reference is hereby made to such
form.
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
4.1 Certificate of Designation of Series G Preferred Stock of First Pacific
Networks, Inc. (3)
4.2 Form of Stock Purchase Agreements between First Pacific Networks, Inc. and
the Series G investor executing such Agreement (3)
4.3 Form of Registration Rights Agreement between First Pacific Networks, Inc.
and the Series G investor executing such Agreement (3)
4.4 Letter of Agreement between First Granite Securities, Inc. (placement
agent) and First Pacific Networks, Inc. (3)
4.5 Warrant Agreement between the Company and First Granite Securities, Inc.
(3)
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation (3)
10.1 Form of Indemnifaction Agreement (4)
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants (3)
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page contained in Part II of
the Registration Statement)
- -------------------
(1) Filed as Exhibit 3.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference.
(2) Filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference.
(3) Filed herewith
(4) Filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant 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 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
<PAGE>
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(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) and (a)(1)(ii) 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, 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 be 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.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, 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. The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
D. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant 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 Registrant 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 public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
E. The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
<PAGE>
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on the 30th day of October 1996.
First Pacific Networks, Inc.
By: /s/ M. Peter Thomas
-------------------------------------
M. Peter Thomas
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of First Pacific Networks, Inc.,
hereby severally constitute and appoint M. Peter Thomas and Kenneth W.
Schneider, and each of them singly, our true and lawful attorneys with full
power to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-3 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and generally to do all such things in our names and
behalf in our capacities as officers and directors to enable First Pacific
Networks, Inc. to comply with the provisions of the Securities Act and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on October 30, 1996 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
/s/ M. Peter Thomas PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
- ---------------------------------------------- (PRINCIPAL EXECUTIVE OFFICER)
M. Peter Thomas
/s/ Kenneth W. Schneider EXECUTIVE VICE PRESIDENT FINANCE;
- ---------------------------------------------- CHIEF FINANCIAL OFFICER; CORPORATE SECRETARY
Kenneth W. Schneider (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
/s/ Paul C. O'Brien CHAIRMAN OF THE BOARD
- ----------------------------------------------
Paul C. O'Brien
/s/ Robert P. McNamara, Ph.D. CHIEF TECHNICAL OFFICER; DIRECTOR
- ----------------------------------------------
Robert P. McNamara, Ph.D.
/s/ Ambassador William A. Wilson DIRECTOR
- ----------------------------------------------
Ambassador William A. Wilson
/s/ Dr. Bill B. May DIRECTOR
- ----------------------------------------------
Dr. Bill B. May
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
4.1 Certificate of Designation of Series G Preferred Stock of First Pacific
Networks, Inc. (3)
4.2 Form of Stock Purchase Agreements between First Pacific Networks, Inc.
and the Series G investor executing such Agreement (3)
4.3 Form of Registration Rights Agreement between First Pacific
Networks, Inc. and the Series G investor executing such Agreement (3)
4.4 Letter of Agreement between First Granite Securities, Inc. (placement
agent) and First Pacific Networks, Inc. (3)
4.5 Warrant Agreement between the Company and First Granite Securities, Inc.
(3)
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation (3)
10.1 Form of Indemnifaction Agreement (4)
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants (3)
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page contained in Part II
of the Registration Statement)
- -----------------
(1) Filed as Exhibit 3.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference.
(2) Filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference.
(3) Filed herewith
(4) Filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference.
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATION
OF
FIRST PACIFIC NETWORKS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
------------------
SERIES G PREFERRED STOCK
First Pacific Networks, Inc., a Delaware corporation (the
"Corporation"), hereby certifies that the following resolution has been duly
adopted by the Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board") by the
provisions of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 6,060,000
shares of Preferred Stock, par value $0.001 per share, of the Corporation
authorized in Article III of the Certificate of Incorporation (the "Preferred
Stock"), a series of the Preferred Stock of the Corporation consisting of 5,000
shares, which series shall have the following powers, designations, preferences
and relative, participating, optional and other rights, and the following
qualifications, limitations and restrictions:
1. DESIGNATION. The designation of the series of Preferred Stock
fixed by this resolution shall be "Series G Preferred Stock" (hereinafter
referred to as the "Series G Preferred Stock").
2. CONVERSION RIGHTS.
(a) RIGHT TO CONVERT. The total number of original shares of
Series G Preferred Stock acquired by any holder may be converted, at the option
of the holder thereof, at any time following the sixtieth (60th) day following
the date of original issuance thereof without the payment of any additional
consideration therefor, into that number of fully paid and nonassessable shares
of common stock, $0.001 par value per share, of the Corporation (the "Common
Stock") as is determined by dividing (i) the sum of (a) $1,000 plus (b) the
amount of all declared but unpaid dividends on the shares of Series G Preferred
Stock being so converted by (ii) the Conversion
1
<PAGE>
Price (determined as hereinafter provided) in effect at the time of conversion.
The "Conversion Price" shall be equal to the lower of (i) one hundred twenty
percent (120%) of the average of the closing bid price of the Common Stock for
the three trading days immediately preceding the date of initial issuance of the
Series G Preferred Stock or (ii) eighty-five percent (85%) of the average
closing bid price of a share of Common Stock as reported on the NASDAQ SmallCap
Market (or, in the event that such security is not traded on the NASDAQ SmallCap
Market, such other national or regional securities exchange or automated
quotations system upon which the Common Stock is listed and principally traded
or, in the event that the Common Stock is not listed on any exchange or quoted
on the NASDAQ Stock Market, any trading market in which quotes can be obtained)
over the three consecutive trading days immediately preceding the date of the
Conversion Notice (as defined in Section 2(b) hereof).
(b) MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of Series G Preferred Stock. If upon
conversion of shares of Series G Preferred Stock held by a registered holder
which are being converted, such registered holder would, but for the provisions
of this Section 2(b), receive a fraction of a share of Common Stock thereon,
then in lieu of any such fractional share to which such holder would otherwise
be entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price. Before any holder of Series G Preferred
Stock shall be entitled to convert the same into full shares of Common Stock,
such holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series G Preferred Stock, and shall give written notice (the "Conversion
Notice") to the Corporation at such office that such holder elects to convert
the same and shall state therein such holder's name
2
<PAGE>
or the name or names of its nominees in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued. The Corporation shall,
as soon as practicable thereafter, but in any event within three business days
of the date of its receipt of the original Conversion Notice and the certificate
or certificates representing the shares of Series G Preferred Stock to be
converted, issue and deliver or cause to be issued and delivered to such holder
of Series G Preferred Stock, or to its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have been made on the date that the Corporation
first receives the Conversion Notice, by telecopier or otherwise, and the person
or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. Upon the conversion of any shares of
Series G Preferred Stock, such shares shall be restored to the status of
authorized but unissued shares of Preferred Stock and may be reissued by the
Corporation at any time.
(c) NOTICES OF RECORD DATE. In the event of (i) any declaration
by the Corporation of a record date of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to any
other Corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series G Preferred Stock at least
twenty (20) days prior to the record date specified therein, a
3
<PAGE>
notice specifying (A) the date on which any such record is to be declared for
the purpose of such dividend or distribution and a description of such dividend
or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and (C) the time, if any, that is to
be fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution or winding up.
(d) STOCK DIVIDENDS; STOCK SPLITS; ETC. In the event that the
Corporation shall (i) take a record of holders of shares of the Common Stock for
the purpose of determining the holders entitled to receive a dividend payable in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock,
(iii) combine the outstanding shares of Common Stock into a smaller number of
shares or (iv) issue, by reclassification of the Common Stock, any other
securities of the Corporation, then, in each such case, the Conversion Price
then in effect shall be adjusted so that upon the conversion of each share of
Series G Preferred Stock then outstanding the number of shares of Common Stock
into which such shares of Series G Preferred Stock are convertible after the
happening of any of the events described in clauses (i) through (iv) above shall
be the number of such shares of Common Stock into which such shares of Series G
Preferred Stock would have been converted if so converted immediately prior to
the happening of such event or any record date with respect thereto.
(e) MANDATORY CONVERSION. If not sooner converted, all
outstanding shares of Series G Preferred Stock shall be subject to mandatory
conversion on the second anniversary of the date of original issuance thereof.
4
<PAGE>
For purposes of clause (b) above, such second anniversary date shall be deemed
to be the date on which the Corporation receives a Conversion Notice with
respect to the then outstanding shares of Series G Preferred Stock.
(f) COMMON STOCK RESERVED. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of all of the then outstanding shares of Series G Preferred Stock.
3. DIVIDEND RIGHTS OF SERIES G PREFERRED STOCK. Subject to the
dividend provisions fixed by the Board for any series of Preferred Stock
designated by the Board in the future, the holders of Series G Preferred Stock
shall be entitled to receive dividends, out of any assets at the time legally
available therefor, when and as declared by the Board. No cash dividends shall
be paid on any Common Stock unless at the same time a dividend is paid with
respect to all outstanding shares of Series G Preferred Stock in an amount for
each such share of Series G Preferred Stock equal to the aggregate amount of
such dividends payable on that number of shares of Common Stock into which each
such share of Series G Preferred Stock could then be converted on the date of
the declaration of the dividend assuming, if it is not otherwise the case, that
the Series G Preferred Stock was convertible at the option of the holders of
Series G Preferred Stock on such date pursuant to the provisions of Section 6(a)
below.
4. VOTING RIGHTS OF SERIES G PREFERRED STOCK. Except as otherwise
required by law, the holders of outstanding shares of Series G Preferred Stock
shall not be entitled to vote on any matters submitted to the stockholders of
the Corporation.
5. PREFERENCE ON LIQUIDATION. Subject to the liquidation
preferences of any series of Preferred Stock other than the Series G Preferred
5
<PAGE>
Stock, including, without limitation, any liquidation preferences that provides
for payments to any series of Preferred Stock or the Common Stock prior to or on
a parity with any payment to holders of the Series G Preferred Stock provided
for below (including any preferences that provide for additional parity or
non-parity payments to the holders of the Series G Preferred Stock), in the
event of any liquidation, dissolution or winding up of the Corporation,
distributions to holders of Series G Preferred Stock, holders of Series F
Preferred Stock, holders of Series E Preferred Stock, holders of Series D
Preferred Stock, holders of Series C Preferred Stock, holders of Series B
Preferred Stock, holders of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and holders of Common Stock shall be made in the following
manner:
(a) The holders of Series G Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of the Common Stock by reason of their ownership of
such stock, the amount of (i) $1,000 per share of each share of Series G
Preferred Stock then held by them, adjusted for any stock split, stock
combination, stock distribution or stock dividend with respect to such shares
and (ii) an amount equal to all declared but unpaid dividends on the Series G
Preferred Stock as provided in Section 2 above. The Series G Preferred Stock
shall rank on a parity with the Series A Preferred Stock with respect to Article
III, Section A.4 of the Certificate of Incorporation (the "Series A Liquidation
Section"), Section 3 of the Certificate of Designation of the Series C Preferred
Stock (the "Series C Liquidation Section"), Section 3 of the Certificate of
Designation of the Series D Preferred Stock (the "Series D Liquidation
Section"), Section 5 of the Certificate of Designation of the Series E Preferred
Stock (the "Series E Liquidation Section"), and Section 5 of the Certificate of
Designation of the Series F Preferred Stock
6
<PAGE>
(the "Series F Liquidation Section") as to the distribution of assets and funds
upon dissolution, liquidation or winding up of the Corporation, with the effect
stated in the Series A Liquidation Section, the Series C Liquidation Section,
the Series D Liquidation Section, Series E Liquidation Section and the Series F
Liquidation Section.
(b) After payment in full to (i) the holders of Series G
Preferred Stock of all amounts exclusively payable on or with respect to said
shares pursuant to Section 5(a) above, (ii) the holders of Series F Preferred
Stock of all amounts exclusively payable on or with respect to said shares
pursuant to the Series F Liquidation Section, (iii) the holders of the Series E
Preferred Stock of all amounts exclusively payable on or with respect to said
shares pursuant to the Series E Liquidation Section, (iv) the holders of the
Series D Preferred Stock of all amounts exclusively payable on or with respect
to said shares pursuant to the Series D Liquidation Section (v) the holders of
Series C Preferred Stock of all amounts exclusively payable on or with respect
to said shares pursuant to the Series C Liquidation Section and (vi) the holders
of Series A Preferred Stock of all amounts exclusively payable on or with
respect to said shares pursuant to the Series A Liquidation the holders of the
Common Stock and Series B Preferred Stock shall be entitled to receive the
remaining assets of the Corporation available for distribution to the
stockholders upon the dissolution, liquidation or winding up of the Corporation.
If the assets and funds available for distribution among the holders of the
Common Stock and among the holders of the Series B Preferred Stock or of any
other series of Preferred Stock ranking on a parity with the Common Stock with
respect to this Section 5(b) as to the distribution of assets upon such
dissolution, liquidation or winding up shall be insufficient to permit the
payment to such holders of their full liquidation payments, then the entire
remaining assets and funds of the Corporation legally available for
7
<PAGE>
such distribution shall be distributed ratably among such holders in proportion
to their aggregate preferential amounts.
(c) A consolidation or merger of the Corporation with or into
another corporation or entity in a transaction involving the disposition of more
than fifty percent (50%) of other voting power of the Corporation, or a sale of
all or substantially all of the assets of the Corporation (a "Sale of the
Corporation") shall be regarded as a dissolution, liquidation or winding up of
the Corporation within the meaning of this Section 5. The Corporation shall not
consummate a Sale of the Corporation before the expiration of ten (10) days
after mailing written notice of the proposed Sale of the Corporation to the
holders of record of the Series G Preferred Stock (the "Sale of the Corporation
Notice").
6. REDEMPTION RIGHTS. (a) In the event that the Corporation has
issued 5,000,000 or more shares of Common Stock upon the conversion of shares to
Series G Preferred Stock, the Corporation shall have the right to redeem the
remaining outstanding shares of Series G Preferred Stock, in whole or in part,
at a cash redemption price equal to the sum of (i) $1,000 per share, (ii) the
amount of all accrued but unpaid dividends with respect to the shares being
redeemed and (iii) an amount equal to twenty-five percent (25%) of the aggregate
amount referred to in clauses (i) and (ii) (collectively, the "Cash Redemption
Price"); provided, however, that the Corporation shall not be entitled to redeem
any shares of Series G Preferred Stock unless it has given the holder of such
shares written notice of such redemption (the "Redemption Notice") prior to the
date that the holder submits a Conversion Notice with respect to such shares.
In the event that the Corporation delivers a timely Redemption Notice, the Cash
Redemption Price will be paid to the holder of the shares to be redeemed within
five (5) business days of the date of the Redemption Notice, by certified or
official bank check, upon the surrender of
8
<PAGE>
the certificate(s) representing the shares of Series G Preferred Stock being so
redeemed.
(b) If after 75 days from the date of issuance of the Series G
Preferred Stock, the average closing bid price of the Common Stock of the
Corporation is less than one hundred twenty percent (120%) of the average of the
closing bid price of the Common Stock for the three trading days immediately
preceding the date of initial issuance of the Series G Preferred Stock for a
period of 5 consecutive trading days, the Corporation shall have the right to
redeem the outstanding shares of Series G Preferred Stock, in whole or in part,
at the Cash Redemption Price; provided, however, that the Corporation shall be
required to give the holder of such shares 10 days prior written notice of such
redemption (the "Notice Period"). In addition, the holder shall have the right,
at any time during the Notice Period, to elect to convert such holder's shares
of Series G Preferred Stock by submitting a Conversion Notice to the Corporation
in accordance with the terms of Section 2(b) hereof. In the event that the
holder does not elect to convert such shares during the Notice Period, the Cash
Redemption Price will be paid to the holder of the shares to be redeemed within
five (5) business days of the date of the Redemption Notice, by certified or
official bank check, upon the surrender of the certificate(s) representing the
shares of Series G Preferred Stock being so redeemed.
9
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its President, and attested by its Secretary, this
25th day of September, 1996.
FIRST PACIFIC NETWORKS, INC.
By: /s/ M. Peter Thomas
-------------------
M. Peter Thomas
President
Attest:
By:/s/ Kenneth W. Schneider
------------------------
Kenneth W. Schneider
Corporate Secretary
10
<PAGE>
EXHIBIT 4.2
EXHIBIT A
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between FIRST PACIFIC NETWORKS, INC., a
Delaware corporation, with headquarters located at 871 Fox Lane, San Jose,
California 95131 (the "Company"), and the undersigned (the "Buyer" or
"Purchaser").
WITNESSETH:
WHEREAS, the Company and the Buyer are executing and delivering this
Stock Purchase Agreement (the "Agreement") in reliance upon the exemption
from securities registration afforded by Rule 506 under Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"1933 Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, Series G Preferred Stock ($.001 par value) (the
"Preferred Stock") of the Company which will be convertible into shares of
Common Stock, $.001 par value (the "Common Stock"), of the Company, subject
to acceptance of this Agreement by the Company;
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 parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE. Buyer hereby agrees to purchase from the Company shares
of the Company's Preferred Stock at a purchase price of $1,000 per share.
The Preferred Stock will have the rights, preferences and privileges set
forth in the form of the Certificate of Designation of the Series G Preferred
Stock of the Company attached hereto as Annex I. The number of shares of
Preferred Stock being purchased by the buyer and the total purchase price of
Preferred Stock being purchased shall be as set forth on the signature page
hereto. The purchase price shall be payable in United States Dollars.
B. FORM OF PAYMENT. The Buyer shall pay the purchase price for the
Preferred Stock by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in the
Joint Escrow Instructions attached hereto as ANNEX II (the "Joint Escrow
Instructions"). Such delivery of funds shall be made against delivery by the
Company of the Certificates evidencing the shares of Preferred Stock being
purchased by the Buyer duly executed on behalf of the Company. Promptly
following payment by the Buyer to the Escrow Agent of the purchase price of
the Preferred Stock, the Company shall deliver a Certificate for the
Preferred Stock duly executed on behalf of the Company, to the Escrow Agent.
By signing this Agreement, the Buyer and the Company each agrees to all of
the terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by this
reference as if set forth in full.
C. METHOD OF PAYMENT. Payment into escrow of the purchase price for
the Preferred Stock being purchased shall be made by wire transfer of funds
to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
<PAGE>
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Escrow Account No. 637-1496910
Not later than 1:00 p.m., New York time, on the date which is three (3) New
York Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the
aggregate purchase price for the Preferred Stock being purchased, in
currently available funds.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
A. The Buyer is purchasing the Preferred Stock and would be acquiring
the shares of Common Stock issuable upon conversion of the Preferred Stock
for its own account for investment only and not with a view towards the
public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof;
B. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), and (ii) experienced in making investments of the kind
described in this Agreement, and the related documents, (iii) able, by reason
of the business and financial experience of its officers and professional
advisors (who are not affiliated with or compensated in any way by the
Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement,
and the related documents, and (iv) able to afford the entire loss of its
investment in the Preferred Stock;
C. All subsequent offers and sales of the Preferred Stock and the
shares of Common Stock issuable upon conversion of, or in lieu of payment of
interest on, the Preferred Stock (the "Shares" and, together with the
Preferred Stock, the "Securities") by the Buyer shall be made pursuant to
registration of the Shares under the 1933 Act or with respect to the
Preferred Stock pursuant to an exemption from registration;
D. The Buyer understands that the Preferred Stock is being offered and
sold, and the Shares are being offered, to it in reliance on 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 the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and
the eligibility of the Buyer to acquire the Preferred Stock and to receive an
offer of the Shares;
E. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Preferred Stock and the
offer of the Shares which have been requested by the Buyer. The Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Buyer has
had the opportunity to obtain and to review the Company's (1) Annual Report
on Form 10-K for the fiscal year ended March 31, 1996, (2) Quarterly Reports
on Form 10-Q for the fiscal quarter ended June 30, 1996; (3) definitive Proxy
Statement for its 1996 Annual Meeting of Stockholders; and (4) Registration
Statement on Form S-3 as filed on September 12, 1996;.
F. The Buyer understands that its investment in the Securities involves a
high degree of risk;
<PAGE>
G. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities;
H. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability
to general principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally;
and
I. The Buyer is not purchasing the Preferred Stock for the purpose of
covering any short sales of the Common Stock made by the Buyer with the Shares.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
A. CONCERNING THE SHARES. The Shares have been duly authorized and,
when issued upon conversion of the Preferred Stock in accordance with this
Agreement and the Certificate of Designation, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof
to personal liability by reason of being such holder. There are no
preemptive rights of any Stockholder of the Company, as such, to acquire the
Shares. The COMPANY has registered its common stock pursuant to Section 12
of the Exchange Act and the common stock trades on NASDAQ/Small Cap Market,
and has received no notice, either oral or written, with respect to
discontinuance of its continued eligibility for such listing.
B. STOCK PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND STOCK.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the
Registration Rights Agreement, when executed and delivered by the Company,
will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally.
C. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company and the consummation by the
Company of the issuance of the Securities and the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by
the Company of any of the terms or provisions of, or constitute a default
under, the certificate of incorporation or by-laws of the Company, or any
indenture, mortgage, deed of trust, or other material agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any material existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its
properties or assets.
D. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Preferred Stock to
the Buyer as contemplated by this Agreement.
E. INFORMATION PROVIDED. The information provided by or on behalf of
the Company to the Buyer and referred to in Section 2(e) of this Agreement
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
<PAGE>
light of the circumstances under which they are made, not misleading at the time
such statements are made.
F. ABSENCE OF LITIGATION. Except as disclosed in the Company's public
filings, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company or any of its subsidiaries, wherein an unfavorable decision, ruling
or finding would have a material adverse effect on the properties, business,
condition (financial or other), results of operations or prospects of the
Company and its subsidiaries taken as a whole or the transactions
contemplated by this Agreement or any of the documents contemplated hereby or
which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of such other documents.
G. ABSENCE OF EVENTS OF DEFAULT. No event of default, as defined in
any material agreement to which the Company is a party, and no event which,
with the giving of notice or the passage of time or both, would become an
event of default (as so defined), has occurred and is continuing.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Stock being purchased has not been and is not being registered
under the provisions of the 1933 Act and, except as provided in the
Registration Rights Agreement, the Shares have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Buyer shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act 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
used in the 1933 Act, may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (3)
neither the Company nor any other person is under any obligation to register
the Securities (other than pursuant to the Registration Rights Agreement)
under the 1933 Act or to comply with the terms and conditions of any
exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
certificates evidencing the shares of Preferred Stock being purchased, and,
until such time as the Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement and sold in accordance with
such Registration Statement, the certificates for the Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for the Shares):
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 THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement, in the form attached hereto as ANNEX
IV, on or before the Closing Date.
<PAGE>
D. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the shares of Preferred Stock being
purchased as required by United States laws and regulations, or by any
domestic securities exchange or trading market, and to provide a copy thereof
to the Buyer promptly after such filing.
E. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the
SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act
or the rules and regulations thereunder would permit such termination.
F. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Stock (excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Preferred Stock) for the
repayment of the Company's obligations and internal working capital purposes
and shall not, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership enterprise or other person.
5. TRANSFER AGENT INSTRUCTIONS.
Promptly following the delivery by the Buyer of the aggregate purchase
price for the Preferred Stock being purchased by the Buyer in accordance with
Section 1(c) hereof, and prior to the Closing Date, the Company will
irrevocably instruct its transfer agent to issue certificates for the Shares
from time to time upon conversion of the Preferred Stock in such amounts as
specified From time to time by the Company to the Transfer Agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer
in connection with each conversion of the Preferred Stock. 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 4(a)
hereof prior to registration of the Shares under the 1933 Act will be given
by the Company to the transfer agent and that the Shares shall otherwise be
freely transferable on the books and records of the Company as and to the
extent provided in this Agreement, the Registration Rights Agreement, and
applicable law. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities. If the Buyer provides the Company with an opinion
of counsel reasonably satisfactory to the Company that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B)
of Section 4(a) of this Agreement is not required under the 1933 Act, the
Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement) permit the transfer of the Securities and, in the case of the
Shares, promptly instruct the Company's transfer agent to issue one or more
share certificates in such name and in such denominations as specified by the
Buyer.
6. STOCK DELIVERY INSTRUCTIONS.
The Certificates evidencing the shares of Preferred Stock being purchased
by the buyer shall be delivered by the Company to the Escrow Agent pursuant
to Section 1(b) hereof on a delivery against payment basis at the closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock (the
"Closing Date") shall be not later than 12:00 Noon, New York time, on the
date which is one New York Stock Exchange trading day after the date on which
the Buyer has deposited the purchase price for the Preferred Stock with the
Escrow Agent in accordance with Section 1(c) hereof, or such other mutually
agreed to time, but not later
<PAGE>
than September 30, 1996 unless waived by the Company. The closing shall
occur on the Closing Date at the offices of the Escrow Agent.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell Preferred Stock
to the Buyer pursuant to this Agreement is conditioned upon:
A. The receipt and acceptance by the Company of the Agreement and
Agreements of other Buyers as evidenced by execution of the Agreement and
such other Agreements by the Company for in aggregate at least 3,500 shares
of Preferred Stock (or such lesser amount as the Company, in its sole
discretion, shall determine);
B. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the purchase price for the Preferred Stock
being purchased by the buyer in accordance with Section 1(c) hereof; and
C. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before
the Closing Date.
D. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent
or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock is conditioned upon:
A. Acceptance by the Company of this Agreement, as indicated by the
Company's execution of this Agreement;
B. Delivery by the Company to the Escrow Agent of certificates in the
name of buyer evidencing the shares of the Preferred Stock being purchased
by the buyer in accordance with this Agreement;
C. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Closing Date and the performance by the Company on or before the Closing Date
of all covenants and agreements of the Company required to be performed on or
before the Closing Date; and
D. On the Closing Date, the Buyer having received an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in Annex III
attached hereto.
10. ADDITIONAL CONDITIONS.
Notwithstanding anything to the contrary contained in Annex I (the
"Certificate of Designation"), Purchaser agrees not to convert the Preferred
Stocks originally issued to Purchaser at the Closing into Common Stocks,
except in accordance with and subject to the terms and conditions set forth
in this Secton 10. One-third (1/3) of such Preferred Stocks originally
issued to Purchaser at the Closing
<PAGE>
shall be convertible by Purchaser or any subsequent holder of such Preferred
Stockss (a "Holder") thereof into shares of Common Stock on and after the
60th day following the Closing Date, two-thirds (2/3) of such Preferred
Stocks originally issued to Purchase at the Closing shall be convertible by
the Holder thereof into shares of Common Stock on and after the 75th day
following the Closing Date, and the balance of such Preferred Shares shall be
convertible by the Holder thereof into Common Shares on and after the 90th
day following the Closing Date.
11. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement
may be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
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. This
Agreement may be amended only by an instrument in writing signed by the party
to be charged with enforcement. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by mail or delivered personally or
by courier and shall be effective five days after being placed in the mail,
if mailed, or upon receipt, if delivered personally or by courier, in each
case addressed to a party at such party's address shown in the introductory
paragraph or on the signature page of this Agreement or such other address as
a party shall have provided by notice to the other party in accordance with
this provision.
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES OF PREFERRED STOCK BEING PURCHASED:
TOTAL PURCHASE PRICE ($1,000 per shares): $
NAME OF BUYER:
SIGNATURE:
By:
----------------------
TITLE:
-------------------------
DATE:
ADDRESS:
This Agreement has been accepted as of the date set forth below.
FIRST PACIFIC NETWORKS, INC.
By:
-------------------------
Title:
-------------------------
Date:
-------------------------
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 26, 1996 (this
"Agreement"), is made by and between FIRST PACIFIC NETWORKS, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
WITNESSETH:
WHEREAS, upon the terms and subject to the conditions of the Stock Purchase
Agreement, dated as of September 26, 1996, between the Initial Investor and the
Company (the "Stock Purchase Agreement"), the Company has agreed to issue and
sell to the Initial Investor Series G Preferred Stock of the Company (the
"Preferred Stock") which will be convertible into shares of the common stock,
$0.001 par value (the "Common Stock"), of the Company (the "Conversion Shares")
upon the terms and subject to the conditions of such Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the Stock
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 status (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
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 acknowledge, the Company and the Initial
Investor hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or assignee
who agrees 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 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.
(iv) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Stock Purchase Agreement.
2. REGISTRATION.
<PAGE>
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or prior to
the date which is thirty (30) days after the Closing Date (as that term is
defined in Section 7 of the Stock Purchase Agreement) file with the SEC, either
a Registration Statement on Form S-3 covering one hundred fifty percent (150%)
of the number of shares of Common Stock shares into which the Preferred Stock
would be convertible at the time of filing of the Form S-3), and such
Registration Statement or amended Registration Statement shall state that, in
accordance with Rule 416 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Stock to prevent dilution resulting from stock
splits, or stock dividends. If at any time the number of shares of Common Stock
into which the Preferred Stock may be converted exceeds the aforementioned 150%
threshold, the Company shall, within ten (10) business days after receipt of a
written notice from any Investor, either (i) amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to register
all shares of Common Stock into which the Preferred Stock may be converted, or
(ii) if such Registration Statement has been declared effective by the SEC at
that time, file with the SEC an additional Registration Statement on Form S-3 or
an amendment to the Registration Statement to register the shares of Common
Stock into which the Preferred Stock may be converted that exceed the Common
Stock already registered.
(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 shall have the right to select one legal counsel
to represent their interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be chosen by the Company and shall be reasonably
satisfactory to the Company. The Investors who hold the Registrable Securities
to be included in such underwriting shall pay all underwriting discounts and
commission sand other fees and expenses of such investment banker or bankers and
manager or managers so selected in accordance with this Section 2(b) (other than
fees and expenses relating to registration of Registrable Securities under
federal or state securities laws, which are payable by the Company pursuant to
Section 5 hereof) with respect to their Registrable Securities and the fees and
expenses of such legal counsel so selected by the Investors. Nothing herein
shall require the Company to undertake an underwritten offering.
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not effective within ninety (90) days after the Closing Date (the
"Initial Date"), then the Company will make payments to the Initial Investor in
such amounts and at such times as shall be determined pursuant to this Section
2(c). The amount to be paid by the Company to the Initial Investor shall be
determined as of each Computation Date, and such amount shall be equal to one
and one-half percent (1.5%) of the purchase price paid by the Initial Investor
for the Preferred Stock pursuant to the Stock Purchase Agreement from the
Initial Date to the first Computation Date, three percent (3%) of the purchase
price paid by the Initial Investor for the Preferred Stock pursuant to the Stock
Purchase Agreement from the first Computation Date to the next Computation Date,
and four percent (4%) for each of the next Computation Dates thereafter, pro
rata to the date the Registration Statement is declared effective by the SEC
(the "Periodic Amount"); PROVIDED, HOWEVER, that the Company may elect in lieu
of payment of any Periodic Amount in cash to pay shares of Common Stock having
an Aggregate Market Value equal to the amount of the Periodic Amount if, but
only if, such shares are freely tradable by the Initial Investor (which shall be
registered with the SEC not later than forty-five (45) days after when the
shares are payable by the Company, or the Company shall immediately thereafter
pay the Initial Investor in cash the amount due), without any restriction under
the Securities Act or any state securities or "blue sky" law. The full Periodic
Amount shall be paid by the Company in immediately available funds within three
business days after each Computation Date.
As used in this Section 2(c), the following terms shall have the following
meanings:
<PAGE>
"Aggregate Market Value" of any shares of Common Stock as of any
Computation Date means the product obtained multiplying (a) such number of
shares of Common Stock times (b) the Average Market Price of the Common Stock
for the Measurement Period for such Computation Date.
"Average Market Price" of any security for any period shall be computed as
the closing bid price of such security (or the mean average of the high and low
bid prices for such security on any trading day for which no sales are reported)
for each trading day in such period on the principal trading market for such
security, as reported by such market.
"Computation Date" means the date which is one hundred twenty (120) days
after the Closing Date and, if the Registration Statement required to be filed
by the Company pursuant to Section 2(a) has not theretofore been declared
effective by the SEC, each date which is thirty (30) days after the previous
Computation Date until such Registration Statement is so declared effective.
"Measurement Period" means the period of ten consecutive trading days for
the Common Stock ending on (or, if such Computation Date is not a trading day,
on the last trading day preceding) each Computation Date.
(d) 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 Investor and any Investor who purchases 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 do each of the following.
(a) Prepare promptly, and file with the SEC not later than thirty (30) day
after the Closing Date, a Registration Statement with respect to not less than
the number of Registrable Securities provided in Section 2(a), above, and
thereafter use its best efforts to cause each Registration Statement relating to
Registrable Securities to become effective as soon as possible after such
filing, and keep the Registration Statement effective pursuant to Rule 415 at
all times until the earliest (the "Registration Period") of (i) the date that is
one year after the Closing Date (ii) the date when the Investors may sell all
Registrable Securities under Rule 144, or (iii) the date the investors no longer
own any of the registrable securities, which registration Statement (including
any amendments or supplements thereto and prospectuses contained 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,
in light of the circumstances in which they were made, not misleading; and
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration 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 a set forth in the Registration Statement;
(c) 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 (1) copy of the Registration Statement, each preliminary prospectus
and prospectus, and each amendment of supplement thereto, and (ii) such number
of copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such
<PAGE>
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) Use reasonably 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 as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (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 at all times 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 Registration 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 more than nominal expense or burden to the
Company of (E) make any change in its charter or by-laws, 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) As promptly as practicable after becoming aware of such event, 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 omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(g) Use its best efforts, if eligible, either to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on a
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 designation of all the
Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System ("NASDAQ")
"national market system security" within the meaning of Rule 11Aa2-I of the SEC
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or
the quotation of the Registrable Securities on the NASDAQ SmallCap Market; or
if, despite the Company's best efforts to satisfy the preceding clause (i) or
(ii), the Company is unsuccessful in doing so, to secure NASDAQ authorization
and quotation for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities;
(h) Provide a transfer agent, which may be a single entity, for to
Registrable Securities not later than the effective date of the Registration
Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered 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
<PAGE>
be in such denominations or amounts as the case may be, as the Investors may
reasonably request and registered in such names as 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 deliver, and 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 appropriate instruction and opinion of such counsel; and
(j) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(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 five (5) 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 (the "Requested Information") if such Investor elects to have
any of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company a 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; and
(c) 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(e) or 3(f),
above, 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(e) or 3(f) 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.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but 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.
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 and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act
<PAGE>
or the Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein 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 state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any 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) shall not
(I) 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 or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (II) with respect to
any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (III) be available to the extent such Claim is
based on a failure of the Investor to deliver or cause to be delivered the
prospectus made available by the Company; or (IV) 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. Each
Investor will indemnify the Company and its officers, directors and agents
against any claims 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 or on behalf or such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. 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) 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 be 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 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 differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. In such event, the
<PAGE>
Company shall pay for only one separate legal counsel for the Investors; such
legal counsel shall be selected by the Investors holding a majority in interest
of the Registrable Securities included in the Registration Statement to which
the Claim relates. 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 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 (a) 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; (b) no seller of Registrable Securities 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 (c)
contribution 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 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) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns 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 THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of any Preferred Stock of the Company
which is convertible into such securities) of Registrable Securities only if:
(a) 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, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition or
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing the
Registration
<PAGE>
Statement as a result of such assignment, the Company shall not be liable for
any damages arising from such delay.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision 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 the
written consent of the Company and Investors who hold a majority in 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) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company, at
871 Fox Lane, San Jose, California, 95113, Attention: President, with a copy to
the Chief Financial Officer, (ii) if to the Initial Investor, at the address set
forth under its name in the Stock Purchase Agreement, with a copy to Samuel
Krieger, Esq., Krieger & Prager, 319 Fifth Avenue, Third Floor, New York, NY
10016 and (iii) 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), and shall
be effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) calendar days after deposit with the United States
Postal Service.
(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 enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not effect the validity or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(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) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
<PAGE>
(i) 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 telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
FIRST PACIFIC NETWORKS, INC.
By:
--------------------------
Name:
Title:
------------------------------
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT 4.4
First Pacific Networks, Inc.
871 Fox Lane
San Jose, California 95131
Gentlemen:
This letter will confirm our mutual agreement with respect to our
engagement as exclusive Placement Agent ("Distributor") to act on behalf of
First Pacific Networks, Inc. (the "Company") in connection with the offer and
sale on a best efforts basis of a minimum of 3,500 shares and a maximum of 5,000
shares of the Company's Series G Preferred Stock ($.001 par value) (the
"Preferred Share"), having a purchase price of $1,000 per share of the Company
(the "Series G Preferred Stock" or "Preferred Shares") pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended (the "Act").
1. The engagement hereunder shall commence upon the execution of this
letter by the Company, and terminate thirty (30) days thereafter. You represent
that no other offering under Regulation S or Regulation D is presently in
progress by the Company which has not been disclosed to us.
2. (a) The net proceeds to be received by the Company after deducting
Distributor's Fees of $50 per Preferred Share shall be $950 per share of Series
G Preferred Stock. Other than the Distributor's Fee payable hereunder, and the
warrants set forth in PARA10 hereof, the Distributor shall not be entitled to
any additional compensation from the Company, nor shall Distributor be
reimbursed for its expenses. The Company shall pay the Escrow Agent's (as
defined below) fee of $10,000 from the net proceeds of the Sale of the Preferred
Shares.
(b) Each purchaser of Preferred Shares will, within two business days
after acceptance by the Company of a Stock Purchase Agreement ("Stock Purchase
Agreement") in the form attached as Exhibit A, pay the purchase price for the
Preferred Shares in escrow to the Escrow Agent. The Escrow Agent is authorized
to release the funds of each purchaser after
(i) the Company approves such purchaser and the Stock Purchase
Agreement and subscription documents' (in the form of an
exhibit hereto) which have been submitted and signed by
the purchaser, and
(ii) the Company has caused to be delivered to the Escrow Agent
or his designee, one or more certificates for the
Preferred Shares purchased by such purchaser and the
opinion of counsel attached as Annex III to the Stock
Purchase Agreement, and
(iii) the Escrow Agent has received good funds representing the
purchase price for the Preferred Shares, and disbursed
same to the Company.
(c) Each purchaser will be an accredited investor as said term is
defined in Rule 501 under Regulation D promulgated under the Act.
<PAGE>
EXHIBIT 4.4
(d) The Company shall have the right in its sole discretion to reject
any subscription, and to disapprove any person or entity which is proposed by
the Distributor to be a purchaser of any Preferred Shares.
3. The Company will cause the certificates representing the Preferred
Shares purchased pursuant to such Agreement to be delivered to Krieger & Prager,
Esqs. as escrow agent (the "Escrow Agent') pursuant to the terms of the Joint
Escrow Instructions attached as Annex II to the Stock Purchase Agreement.
4. (a) The Distributor represents, warrants and agrees that each
purchaser of the Preferred Shares will be qualified to purchase the Preferred
Shares under the laws of the jurisdiction in which such person resides and that
the offer and sale of the Preferred Shares will not violate the securities or
other laws of such jurisdiction. Without limiting the foregoing, Distributor
agrees that it will not solicit offers for, or offer or sell Preferred Shares by
any form of general solicitation or general advertising (as those terms are used
in Regulation D under the Securities Act) in any manner involving a public
offering within the meaning of 4(2) of the Securities Act. The Company and
Distributor acknowledge that the Distributor will primarily offer the securities
to persons not resident in the United States. The Company agrees that with
respect to any offerees resident in the United States, the Company will file, at
the request of Distributor, any necessary applications with any applicable
securities regulatory authority, provided, that all offerees will be accredited
investors.
(b) The Distributor understands that the Preferred Shares have not
been registered under the Act and may not be offered or sold within the United
States or to, or for the account or benefit of, United States persons except in
accordance with the Act or pursuant to an exemption from the registration
requirements of the Act.
5. The Distributor further agrees that:
(a) all offering materials and documents used in connection with
offers and sales of the Preferred Shares prior to the expiration of the
engagement period shall be approved in advance in writing by the Company, and
shall include statements to the effect that the Preferred Shares have not been
registered under the Act and that neither the purchaser, nor any direct or
indirect purchaser of the Preferred Shares from such purchaser, may directly or
indirectly offer or sell the Preferred Shares unless the Preferred Shares are
registered under the Act, or an exemption from the registration requirements of
the Act is available;
(b) it will comply with all laws, rules and regulations of the
jurisdictions in which the Preferred Shares are offered and sold; and
(c) Distributor has no authority to act on behalf of the Company or
otherwise bind the Company except as expressly set forth herein.
6. Distributor is an independent contractor, and is not the agent of the
Company. It is not authorized to bind the Company, or to make any
representations or warranties on behalf of the Company.
7. The Company represents, warrants, and agrees that, in addition to the
warranties to be made by the Company to the purchasers:
(a) the Common Stock to be issued upon conversion of the Preferred
Shares has been registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company has timely filed all
the material required to be filed pursuant to Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve months preceding the date hereof,
and the Company will continue to file all such material on a timely basis;
<PAGE>
EXHIBIT 4.4
(b) The Company is in full compliance, to the extent applicable, with
all reporting obligations under either Section 12(b), 12 (g) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has registered its Common Stock pursuant to Section 12 of the Exchange Act and
the Common Stock is listed on the NASDAQ/SmallCap, and has received no notice,
either oral or written, with respect to its continued eligibility for such
listing;
(c) the Preferred Shares will be offered and sold in compliance with
the requirements for the exemption from registration pursuant to Section 5 of
the Act contained in Regulation D, and with all other U.S. securities laws and
regulations; it being understood that this representation, warranty and
agreement is made relying exclusively on the representations, warranties and
agreements made by the Distributor and/or purchasers herein or in the applicable
subscription documents. The Company will, at its expense, make all filings
required under the Act and any applicable domestic securities exchange or
trading market, if any;
(d) all information furnished by the Company to purchasers under
Regulation D will not contain any untrue statement of material fact or omit to
state a material fact required to be stated or necessary to make the statements
therein not misleading; provided however, that this representation and warranty
does not extend to written material furnished to the Company by Distributor
relating to Distributor or the distribution process;
(e) the Company will not sell any common stock or securities
convertible into common stock under Regulation S for a period of ninety (90)
days from Closing Date and under Regulation D for a period of seventy-five (75)
days from Closing Date if 5,000 Preferred Shares are purchase pursuant to this
Stock Purchase Agreement and sixty (60) days if less than 5,000 shares are
purchased pursuant to this Stock Purchase Agreement, unless such Shares shall
not be freely transferable for a period of six (6) months from the Offering
Date;
(f) the Company has all requisite corporate power and authority to
execute and perform this agreement. All corporate action necessary for the
authorization, execution, delivery and performance of this agreement and the
transaction contemplated hereby have been taken. This agreement constitutes a
valid and binding obligation of the Company subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally;
(g) the execution and performance of this agreement by the Company
and the offer and sale of the Preferred Shares will not violate any provision of
the Certificate of Incorporation or Bylaws of the Company or any material
agreement or other instrument to which the Company is party or by which it is
bound, and which violation(s) would have a material adverse effect on the
business or financial condition of the Company. Any material necessary
approvals, U.S. governmental and private, will be obtained by the Company prior
to the issuance of the Preferred Shares;
(h) the Company makes no other representation or warranty with
respect to the Company, its finances, assets, recent sales of securities,
business or prospects or otherwise. Distributor will advise each purchaser and
potential purchaser of the foregoing, and that such purchaser is relying on its
own investigation with respect to all such matters, and that it will be given
reasonable access to any and all material publicly available documents and
Company personnel it may require for such investigation; and
(i) the Company will deliver to each Purchaser, a Registration Rights
Agreement substantially in the form annexed hereto as Annex IV to the Stock
Purchase Agreement, the Company and each Purchaser will comply with all of its
obligations thereunder.
8. The Company will provide Escrow Agent, as Agent for the Purchaser,
with an opinion of counsel substantially in the form attached as Annex III to
the Stock Purchase Agreement.
<PAGE>
EXHIBIT 4.4
9. Further, during the time period commencing upon completion of this
distribution and ending one hundred five (105) days thereafter, the Distributors
will have the right of first refusal on any further offer or sale of common
stock or securities convertible into common stock in any non-public offering,
other than strategic investments under Regulation D which will not effect
registration for six months.
10. The Company agrees to issue to Distributor, within ten (10) days after
the Closing Date, transferable divisible warrants for one hundred (100) shares
of Common Stock for each share of Series G Preferred stock sold, at an exercise
price per share of Common Stock equal to 120% of the Market Price at Closing,
exercisable commencing forty-five (45) days from closing, and for a period of
thirty-six (36) months thereafter, in form to be hereafter agreed.
11. As more fully described in Exhibit B hereto, which is incorporated
herein by reference, each party hereto will indemnify and hold the other
(including its partners, agents, employees, and controlling persons within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) harmless
from and against certain claims, liabilities, losses, damages and expenses
incurred, including fees and disbursements of counsel, related to or arising out
of this engagement. Exhibit B will be executed and delivered simultaneously
with this agreement.
12. This agreement shall be governed by and construed under the laws of
the State of New York without giving effect to principles governing the
conflicts of laws. A facsimile transmission of this signed agreement shall be
legal and binding on all parties hereto. Capitalized terms not defined herein
shall have the respective meanings ascribed to them in the Stock Purchase
Agreement.
Dated: September 25 , 1996
------------------
FIRST GRANITE SECURITIES, INC.
By:
----------------------------
AGREED & ACCEPTED:
FIRST PACIFIC NETWORKS, INC.
By: /s/ Kenneth W. Schneider
------------------------
Its Chief Financial Officer
-----------------------
<PAGE>
EXHIBIT 4.4
EXHIBIT B
INDEMNIFICATION AGREEMENT
In consideration of the agreement of FIRST GRANITE SECURITIES (hereinafter
"Distributor") to act on behalf of FIRST PACIFIC NETWORKS, INC. (the "Company")
pursuant to the Distribution Agreement (the "Agreement") dated September 26,
1996, the Company agrees to indemnify and hold harmless Distributor, their
affiliates, and each of their respective partners, directors, officers, agents,
consultants, employees and controlling persons (with the meaning of the
Securities Act of 1933) (Distributor and each such other person or entity are
hereinafter referred to as an "Indemnified Person"), from and against any
losses, claims, damages, expenses and liabilities or actions in respect thereof
(collectively "Losses"), as they may be incurred including all reasonable legal
fees and other expenses incurred in connection with investigating, preparing,
defending, paying, settling or compromising any Losses (whether or not in
connection with any pending or threatened litigation in which any Indemnified
Person is a named party) to which any of them may become subject (including in
any settlement effected with the Company's consent) and which are related to or
arise out of the engagement under the Agreement. The Company will not, however,
be responsible under the foregoing provisions with respect to any Losses (a) to
the extent that a court of competent jurisdiction shall have determined by a
final judgment that such Losses resulted primarily from actions taken or omitted
to be taken by an Indemnified Person due to its gross negligence, bad faith or
willful misconduct, or (b) resulting solely from one or more decreases in the
market price of the Company's common stock.
If the indemnity referred to in this agreement should be, for any reason
whatsoever, unenforceable, unavailable or otherwise insufficient to hold such
Indemnified Person harmless, the Company shall pay to or on behalf of each
Indemnified Person contributions for Losses so that each Indemnified Person
ultimately bears only a portion of such Losses as is appropriate (i) to reflect
the relative benefits received by each such Indemnified Person, respectively, on
the one hand and the Company on the other hand in connection with the
transactions, or (ii) if the allocation on that basis is not permitted by
applicable law, to reflect not only the relative benefits referred to in clause
(I) above but also the relative fault of each such Indemnified Person,
respectively, and the Company as well as any other relevant equitable
considerations; provided, however, that in no event shall the aggregate
contribution of all Indemnified Persons to all Losses in connection with an
transaction exceed the vale of the consideration actually received by
Distributor pursuant to the Agreement. The respective relative benefits
received by Distributor and the Company in connection with any transaction shall
be deemed to be in the same proportion as the aggregate consideration received
by Distributor in connection with the transaction bears to the total
consideration of the transaction. The relative fault of each Indemnified Person
and the Company shall be determined by reference to, among other things, whether
the actions or omissions to act were by such Indemnified Person or the Company,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action or omission to act.
The Company also agrees that no Indemnified Person shall have any liability
to the Company or its affiliates, directors, officers, employees, agents or
shareholders, directly or indirectly, related to or arising out of the
Agreement, except that each Indemnified Person shall indemnify and hold harmless
the Company, its directors, officers, agents, consultants and controlled persons
from and against any Losses as they are incurred, which result primarily from
actions taken or omitted to be taken by such Indemnified Person due to its gross
negligence, bad faith or willful misconduct. In no event, regardless of the
legal theory advanced, shall the Company or any Indemnified Person be liable for
any consequential, indirect, incidental or special damages of any nature.
If any action is brought against any Indemnified Person in respect of which
indemnity may be sought against the Company hereunder, such Indemnified Person
shall promptly notify the Company in writing of such action and the Company
shall be entitled to participate therein and, to the extent the
<PAGE>
EXHIBIT 4.4
Company shall wish, assume the defense thereof. Upon the request of an
Indemnified Person, the Company shall retain counsel reasonably satisfactory to
such Indemnified Person to represent such Indemnified Person and any others the
Company may designate in such action and shall pay the reasonable fees and
expenses of such counsel related thereto as they are incurred. In any such
action, an Indemnified Person shall have the right to retain its own counsel at
its own expense, except that the Company shall pay as they are incurred the
reasonable fees and expenses of counsel retained by the indemnified party only
in the event that (i) the Company and such Indemnified Person shall have
mutually agreed to the retention of such counsel or (ii) the Company has
directed counsel to represent one or more parties in addition to such
Indemnified Person in such action and representation of both such Indemnified
Person and such other party or parties by the same counsel would be
inappropriate, in the reasonable opinion of such Indemnified Person, due to
actual or potential differing interests between them, it being understood that
the Company shall not be liable for the reasonable fees and expenses of more
than one separate firm for all the Indemnified Persons. No indemnification
provided for herein shall be available to any Indemnified Person that fails to
give notice as provided above if the Company was unaware of the action to which
such notice would have related and was substantially prejudiced by such failure
or to any Indemnified Person that retains its own counsel in accordance with the
immediately preceding sentence except in the circumstances set forth in clauses
(i) and (ii) thereof. The Company agrees that without Distributor's prior
written consent it shall not settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding related
to the Distribution Agreement unless the settlement, compromise or consent also
includes an express unconditional release of all Indemnified Persons from all
liability and obligations arising therefrom.
The respective obligations of the Company and the Indemnified Persons
referred to above shall be in addition to any rights that any Indemnified Person
or the Company, as the case may be, may otherwise have and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of any Indemnified Person and the Company. It is understood
that the respective obligations of the Company and the Indemnified Persons will
remain operative regardless of any termination or completion of Distributor's
services pursuant to the Agreement.
FIRST GRANITE SECURITIES
By:
-------------------------------
Title:
------------------
FIRST PACIFIC NETWORKS, INC.
By: /s/ Kenneth W. Schneider
------------------------
Title: Chief Financial Officer
-----------------------
<PAGE>
EXHIBIT 4.5
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Company: First Pacific Networks, Inc., a Delaware corporation
Number of Shares: 350,000 shares
Class of Stock: Common Stock
Initial Exercise Price: $1.34 per share
Issue Date: as of 1/2/1996
Expiration Date: 10/1/1999
Becomes Exercisable: After 11/15/1996
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, FIRST GRANITE SECURITIES, INC.
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of the class of securities (the "Shares") of First Pacific Networks,
Inc., a Delaware corporation (the "Company") at the Initial Exercise Price per
Share all as set forth above and as adjusted pursuant to Article 2 of this
Warrant (the "Warrant Price"), subject to the provisions and upon the terms and
conditions set forth in this Warrant.
I. EXERCISE AND CONVERSION RIGHT
1. EXERCISE. Holder may exercise this Warrant, in whole or in part, by
delivering this Warrant and a duly executed Notice of Exercise/Conversion in
substantially the form attached as Appendix 1 (the "Notice of
Exercise/Conversion") to the principal office of the Company. Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
2. CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may at its option convert this Warrant, in whole or in part,
into a number of Shares determined by dividing (a) the aggregate fair market
value of the Shares or other securities otherwise issuable upon exercise of this
Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market
value of one Share by delivering the Warrant and a duly executed Notice of
Exercise/Conversion. The fair market value of the Shares shall be determined
pursuant to Section 1.3.
3. FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares
reported for the business day immediately before Holder delivers its Notice of
Exercise/Conversion to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall
be paid by Holder.
4. DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired, and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
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EXHIBIT 4.5
5. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
6. SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1) "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets (including intellectual property) of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
2) ASSUMPTION OF WARRANT. If, upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of this Warrant as if such Shares
were outstanding on the record date for the Acquisition and subsequent closing.
The Warrant Price shall be adjusted accordingly.
3) NON-ASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised or converted this Warrant then this Warrant shall be
deemed to have been automatically converted pursuant to Section 1.2 and
thereafter Holder shall participate in the Acquisition on the same terms as
other holders of the same class of securities of the Company.
II. ADJUSTMENTS TO THE SHARES
1. STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2. RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise of
this Warrant, Holder shall be entitled to receive, upon exercise of this
Warrant, the number and kind of securities and property that Holder would have
received for the Shares if this Warrant had been exercised immediately before
such reclassification, exchange, substitution, or other event. The provisions
of this Section 2.2 shall similarly apply to successive reclassifications,
exchanges, substitutions, or other events.
3. ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
4. NO IMPAIRMENT. The Company shall not, by amendment of its Certificate
of Incorporation or through a 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 under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
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EXHIBIT 4.5
III. REPRESENTATIONS
1. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant or upon conversion of this
Warrant, upon issuance, will be duly authorized, validly issued, fully paid and
nonassessable, and free of any liens and encumbrances except for restrictions on
transfer provided for herein or under applicable federal and state securities
laws.
IV. MISCELLANEOUS
1. TERM. This Warrant is exercisable or convertible, in whole or in
part, at any time on or before the Expiration Date set forth above.
2. LEGENDS. This Warrant and the Shares shall be imprinted with a legend
in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
3. COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant may not be transferred or assigned in
whole or in part without compliance with applicable federal and state securities
laws by the transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, as reasonably requested by the Company).
4. TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer, to any person owning all or substantially all of Holder's assets
or capital stock, all or part of this Warrant or the Shares issuable upon
exercise of this Warrant by giving the Company notice of the portion of the
Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, the Company shall have the right to
refuse to transfer any portion of this Warrant to any person who directly
competes with the Company.
5. REGISTRATION RIGHTS. The Shares shall have the registration rights
set forth on Exhibit A.
6. NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
7. WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
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EXHIBIT 4.5
8. ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
9. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to its
principles regarding conflicts of law.
FIRST PACIFIC NETWORKS, INC.
By /s/ M. Peter Thomas
------------------------------
M. Peter Thomas, President
By /s/ Kenneth W. Schneider
---------------------------------
Kenneth W. Schneider, Secretary
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EXHIBIT 4.5
APPENDIX 1
NOTICE OF EXERCISE/CONVERSION
1. The undersigned hereby elects to purchase ______________ shares of
Common Stock of FIRST PACIFIC NETWORKS, INC. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
Shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is made as to
________ Shares of the Common Stock covered by the Warrant.
[Strike paragraph 1 that does not apply.]
2. Please issue a certificate of certificates representing said Shares in
the name of the undersigned or in such other name as is specified below.
---------------------------
(Name)
---------------------------
---------------------------
(Address)
3. The undersigned represents the undersigned is acquiring the Shares
solely for its own account and not as a nominee for any other party and not with
a view toward the resale or distribution thereof except in compliance with
applicable securities laws.
----------------------------
(Signature)
----------------------------
(Date)
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EXHIBIT 4.5
Addendum A
IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign, and transfer
unto__________________________________________ ___________________________
(name of transferee) (no. of shares)
shares of the Common Stock of First Pacific Networks, Inc. represented by
Certificate(s) No.(s). ____________________ (inclusive), and does hereby appoint
___________________ attorney to transfer the foregoing on the books of First
Pacific Networks, Inc., with full power of substitution in the premises.
Dated , 199
--------------- --
---------------------------
(Signature)
---------------------------
Typed Name
THE SIGNATURE(S) ON THIS STOCK POWER MUST CORRESPOND WITH THE NAME(S) ON THE
FACE OF THE CERTIFICATE(S) IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT. TRUSTEES, OFFICERS AND OTHER FIDUCIARIES OR AGENTS SHOULD INDICATE
THEIR TITLES OR CAPACITIES.
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EXHIBIT 4.5
ADDENDUM B
SELLER'S REPRESENTATION LETTER
In connection with the sale of___________ shares (the "Shares") of Common
Stock of First Pacific Networks, Inc. (the "Company") by the undersigned (the
"Seller"), on____________ , 199___ (the "Sale Date"), the Seller hereby
represents and warrants to the Company and its transfer agent as follows:
1. The Shares were sold by the Seller on the Sale Date.
2. The Seller has fully complied with the provisions of Sections 3 and 4
of Exhibit A to the Warrant to Purchase Stock dated as of________, 1996 of the
Company to the undersigned (the "Warrant).
3. The Shares were issued to the Seller by the Company on___________,
1996 upon exercise or conversion of the Warrant; and
4. The Seller has caused the Prospectus (as defined in Exhibit A of the
Warrant) to be furnished to the purchase of the Shares and to the broker-dealer,
if any, through whom the sale of the Shares was made.
Executed this day of , 199 .
-- ------------- ---
-------------------------
Signature
-------------------------
Name
-------------------------
-------------------------
-------------------------
Address
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EXHIBIT 4.5
Exhibit A
Registration Rights
1. Prior to the expiration date of this Warrant the Company will use its
best efforts to effect the registration under the Securities Act of 1933, as
amended (the "Act") and the rules and regulations of the Securities and Exchange
Commission (the "Commission") of the resale of the Shares and, in connection
therewith, it will:
(a) prepare and file a registration statement on Form S-3 (the
"Registration Statement") with respect to the Shares, pursuant to the
rules and regulations of the Commission and use its best efforts to
cause the Registration Statement to become and remain effective for a
period of not less than the earliest date (the "Termination Date") of
(i) the date one year after the date of effectiveness of the
Registration Statement, (ii) the date the Holder may sell all of the
Shares issuable upon conversion of the Warrant on reliance upon Rule
144 under the Act, and (iii) the date the holder no longer owns the
Warrant and/or any of the Shares issued to Holder upon exercise or
conversion of the Warrant;
(b) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the Prospectus (as
defined in Section 4(b) below) as may be necessary to keep the
Registration Statement effective until the Termination Date and comply
with the applicable provisions of the rules and regulations of the
Commission; and
(c) furnish to Holder the number of copies of the Prospectus the
Holder may reasonably request.
Notwithstanding any other provision of this Exhibit A, the Company shall have
the right at any time to require that to Holder to suspend further open market
offers and sales of the Shares whenever, and for so long as, in the reasonable
judgment of the Company after consultation with counsel there is or maybe in
existence material undisclosed information or events with respect to the Company
(the "Suspension Right"). In the event the Company exercises the Suspension
Right, such suspension will continue for the period of time reasonably necessary
for disclosure to occur at a time that is not detrimental to the Company and its
stockholders or until such time as the information or event is no longer
material, each as determined in good faith by the Company after consultation
with counsel. The Company will promptly give the Holder notice of any such
suspension and will use all reasonable efforts to minimize the length of the
suspension.
2. The costs and expenses of registration of the shares to be borne by
the Company for purposes of this Exhibit B shall include, without limitation,
printing expenses (including a reasonable number of prospectuses for circulation
by the selling Holders), legal fees and disbursements of counsel for the
Company, "blue sky" expenses, accounting fees and filing fees, but shall not
include underwriting commissions or similar charges, legal fees and
disbursements of counsel for the Holder.
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EXHIBIT 4.5
3. The Holder shall be required to submit the following documents to the
transfer agent of the Company's Common Stock when making a sale of Shares
pursuant to the Registration Statement, with copies to the Company:
(i) Original stock certificate representing the Shares sold;
(ii) Originally executed stock power in the form of ADDENDUM A
hereto, with signature guaranteed; and
(iii) Originally executed Seller's Representation Letter in the form
of ADDENDUM B hereto.
4. The Holder by accepting the Warrant hereby represents to and covenants
with the Company that, until the Termination Date, the Holder will:
(a) Not engage in any stabilization activity in connection with any
of the Company's securities other than as permitted under the
Securities and Exchange Act of 1934, as amended ("Exchange Act");
(b) Cause to be furnished to any purchaser of the Shares and to the
broker-dealer, if any, through whom Shares may be offered, a copy of
the final prospectus contained in the Registration Statement, as
supplemented or amended through the date of the sale (the
"Prospectus"); and
(c) Not bid for or purchase any securities of the Company or any
rights to acquire the Company's securities, or attempt to induce any
person to purchase any of the Company's securities (except for the
Share to be sold to such person by means of the Prospectus) or any
rights to acquire the Company's securities other than as permitted
under the Exchange Act.
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EXHIBIT 5.1
[LETTERHEAD]
October 31, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: FIRST PACIFIC NETWORKS, INC. REGISTRATION STATEMENT ON FORM S-3,
REGISTRATION NO.
----------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 1,933,092 shares of Common Stock (the "Common
Stock"), par value $0.001 per share (the "Shares"), of First Pacific Networks,
Inc. (the "Company").
We have acted as counsel for the Company in connection with the
registration of such Shares. We have examined signed copies of the Registration
Statement and all exhibits thereto as filed with the Commission.
Based upon representations of certain officers of the Company as to the
receipt of full consideration and assuming the exercise of certain warrants in
accordance with their terms, we are of the opinion that the shares of Common
Stock to be registered will be validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ Gray Cary Ware & Freidenrich
GRAY CARY WARE & FREIDENRICH
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
First Pacific Networks, Inc. on Form S-3 of our reports, which include an
explanatory paragraph regarding the Company's ability to contiue as a going
concern, dated May 17, 1996 (except Note 15, as to which the date is June 20,
1996), on our audits of the consolidated financial statements and financial
statement schedule of First Pacific Networks, Inc. as of March 31, 1996 and 1995
and for each of the three years in the period ended March 31, 1996, appearing in
the 1996 Annual Report on Form 10K. We also consent to the reference to our
firm under the caption "Experts."
COOPERS & LYBRAND L.L.P
San Jose, California
October 30, 1996
