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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 21, 1998
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P-COM, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-25356 77-0289371
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3175 S. WINCHESTER BOULEVARD, CAMPBELL, CALIFORNIA 95008
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (408) 866-3666
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NONE
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(Former Name or Former Address, if Changed Since Last Report.)
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Item 5. Other Events.
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Private Placement
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On December 22, 1998, P-Com, Inc. (the "Company") received
a $15 million investment from funds affiliated with three investors, Castle
Creek Technology Partners LLC, Marshall Capital Management, and Heights Capital
Management, (the "Purchasers"). A copy of the press release dated December 22,
1998 announcing the signing of a definitive agreement in connection with such
investment is attached hereto and incorporated by reference herein.
In the investment, the Company sold 15,000 shares of newly
issued Series B Convertible Preferred Stock, having a face value of $1,000 per
share (the "Series B Preferred"), and warrants to purchase 1,242,257 shares of
the Company's Common Stock (the "Warrants") for an aggregate of $15 million. The
offer and sale of these securities in the United States was completed pursuant
to the exemption from registration provided by Regulation D under the Securities
Act of 1933, as amended (the "Act"). The rights, preferences and privileges of
the Series B Preferred are as described in a certificate of designation filed
with the Delaware Secretary of State on December 21, 1998 and the Certificate of
Correction thereto, filed with the Delaware Secretary of State on December 23,
1998 (together the "Series B Certificate of Designation"). In addition to the
Series B Certificate of Designation and the Warrants, in connection with the
investment, the Company and the Purchasers have entered into a Stock Purchase
Agreement and a Registration Rights Agreement, these documents being referred to
collectively herein as the "Transaction Documents."
In general, the Series B Preferred is convertible at the
election of the holder into shares of Common Stock beginning immediately after
issuance until May 14, 1999, at 200% of the average closing bid prices of the
Company's Common Stock for the 15 consecutive trading days ending on the date
of the Series B investment; provided that from March 25, 1999 through May 14,
1999, if the Company has not achieved $10 million of bona fide, third-party,
unaffiliated written contractual commitments for sales of its point to
multipoint products and services prior to March 24, 1999, then 7,500 shares of
the Series B Preferred shall be convertible at the lower of (i) 200% or (ii)
101% of the lowest average closing bid prices of the Company's Common Stock
over any 3 consecutive days during the 15 consecutive day period ending prior
to the applicable conversion date (the "Variable Conversion Price"). From and
after May 15, 1999, the Series B Preferred is convertible at the lower of (i)
200% or (ii) 105% of the average closing bid prices of the Company's Common
Stock for the 15 consecutive trading days immediately prior to and ending on
May 14, 1999 or (iii) the Variable Conversion Price. The foregoing conversion
rates are subject to adjustment upon the occurrence of certain other events,
including but not limited to the Company's failure to obtain stockholder
approval to exceed the 20% Limit (as defined below) prior to a predetermined
date; the Company's failure to have declared effective a registration
statement (as described below) for the Common Stock underlying the Series B
Preferred and the Warrants prior to the 180th day after the Series B
investment; failure to timely deliver Common Stock upon a Holder's submission
of a notice of conversion; failure to redeem the Series B Preferred after
providing to the Holders a notice of redemption at the Company's option; the
Company's or any subsidiary's public announcement of a merger or
consolidation; the issuance of Common Stock or securities convertible or
exchangeable into Common Stock at a variable price per share or at a price per
share less than a predetermined amount; and the sale by George Roberts, Chief
Executive Officer of the Company, or Michael Sophie, Chief Financial Officer
of the Company, of securities at less than a predetermined per share price.
Assuming certain conditions are met, the Series B Preferred
will automatically convert into Common Stock three years after the date of its
issuance by the Company. The Series B Preferred accrues a 6% per year premium,
payable in cash or Common Stock at the Company's option. From and after 181
days after the Series B Preferred investment and upon sufficient notice, if
the then-effective conversion price is less than 75% of the closing price for
the Company's Common Stock on the date of the Series B Preferred investment,
instead of converting the Series B Preferred into Common Stock upon a Holder's
request, the Company may elect to pay such Holder the equivalent value of the
Common Stock in cash.
Upon the occurrence of certain events deemed within the
Company's control, the Series B Preferred is redeemable at a Holder's option at
the greater of 133% of the original issue price of the Series B Preferred, plus
the 6% premium and any default amounts, or a predetermined redemption formula
based on the average of the closing bid prices for the Company's Common Stock
during the period beginning on the date of the Company's redemption notice and
ending on the date of redemption (the "Redemption Formula Amount"). In certain
circumstances, the Company may be able to avoid redemption if the Company cures
such events prior to the redemption election by a Holder. If the Company is
unable to avoid redemption and unable to redeem the Series B Preferred upon
request, the Company must redeem that portion which is permitted and,
thereafter, use its best efforts to remedy the impairment preventing redemption.
In addition, certain of the foregoing events may also cause the Company to
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become subject to additional penalties, some of which are payable in cash only
and some of which are payable in cash or additional shares of Common Stock, at
the Company's option.
Upon the occurrence of certain other events deemed outside of
the Company's control ("Override Election Events"), the Company is subject to
significant cash penalties. All cash penalties payable as a result of an
Override Election Event, together with all cash penalties payable under the
other Transaction Documents, are capped at an aggregate of 33% of original
issue price of the Series B Preferred investment plus a default interest rate,
if applicable. In addition to the foregoing cash penalties, upon the
occurrence of an Override Election Event, the Holders can require the Company
to list its Common Stock on the over-the-counter electronic bulletin board
which, as of the date hereof, has no 20% Limit or similar restriction and,
thereafter, require the Company to honor all requested conversions.
So long as an event pursuant to which the Holders are
entitled to redeem or an Override Election Event has not occurred (or if such
event has occurred in the past, it has been cured for at least the six
immediately preceding consecutive months without the occurrence of any other
such event); the Series B Preferred is redeemable at the Company's option in
certain limited circumstances at premiums varying from 115% to 160% of the
original issue price of the Series B Preferred, plus the 6% premium and a
default interest rate, if applicable. The Company must redeem all of the Series
B Preferred unless in excess of $5,000,000 of Series B Preferred (in $1 million
increments) will be redeemed. If the Company fails to redeem the Series B
Preferred after providing a notice of redemption at the Company's option to the
Holders of the Series B Preferred, the Company forfeits all future redemptions
at the Company's option and the conversion rate of the Series B Preferred will
be adjusted.
The Series B Preferred is senior to the Company's Series A
Convertible Preferred Stock and Common Stock in respect of the right to
receive dividend payments and liquidation preferences. The Series B Preferred
has no voting power, except as otherwise provided by applicable law. In
connection with the issuance of the Series B Preferred, the Company has
agreed, for a period of 365 days following the Series B Preferred investment,
not to issue or agree to issue any equity securities at a price less than fair
market value or at a variable or re-settable price, subject to limited
exceptions. In addition, the Company is prohibited from, among other things,
altering, changing or otherwise adversely affecting the terms of the Series B
Preferred; creating or issuing any senior or pari passu securities; redeeming or
paying any dividend on any junior securities; acting so as to generate taxation
under Section 305 of the Internal Revenue Code of 1986, as amended; and selling
or transferring all or substantially all of the Company's assets without prior
approval by the Purchasers.
In cases where the Company merges or consolidates with a
public company meeting certain threshold criteria, the Holders will be
entitled to receive, following consummation of such merger or consolidation,
the consideration that such Holder would have received if such Holder had
converted its Series B Preferred on the trading day immediately preceding the
public announcement of such merger or consolidation. In cases where the
Company merges or consolidates with a private company or a public company not
meeting the threshold criteria (unless such merger or consolidation is an
acquisition by the Company of another entity where the Company issues less
than 20% of its Common Stock in consideration therefor), the Holders will be
entitled, at their option, following consummation of such merger or
consolidation, (i) to retain their preferred stock which will thereafter
convert into the Common Stock of the surviving company or (ii) receive either
(x) the consideration that such Holder would have received if such Holder had
converted its Series B Preferred on the trading day immediately preceding the
public announcement of such merger or consolidation or (y) cash equal to 125%
of the original issue price of the Series B Preferred, plus the 6% premium and
a default interest rate, if applicable.
The Warrants are immediately exercisable until the earlier
of: (i) December 21, 2003 and (ii) the date on which the closing of a
consolidation, merger or other business combination with or into another entity
pursuant to which the Company does not survive. The exercise price for the
Common Stock underlying the Warrant is $3.47 (subject to adjustment). In the
event the Company merges or consolidates with any other company, the
warrantholders are entitled to similar choices as to the consideration they will
receive in such merger or consolidation as are provided to the Holders of the
Series B Preferred. In addition, the number of shares issuable upon exercise of
the Warrants is subject to anti-dilution adjustment if the Company sells Common
Stock or securities convertible into or exercisable for Common Stock (excluding
certain issuances such as Common Stock issued under employee, director or
consultant benefit plans) at a price per share less than the exercise price of
the Warrants.
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Pursuant to the Registration Rights Agreement, the Company is
obligated to file, within 20 business days of the Series B Preferred
investment, with the Securities and Exchange Commission (the "Commission") a
"shelf" registration statement covering the resale of all shares of Common
Stock issuable upon conversion of the Series B Preferred and exercise of the
Warrants. Such registration statement must be declared effective by the
Commission by the 90th day following the Series B Preferred investment (with a
30 day extension if Commission comments cause delay despite the Company's best
efforts to cause the registration statement to become effective). If the
registration statement is not effective within the prescribed time frame, or
if, once effective, the registration statement cannot be used for more then a
predetermined period, the Company is subject to a variable penalty depending
upon the amount of time the registration statement is unusable. In addition to
the foregoing, the Company is obligated to allow the Purchasers to inspect
Company records, to maintain the listing of its Common Stock on Nasdaq or
another market acceptable to the Purchasers, and to indemnify the Holders for
all claims arising out of the Transaction Documents or the registration
statement(s).
The rules of Nasdaq, on which the Company's Common Stock is
currently listed, require that, prior to the sale or issuance at a price less
than the greater of book or market value, of Common Stock (or securities
convertible into or exercisable for Common Stock) equal to 20% or more of the
Common Stock of the Company outstanding before such issuance, the Company
obtain stockholder approval of such issuance (the "20% Limit"). As the number
of shares that may be required to be issued pursuant to the Transaction
Documents may, at some future time, require the Company to issue at a
discounted price (based on conversion rate adjustments) more than 20% of the
Common Stock outstanding prior to the Purchasers' investment in the Series B
Preferred and Warrants, the Company will be required to solicit a stockholder
vote approving such issuance(s). In addition, the sale of the Series B
Preferred and Warrants may trigger, based on certain events, the anti-dilution
provisions of the Company's 4 1/4% convertible notes (the "Notes"), which
additional issuances upon conversion of the Notes would be aggregated with the
issuances pursuant to the Transaction Documents for purposes of the 20% Limit.
In this regard, the Company will be soliciting stockholder approval relating
to the 20% Limit. Prior to obtaining such approval, the Purchasers will be
prohibited from converting the Series B Preferred Stock and/or exercising the
Warrants to the extent that such conversion and/or exercise would exceed the 20%
Limit. In addition, each Purchaser and any transferree thereof is prohibited by
the terms of the Transaction Documents from owning at any one time more than
4.9% of the Company's then outstanding Common Stock, unless the Company's
stockholders approve an increase in such limitation.
The foregoing description is only a summary and is qualified
in its entirety by reference to the Securities Purchase Agreement dated as of
December 21, 1998 by and among the Company and the purchasers listed
therein, the Registration Rights Agreement dated as of December 21, 1998 by
and among the Company and the purchasers listed therein, the Warrants issued
by the Company to the purchasers and the Series B Certificate of Designation
attached to this Current Report as Exhibits 10.38, 10.39, 10.40, and 3.2D and
3.2E, respectively, and incorporated herein by reference.
The proceeds from the equity investment will be used for
working capital and general corporate purposes.
If the Company does not comply with the terms of these
agreements, the convertibility and other terms of the Series B Preferred and
Warrants could result in substantial dilution, without any cap, to the holders
of the Company's Common Stock. The redemption rights, liquidated damages
provisions, cross default provisions to the Company's debt instruments and other
terms of the Series B Preferred, under certain circumstances, could lead to a
significant accounting charge to earnings and could materially adversely affect
the Company's business, results of operations and condition. The Series B
Preferred will be classified as mandatorily redeemable preferred stock. The
Company will be required to recognize in its earnings (loss) per share
calculation any accretion of the Series B Preferred to its fair value, the fair
value of Warrants issued and the value of the conversion discount as a dividend
to the holders of the Series B Preferred during the period of conversion. As a
result, the Company will be required to take a substantial charge to its
accumulated deficit for the fourth quarter of fiscal 1998 as a result of the
accounting treatment for issuance of the Warrants.
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Such charge and potential other future charges relating to the provisions of the
Transaction Documents may materially adversely affect the Company's earnings
(loss) per share and market price of the Company's Common Stock both currently
and in future periods. The convertibility feature of such Series B Preferred and
subsequent sales by the Purchasers could materially adversely affect the
Company's valuation and market trading price. In addition, the existence of the
Series B Preferred and the terms thereof could render future financings and
loans and merger and acquisition activities more difficult.
Amendments to the Stockholders' Rights Agreement
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The Board of Directors of the Company recently approved an
amendment to the Stockholders' Rights Agreement between the Company and
BankBoston, N.A., as Rights Agent dated as of October 1, 1997, as amended
October 5, 1998. The Amended and Restated Stockholders' Rights Agreement (the
"Amended Rights Agreement"), dated as of December 18, 1998, between the
Company and BankBoston, N.A., is attached hereto as Exhibit 4.7 and is
incorporated herein by reference. The Amended Rights Agreement amends several
provisions of the prior Rights Agreement, including but not limited to the
elimination of the need to reserve Common Stock under the prior Rights
Agreement, and removes shares beneficially owned as a result of the issuance
and sale of the Series B Preferred and Warrants, and respectively, upon the
conversion and exercise thereof, from the determination of "Acquiring Person"
under the Amended Rights Agreement. On December 21, 1998, the Company again
amended and restated the Amended and Restated Rights Agreement to these sections
of the documents relating to the Series B Purchasers. Such amended and restated
Amended and Restated Rights Agreement is incorporated by reference herein.
Amendments to Bank Credit Agreement
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In October 1998, the Company amended its Credit Agreement and
Security Agreement with Bank of America National Trust and Savings Association
and Union Bank, N.A. to amend certain financial, compliance and reporting
covenants and interest rates.
In December 1998, in connection with the sale and issuance of
the Series B Preferred and the Warrants, the Company amended its Credit
Agreement to amend certain financial and other covenants, to affirm consent to
the execution and performance of the Transaction Documents and to permit,
without default under the Credit Agreement, the payment of certain amounts to
the Purchasers pursuant to the terms of the Transaction Documents for, among
other things, penalties, override elections, redemption payments and interest
accruing thereon.
Legal Proceedings
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On December 3, 1998, the Superior Court of California, County
of Santa Clara, entered an order consolidating five putative class actions
filed in such court against the Company.
On November 13, 1998, a putative class action complaint was
filed in the United States District Court, Northern District of California, by
Robert Schmidt on behalf of himself and other stockholders of the Company who
purchased or otherwise acquired the Company's Common Stock between April 15,
1997 and September 11, 1998. The plaintiff alleges violations of the
Securities Exchange Act of 1934 by the Company and certain of its officers and
directors based on substantially the same facts as the aforementioned state
court actions. The complaint seeks unquantified compensatory damages,
attorneys' fees and injunctive and/or equitable relief.
On December 3, 1998, a putative class action complaint was
filed in the United States District Court, Northern District of California, by
Robert Dwyer on behalf of himself and other stockholders of the Company who
purchased or otherwise acquired the Company's Common Stock between April 15,
1997 and September 11, 1998. The plaintiff alleges violations of the
Securities Exchange Act of 1934 by the Company and certain of its officers and
directors based on substantially the same facts as the aforementioned state
court actions. The complaint seeks unquantified compensatory damages,
attorneys' fees and injunctive and/or equitable relief.
Employee Departure
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In November 1998, Steve Goldberg, former Executive Vice
President and General Manager of the Wireless Communications Group, left his
employment with the Company to pursue other opportunities.
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Item 7. Exhibits.
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<TABLE>
<CAPTION>
Exhibit No. Description
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<C> <S>
3.2C Certificate of Designation for the Series A Junior Participating Preferred Stock,
as filed with the Delaware Secretary of State on December 21, 1998/1/
3.2D Certificate of Designation for the Series B Convertible Participating Preferred
Stock, as filed with the Delaware Secretary of State on December 21, 1998
3.2E Certificate of Correction of Certificate of Designations for the Series B
Convertible Participating Preferred Stock, as filed with the Delaware Secretary
of State on December 23, 1998
4.7 Amended and Restated Rights Agreement, dated as of December 18, 1998, between the
Company and BankBoston, N.A./2/
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998, between the Company
and BankBoston, N.A./3/
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and among the
Company and the purchasers listed therein
10.39 Registration Rights Agreement dated as of December 21, 1998 by and among the
Company and the purchasers listed therein
10.40 Form of Warrant to purchase shares of Common Stock, dated as of December 21, 1998,
issued by the Company to the Purchasers
10.41 Second Amendment to Credit Agreement and First Amendment to Security Agreement by
and among the Registrant, as the Borrower, Union Bank of California, N.A., as
Administrative Agent, Bank of America National Trust and Savings Association, as
Syndication Agent, and the lenders party thereto dated as of October 21, 1998
10.42 Third Amendment to Credit Agreement by and among the Registrant, as the Borrower,
Union Bank of California, N.A., as Administrative Agent, Bank of America National
Trust and Savings Association, as Syndication Agent, and the lenders party thereto
dated as of December 17, 1998
99.1 Press Release of the Company dated December 22, 1998
</TABLE>
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/1/ Incorporated by reference to the Registrant's Amended Registration
Statement on Form 8-A/A, filed with the Securities and Exchange Commission on
December 22, 1998 (File No. 0-25356).
/2/ Incorporated by reference to the Registrant's Amended Registration
Statement on Form 8-A/A, filed with the Securities and Exchange Commission on
December 22, 1998 (File No. 0-25356).
/3/ Incorporated by reference to the Registrant's Amended Registration
Statement on Form 8-A/A, filed with the Securities and Exchange Commission on
December 24, 1998 (File No. 0-25356).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
P-COM, INC.
/s/ Michael J. Sophie
DATE: December 22, 1998 By: _______________________
Name: Michael J. Sophie
Title: Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
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<C> <S>
3.2C Certificate of Designation for the Series A Junior Participating Preferred Stock,
as filed with the Delaware Secretary of State on December 21, 1998/1/
3.2D Certificate of Designation for the Series B Convertible Participating Preferred
Stock, as filed with the Delaware Secretary of State on December 21, 1998
3.2E Certificate of Correction of Certificate of Designations for the Series B
Convertible Participating Preferred Stock, as filed with the Delaware
Secretary of State on December 23, 1998
4.7 Amended and Restated Rights Agreement, dated as of December 18, 1998, between the
Company and BankBoston, N.A./2/
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998, between the Company
and BankBoston, N.A./3/
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and among the
Company and the purchasers listed therein
10.39 Registration Rights Agreement dated as of December 21, 1998 by and among the
Company and the purchasers listed therein
10.40 Form of Warrant to purchase shares of Common Stock, dated as of December 21, 1998,
issued by the Company to the Purchasers
10.41 Second Amendment to Credit Agreement and First Amendment to Security Agreement by
and among the Registrant, as the Borrower, Union Bank of California, N.A., as
Administrative Agent, Bank of America National Trust and Savings Association, as
Syndication Agent, and the lenders party thereto dated as of October 21, 1998
10.42 Third Amendment to Credit Agreement by and among the Registrant, as the Borrower,
Union Bank of California, N.A., as Administrative Agent, Bank of America National
Trust and Savings Association, as Syndication Agent, and the lenders party thereto
dated as of December 17, 1998
99.1 Press Release of the Company dated December 22, 1998
</TABLE>
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/1/ Incorporated by reference to the Registrant's Amended Registration
Statement on Form 8-A/A, filed with the Securities and Exchange Commission on
December 22, 1998 (File No. 0-25356).
/2/ Incorporated by reference to the Registrant's Amended Registration
Statement on Form 8-A/A, filed with the Securities and Exchange Commission on
December 22, 1998 (File No. 0-25356).
/3/ Incorporated by reference to the Registrant's Amended Registration
Statement on Form 8-A/A, filed with the Securities and Exchange Commission on
December 24, 1998 (File No. 0-25356).
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Exhibit 3.2D
CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
P-COM, INC.
The undersigned, Michael J. Sophie hereby certifies that:
(a) he is the duly elected and acting Vice President of Finance and
Administration and Chief Financial Officer of P-Com, Inc., a Delaware
corporation (the "Company");
(b) pursuant to the authority conferred upon the Board of Directors of the
Company by the Company Certificate of Incorporation (the "Certificate"), the
Board of Directors on November 28, 1998, adopted the following resolutions
creating a series of preferred stock designated as Series B Convertible
Participating Preferred Stock;
WHEREAS, the Certificate provides for a class of shares of Preferred Stock,
issuable from time to time in one or more series without stockholder approval,
and
WHEREAS, the Board of Directors of the Company is authorized by the
Certificate to determine the powers, rights, preferences, qualifications,
limitations and restrictions granted to or imposed upon any such series of
Preferred Stock, to fix the number of shares constituting any such series, and
to determine the designation thereof;
WHEREAS, the Board of Directors desires, pursuant to its authority as
aforesaid to determine and fix the powers, rights, preferences, qualification,
limitations and restrictions relating to series of Preferred Stock and the
number of shares constituting, and the designation of, each such series;
NOW THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in the
Board of Directors in accordance with the provisions of the Certificate, a
series of Preferred Stock is hereby created, and the Board of Directors hereby
fixes and determines the designation of, the number of shares constituting, and
the rights, privileges and restrictions relating to Series B Convertible
Participating Preferred Stock as follows:
I. DESIGNATION AND AMOUNT
The designation (this "Certificate of Designation") of this series, which
consists of 20,000 shares of Preferred Stock of P-Com, Inc. a Delaware
corporation (the "Company"), is the Series B Convertible Participating
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Preferred Stock (the "Preferred Stock") and the stated value shall be One
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Thousand Dollars ($1,000.00) per share (the "Face Amount").
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II. DIVIDENDS
The Preferred Stock will bear no dividends.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall
have the following meanings:
A. "Bankruptcy Event" shall mean any one or more of the following: (i) the
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commencement of any voluntary proceeding by the Company seeking entry of an
order for relief under Title 11 of the United States Code or seeking any similar
or equivalent relief under any other applicable federal or state law concerning
bankruptcy, insolvency, creditors' rights or any similar law; (ii) the making by
the Company of a general assignment for the benefit of its creditors; (iii) the
commencement of any involuntary proceeding respecting the Company seeking entry
of an order for relief against the Company in a case under Title 11 of the
United States Code or seeking any similar or equivalent relief under any other
applicable federal or state law concerning bankruptcy, insolvency, creditors'
rights or any similar law; (iv) entry of a decree or order respecting the
Company by a court having competent jurisdiction, which decree or order (x)
results in the appointment of a receiver, liquidator, assignee, examiner,
custodian, trustee, sequestrator (or other similar official) for the Company or
for any substantial part of its property or (y) orders the winding up,
liquidation, dissolution, reorganization, arrangement, adjustment, or
composition of the Company or any of its debts; (v) the appointment, whether or
not voluntarily by the Company, of a receiver, liquidator,
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assignee, examiner, custodian, trustee, sequestrator (or other similar official)
for the Company or for any substantial part of its property; (vi) the failure by
the Company to pay, or its admission in writing of its inability to pay, its
debts generally as they become due; (vii) the exercise by any creditor of any
right in connection with an interest of such creditor in any substantial part of
the Company's property, including, without limitation, foreclosure upon all or
any such part of the Company's property, replevin, or the exercise of any rights
or remedies provided under the Uniform Commercial Code with regard thereto;
(viii) the making of, or the sending of a notice of, a bulk transfer by the
Company; (ix) the calling by the Company of a general meeting of its creditors;
(x) the failure by the Company to file an answer or other pleading denying the
material allegations of any proceeding described herein that is filed against
it; and (xi) the consent by the Company to any of the actions, appointments, or
proceedings described herein or the failure of the Company to contest in good
faith any such actions, appointments, or proceedings.
B. "Closing Date" shall have the meaning set forth in the Securities
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Purchase Agreement, dated as of December 18, 1998, by and among the Company and
the other signatories thereto (the "Securities Purchase Agreement").
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C. "Closing Bid Price" means, for any security as of any date, the closing
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bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to each initial holder of the
Preferred Stock and the holders of the Preferred Stock (each, a "Holder") then
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holding a majority of the then outstanding shares of Preferred Stock
("Majority Holders") if Bloomberg Financial Markets is not then reporting
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closing bid prices of such security (collectively, "Bloomberg"), or if the
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foregoing does not apply, the last reported sale price of such security in the
over-the-counter market on the electronic bulletin board of such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to
each initial holder of the Preferred Stock and the Majority Holders, with the
costs of such appraisal to be borne by the Company.
D. "Conversion Date" means the date on which the notice of conversion
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attached hereto as Exhibit A (the "Notice of Conversion") is faxed (or
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delivered by other means) to and received by the Company; provided, however,
that if such time of receipt is after 7:00 p.m., Eastern time, on a business
day, or at any time on a day which is not a business day, the Conversion Date
shall be the first business day following the date on which the Notice of
Conversion is so delivered; provided, further that the Conversion Date shall
be any future business day after the date of receipt of the Notice of
Conversion as so specified by a Holder in the Notice of Conversion. The
Conversion Date for the Required Conversion at Maturity shall be the Maturity
Date (as such terms are defined herein). A Holder's facsimile machine-
generated confirmation of receipt at the Company's facsimile number is
definitive proof of receipt by the Company.
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<PAGE>
E. "Conversion Price" means, (i) the Fixed Conversion Price with respect
----------------
to any Conversion Date that occurs up to and including May 14, 1999 and (ii) the
lower of the Fixed Conversion Price and the Variable Conversion Price with
respect to any Conversion Date that occurs on or after May 15, 1999, each as in
effect as of any such date and subject to adjustment as provided elsewhere
herein; provided however, that if the Company does not achieve Ten Million
----------------
Dollars ($10,000,000) of bona fide, third-party, unaffiliated written
contractual commitments for sales of its Point to Multipoint products and
services (which are commercial systems that include central locations with
various remote units sharing the capacity in the central location, and related
installation and maintenance services) (the "Milestone") during the period
beginning on the Closing Date and ending on March 24, 1999, then, as to fifty
percent (50%) of the Preferred Stock originally held by each Holder, the
Conversion Price with respect to any Conversion Date from and after March 25,
1999 through May 14, 1999 shall be the lower of the Fixed Conversion Price and
the Variable Conversion Price, each as in effect as of any such date and subject
to adjustment as provided elsewhere herein; provided further that if any
material covenant of the Company's convertible bond indenture or bank agreement
is breached and uncured (it being understood that any waiver (except for any
waiver specified in the amendments contemplated by Section 7.1(x) of the
Securities Purchase Agreement) shall not constitute cure) and which breach
(without giving effect to any waiver) (except for any waiver specified in the
amendments contemplated by Section 7.1(x) of the Securities Purchase Agreement))
would or could result in an acceleration (or which, with the passage of time or
the giving of notice, would or could result in an acceleration) or which would
give the counterparty to such agreement a right to accelerate the maturity of
the debt owed by the Company to such counterparty, the Conversion Price on 100%
of the Preferred Stock on any Conversion Date thereafter and prior to May 15,
1999 shall, until cure of such breach, be the lower of the Fixed Conversion
Price and the Variable Conversion Price, each as in effect as of any such date
and subject to adjustment as provided elsewhere herein. If the Company has not
publicly announced by the close of business on March 26, 1999 that it has
achieved the Milestone, then it is definitively presumed under this Certificate
of Designation that the Company has not achieved the Milestone. If the Milestone
has not been achieved by March 24, 1999, upon each conversion of Preferred Stock
by a Holder prior to May 15, 1999, that Holder may elect whether that conversion
will be counted against that Holder's 50% limit for variable priced conversions
under this Section. The Conversion Price is also subject to adjustment as
provided elsewhere herein.
F. "Fixed Conversion Price" means: (i) up to and including May 14, 1999
----------------------
two hundred percent (200%) of the average of the Closing Bid Prices of the
common stock, $0.0001 par value per share, of the Company (the "Common Stock")
------------
for the fifteen (15) consecutive trading days ending on the day prior to the
Closing Date (the "Closing Price"); (ii) beginning on May 15, 1999 the lesser of
-------------
the Fixed Conversion Price as defined in (i) of this section and one hundred and
five percent (105%) of the average of the Closing Bid Prices of the Common Stock
for the fifteen (15) consecutive trading days immediately prior to and ending on
May 14, 1999; (iii) if the Company has not obtained Stockholder Approval (as
herein defined) by the Approval Date (as defined herein), then on each day
thereafter until the Company obtains Stockholder Approval, the lesser of the
Fixed Conversion Price in effect on such day and the Average Closing Bid Price
(as herein defined) for the period beginning on, and including, such Approval
Date through and including such day; (iv) if the Company has not obtained
Stockholder Approval (as herein defined) by the Approval Date, then beginning on
the date on which the Company obtains Stockholder Approval, the lesser of the
Fixed
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<PAGE>
Conversion Price then in effect and the Average Closing Bid Price for the period
beginning on, and including, such Approval Date through and including the date
on which the Company obtained Stockholder Approval; (v) if the Registration
Statement (as such term is defined in the Registration Rights Agreement, dated
as of December 18, 1998, by and among the Company and the other signatories
thereto (the "Registration Rights Agreement")) required to be filed by the
-----------------------------
Company pursuant to Section 2.1 of the Registration Rights Agreement has not
been declared effective by the SEC by the one hundred eightieth (180th) day
following the Closing Date, then on each day thereafter until such Registration
Statement is declared effective, the lesser of the Fixed Conversion Price in
effect on any such day and the Average Closing Bid Price for the period
beginning on, and including, the 180th day following the Closing Date through
and including such day; and (vi) if the Registration Statement required to be
filed by the Company pursuant to the Registration Rights Agreement has not been
declared effective by the SEC by the 180th day following the Closing Date,
beginning on the date on which such Registration Statement is declared
effective, the lesser of the Fixed Conversion Price then in effect and the
Average Closing Bid Price for the period beginning on, and including, the 180th
day following the Closing Date through and including the date on which such
Registration Statement is declared effective; in each case subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such period and in each case subject to further adjustment as
provided elsewhere herein. For purposes of this Section F, "Average Closing Bid
-------------------
Price" shall mean the average of the five (5) lowest Closing Bid Prices during
- -----
the applicable period (including the last day of the period); provided, however,
that (x) in clauses (iii) and (iv), if fewer than five (5) trading days have
elapsed between the Approval Date and the last day of the applicable period,
Average Closing Bid Price shall mean the average of the Closing Bid Prices on
each trading day during the period from and including the Approval Date through
and including the last day of the applicable period, and; (y) in clauses (v) and
(vi), if fewer than five (5) trading days have elapsed between the 180th day
following the Closing Date and the last day of the applicable period, Average
Closing Bid Price shall mean the average of the Closing Bid Prices on each
trading day during the period from and including the 180th day following the
Closing Date through and including the last day of the applicable period.
G. "Lowest Trade Price" means, for any security as of any date, the lowest
------------------
trade price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing does not apply, the lowest reported sale price of such security in
the over-the-counter market on the electronic bulletin board of such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the lowest trade prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the Lowest Trade Price cannot be calculated for such security on such date on
any of the foregoing bases, the Lowest Trade Price of such security on such date
shall be the fair market value as reasonably determined by an investment banking
firm selected by the Company and reasonably acceptable to the Majority Holders,
with the costs of such appraisal to be borne by the Company.
H. "Premium" means $1000 x (N/365) x (.06).
-------
-4-
<PAGE>
N = the number of days from the Closing Date to, and including, the
Conversion Date.
I. "Variable Conversion Price" means, as of any Conversion Date, 101% of
-------------------------
the lowest average of the Closing Bid Prices of the Common Stock occurring over
any three (3) consecutive trading days during the fifteen (15) consecutive
trading day period ending the day prior to the applicable Conversion Date
(subject to equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during the such fifteen (15) trading day
period) subject to adjustment as provided elsewhere herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations
--------------------------------------
on conversions contained in Section IV.G., each Holder may, at any time and from
time to time convert (an "Optional Conversion") any or all of its shares of
Preferred Stock into a number of fully paid and non-assessable shares of Common
Stock determined, for each share of Preferred Stock so to be converted, in
accordance with the following formula:
(Premium (accrued but unpaid) + $1000)
---------------------
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional
-----------------------
Conversion, a Holder shall fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Company (substantially in the form attached
hereto) (the "Notice of Conversion"). As soon as possible following receipt by
the Company of the fax copy of a Notice of Conversion from a Holder, the Company
shall send, via fax, a confirmation to such Holder stating that the Notice of
Conversion has been received, the date upon which the Company expects to deliver
the Common Stock issuable upon such conversion and the name and telephone number
of a contact person at the Company regarding the conversion. No later than one
(1) business day after receipt of such confirmation of receipt to Notice of
Conversion the Holder shall surrender or cause to be surrendered to a reputable
overnight courier for next business day delivery (two (2) business day delivery
if from outside the United States) to the Company or its designee (provided such
designee is located in the continental United States and provided that the
Company must deliver to each Holder notice including the name, address, and
facsimile number of such designee; such designee will not be considered
designated for the purpose of this Section until ten (10) days after receipt of
such notice by each Holder), the certificates representing the Preferred Stock
being converted (the "Preferred Stock Certificates") and a copy of the Notice of
----------------------------
Conversion (or, in lieu thereof, materials contemplated by Section XIV.B, if
applicable).
C. Delivery of Common Stock Upon Conversion. Upon the delivery of a
----------------------------------------
Notice of Conversion, the Company shall, no later than the later of (a) the
third (3rd) business day following the Conversion Date (provided the recipient
is a U.S. addressee and the Company has received
-5-
<PAGE>
delivery of the Preferred Stock Certificates (or satisfaction of the provisions
of Section XIV.B, if applicable) and (b) the day that is the first business day
following the date of delivery of the Preferred Stock Certificates (or
satisfaction of the provisions of Section XIV.B, if applicable) (the "Delivery
--------
Period"), deliver to the Holder (or at its direction) (x) that number of shares
- ------
of Common Stock issuable upon conversion of such shares of Preferred Stock being
converted and (y) a certificate representing the number of shares of Preferred
Stock not being converted, if any. The person or persons entitled to receive
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares at the close of business on the
Conversion Date and such shares shall be issued and outstanding as of such date.
D. Taxes. The Company shall pay any and all taxes (other than transfer
-----
taxes) which may be imposed with respect to the issuance and delivery of the
shares of Common Stock pursuant to conversion of the Preferred Stock.
E. No Fractional Shares. No fractional shares of Common Stock are to be
--------------------
issued upon the conversion of Preferred Stock, but the Company shall instead
round up to the next whole number the number of shares of Common Stock to be
issued upon such conversion.
F. Conversion Disputes. In the case of any dispute with respect to a
-------------------
conversion, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with Sections IV.A and IV.C hereof. If
such dispute involves the calculation of the Conversion Price, the Company shall
submit the disputed calculations to an independent accounting firm of national
standing, reasonably acceptable to Holder, via facsimile within five (5)
business days of receipt of the Notice of Conversion. The accounting firm shall
audit the calculations and notify the Company and the Holder of the results no
later than five (5) business days from the date it receives the disputed
calculations. The accounting firm's calculation shall be deemed conclusive,
absent manifest error. As soon as possible thereafter, the Company shall then
issue the appropriate number of shares of Common Stock in accordance with
Sections IV.A and IV.C hereof.
G. Limitation on Conversions. The conversion of shares of Preferred
-------------------------
Stock shall be subject to the following limitations (each of which limitations
shall be applied independently):
(i) Cap Amount. Prior to Stockholder Approval, unless otherwise
----------
permitted by the Nasdaq National Market System or unless such rules are no
longer applicable to the Company, in no event shall the total number of shares
of Common Stock issued upon conversion of the Preferred Stock and exercise of
the Warrants (as defined in the Securities Purchase Agreement) exceed the
maximum number of shares of Common Stock that the Company can without
stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor
rule) (the "Cap Amount") upon the conversion of the Preferred Stock and the
exercise of the Warrants, which, as of the date of initial issuance of shares of
Preferred Stock and Warrants, shall be eight million, seven hundred six
thousand, four hundred and eighty three (8,706,483) shares. The Cap Amount shall
be allocated pro-rata to the Holders as provided in Section XIV.C. A Holder's
allocable portion of the Cap Amount shall be applicable to both shares of
Preferred Stock and Warrants held by it and shall be applied to
-6-
<PAGE>
such Preferred Stock and Warrants on the basis of the time of conversion or
exercise, as the case may be, thereof. In the event the Company is prohibited
from issuing shares of Common Stock as a result of the operation of this
subparagraph (i), the Company shall comply with Article VIII.
(ii) Five Percent Holdings. Notwithstanding anything to the contrary
---------------------
contained herein, the Preferred Stock shall not be convertible by a Holder to
the extent (but only to the extent) that, if convertible by such Holder, such
Holder would beneficially own in excess of 4.9% of the shares of Common Stock.
To the extent the foregoing limitation applies, the determination of whether
Preferred Stock shall be convertible (vis-a-vis other securities owned by such
Holder) and of which Preferred Stock shall be convertible (as among shares of
Preferred Stock) shall be made by the Holder and submission of the Preferred
Stock for conversion shall be deemed to be the Holder's determination of whether
such Preferred Stock is convertible (vis-a-vis other securities owned by such
Holder) and of which shares of Preferred Stock are convertible (as among shares
of Preferred Stock), subject to such aggregate percentage limitation. No prior
inability to convert Preferred Stock pursuant to this Section shall have any
effect on the applicability of the provisions of this Section with respect to
any subsequent determination of convertibility. For the purposes of this
Section, beneficial ownership and all determinations and calculations, including
without limitation, with respect to calculations of percentage ownership, shall
be made in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13D and G thereunder. The provisions of this Section
may be implemented in a manner otherwise than in strict conformity with the
terms of this Section with the approval of the Board of Directors of the Company
and a Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this subsection (or any portion thereof) which may be defective or
inconsistent with the intended 4.9% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.9% limitation; and (ii) with respect to any other matter,
only with the further consent of the holders of majority of the then outstanding
shares of Common Stock. For clarification, it is expressly a term of this
security that the limitations contained in this Section shall apply to each
successor Holder of Preferred Stock.
H. Required Conversion at Maturity. Subject to the limitations set
-------------------------------
forth in Section IV.G. and provided all shares of Common Stock issuable upon
conversion of all outstanding shares of Preferred Stock and exercise of all
outstanding Warrants (in each case, without giving effect to any limitation on
conversion or exercise) are then (collectively, the "Liquidity Conditions") (i)
--------------------
authorized and reserved for issuance, (ii) registered under the Securities Act
of 1933, as amended (the "Securities Act") for resale by all Holders of such
--------------
shares of Preferred Stock and Warrants, (iii) listed for trading on any of the
Nasdaq National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, each share of Preferred Stock
outstanding on the third (3rd) anniversary of the Closing Date (the "Maturity
--------
Date") (and any accrued and unpaid Conversion Default Payments), automatically
- ----
shall be converted into shares of Common Stock on such date in accordance with
the conversion formula set forth in Section IV.A (the "Required Conversion at
----------------------
Maturity"), except as to any Holder who elects otherwise in the event that a
- --------
Bankruptcy Event or Event Within Company Control (as defined herein) or Override
Election Event (as defined herein) has occurred and is continuing (or any facts
and circumstances exist which, if
-7-
<PAGE>
continued, would give rise to a Event Within Company Control or Override
Election Event). If a Required Conversion at Maturity occurs, the Company and
the Holders shall follow the applicable conversion procedures set forth in this
Article IV; provided, however, that a Notice of Conversion shall be deemed to be
delivered to the Company on the Maturity Date. In the event that the limitations
set forth above or in Section IV.G prevent the conversion of all of the
Preferred Stock on the Maturity Date, any unconverted Preferred Stock shall
continue to be subject to Required Conversion at Maturity as set forth in this
Section IV.H at such time as the limitations set forth above and in Section IV.G
no longer prevent such conversion. Each share of Preferred Stock which, as a
result of the limitations above or in Section IV.G (except the limitations of
Section IV.G(ii)), remains unconverted at the Maturity Date, shall remain fully
convertible in accordance with this Certificate of Designation until such time
as the limitations set forth above and in Section IV.G (except those of Section
IV.G(ii)) no longer prevent such conversion and such limitations have not
prevented such conversion for a period of sixty (60) days, and such share is in
fact converted pursuant to this Section. Each share of Preferred Stock which as
a result of the limitations of Section IV.G(ii) remains unconverted at the
Maturity Date, shall remain fully convertible in accordance with the Certificate
of Designation until such time as the limitations of Section IV.G(ii) no longer
prevent such conversion and such share is in fact converted pursuant to this
Section.
I. Electronic Transmission. In lieu of delivering physical certificates
-----------------------
representing the Common Stock issuable upon conversion, upon request of a
Holder, the Company shall use its reasonable best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of Holder's prime broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system or other electronic
delivery system selected by Holder upon reasonable notice.
V. RESERVATION OF AUTHORIZED SHARES OF COMMON STOCK
A. Reserved Amount. The Company shall have authorized and reserved
---------------
and keep available for issuance not less than seventeen million (17,000,000)
shares of Common Stock (subject to equitable adjustment for any stock splits,
stock dividends, reclassification or similar events) (the "Reserved Amount")
---------------
solely for the purpose of effecting the conversion of the Preferred Stock and
the Warrants. The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock a sufficient number of shares
of Common Stock to provide for the full conversion of all outstanding Preferred
Stock and exercise of the Warrants and issuance of the shares of Common Stock in
connection therewith (in each case without giving effect to any limitation on
conversion or exercise thereof). The Reserved Amount shall be allocated among
the Holders as provided in Section XIV.C.
B. Increases to Reserved Amount. Without limiting any other provision
----------------------------
of this Article V, if the Reserved Amount for any five (5) consecutive trading
days (the last of such five (5) trading days being the "Authorization Trigger
---------------------
Date") is less than one hundred fifty percent (150%) of the number of shares of
- ----
Common Stock issuable on such trading days upon conversion of the then
outstanding Preferred Stock and exercise of the then outstanding Warrants (in
each case without
-8-
<PAGE>
giving effect to any limitation on conversion or exercise thereof) then the
Company shall promptly (but in any event within three (3) business days) notify
the Holders of such occurrence and shall use its best efforts (including
solicitation of stockholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to two hundred percent
(200%) of the number of shares of Common Stock issuable upon conversion of the
then outstanding Preferred Stock and exercise of all outstanding Warrants (in
each case, without giving effect to any limitation on conversion or exercise
thereof).
VI. COMPLIANCE WITH CAP AMOUNT RESTRICTIONS
A. Share Authorization. The Company shall, unless otherwise consented
-------------------
to by each initial Holder, use its best efforts to obtain the Stockholder
Approval (as defined below) no later than the Approval Date (as defined below).
For purposes hereof, the "Approval Date" means the earliest to occur of (i)
-------------
sixty (60) days (one hundred and five (105) days in the event of SEC review of
the Company's proxy statement with respect to Stockholder Approval) following
the earlier of a Trading Market Trigger Event (as herein defined) or the
issuance to any Holder upon conversion of the Preferred Stock and/or exercise of
the Warrants of a number of shares of the Company's Common Stock equal to 3.3%
of the Company's outstanding Common Stock as of the Closing Date, (ii) six (6)
months from the Closing Date, or (iii) the Company's next annual meeting of
stockholders. For purposes hereof, "Stockholder Approval" means authorization by
--------------------
the stockholders of the Company of the issuance of shares of Common Stock upon
conversion of shares of Preferred Stock pursuant to the terms hereof and the
exercise of the Warrants pursuant to the terms thereof in the aggregate in
excess of twenty percent (20%) of the outstanding shares of Common Stock and, if
necessary, the elimination of any prohibitions under the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities on the
Company's ability to issue shares of Common Stock in excess of the Cap Amount.
In addition, the Company shall, unless otherwise consented to by each initial
Holder, have a definitive proxy statement mailed to each of stockholder of the
Company at least twenty (20) days prior to the Approval Date. The Company shall
deliver any SEC comments it receives with respect to its proxy statement to each
Holder and will not file such proxy statement, (or any revisions thereto)
whether such proxy statement is in preliminary or definitive form, without the
approval of each initial Holder, which approval shall not be unreasonably
withheld or delayed.
B. Obligation to Notify. If at any date following the Closing Date
--------------------
the then unissued portion of any Holder's Cap Amount is less than one hundred
and seventy-five percent (175%) of the number of shares of Common Stock then
issuable upon conversion of such Holder's shares of Preferred Stock and exercise
of such Holder's Warrants (in each case without giving effect to any limitation
on conversion or exercise thereof) (a "Trading Market Trigger Event"), the
----------------------------
the Company shall within three (3) business days notify the Holders of such
occurrence.
VII. FAILURE TO SATISFY CONVERSIONS
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<PAGE>
A. Conversion Default Payments. If, at any time, (x) a Holder submits
---------------------------
a Notice of Conversion (or is deemed to submit such notice pursuant to Section
IV.H) and the Company fails for any reason (other than because such issuance
would exceed such Holder's allocated portion of the Cap Amount, for which
failure the Holders shall have the remedies set forth in Article VIII) to
deliver, on or prior to the expiration of the Delivery Period for such
conversion, such number of shares of Common Stock to which such Holder is
entitled upon such conversion, or (y) the Company provides notice (including by
way of public announcement) to any Holder at any time of its intention not to
issue shares of Common Stock upon exercise by any Holder of its conversion
rights in accordance with the terms of this Certificate of Designation (other
than because such issuance would exceed such Holder's allocated portion of the
Cap Amount) (each of (x) and (y) being a "Conversion Default"), then if, in the
------------------
case of (x), following the tenth (10th) business day following the Conversion
Date, or in the case of (y), the tenth (10th) day following receipt by the
Holder of notice of the Company's intention not to issue shares, the Company
continues to fail for any reason, in the case of clause (x) above, to deliver
such shares of Common Stock to which such Holder is entitled upon such
conversion, or in the case of clause (y) above, to retract such public notice,
then the Company shall pay to the affected Holder, in the case of a Conversion
Default described in clause (x) above, and to each Holder, in the case of a
Conversion Default described in clause (y) above, an amount equal to one percent
(1%) of the Face Amount of the Preferred Stock with respect to which the
Conversion Default exists (which amount shall be deemed to be the aggregate Face
Amount of all then outstanding Preferred Stock in the case of a Conversion
Default described in clause (y) above) for each subsequent day such Conversion
Default exists, up to a maximum of the theretofore unpaid portion of the Total
Amount. The "Total Amount" shall be the limitation on aggregate payments under
------------
Sections VII.A and VIII.C of this Certificate of Designation and Section 2.3 of
the Registration Rights Agreement and shall be equal to thirty three percent
(33%) of the aggregate Face Amount of Preferred Stock originally outstanding
pursuant to the Securities Purchase Agreement. In the event of a Conversion
Default, the applicable Holder shall not be entitled to receive more than its
previously unpaid allocable portion of the Total Amount (as provided in Section
XIV.C hereof).
The payments to which a Holder shall be entitled pursuant to this
Section VII.A are referred to herein as "Conversion Default Payments."
---------------------------
Conversion Default Payments shall be made the fifth (5th) business day following
written demand by a Holder for payment therefor and otherwise in accordance with
and subject to the provisions of Section XIV.E. "Cure Date" means (i) with
respect to a Conversion Default described in clause (x) of its definition, the
date the Company effects the conversion of the portion of the Preferred Stock
submitted for conversion and (ii) with respect to a Conversion Default described
in clause (y) of its definition, the date the Company undertakes in writing to
issue Common Stock in satisfaction of all conversions of Preferred Stock in
accordance with the terms of this Certificate of Designation (provided the
Company in fact thereafter so satisfies such conversions).
B. Adjustment to Conversion Price. If a Holder has not received
------------------------------
certificates for all shares of Common Stock prior to the tenth (10th) day after
the expiration of the Delivery Period with respect to a conversion of Preferred
Stock for any reason (other than because such issuance would exceed such
Holder's allocated portion of the Cap Amount, for which failure the Holders
shall have
-10-
<PAGE>
the remedies set forth in Article VIII), then the Holder, upon written notice to
the Company, may void its Notice of Conversion with respect to, and retain or
have returned, as the case may be, any shares of Preferred Stock that have not
been converted pursuant to such Holder's Notice of Conversion; provided that the
voiding of a Holder's Notice of Conversion shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice pursuant to Section VII.A or otherwise, and the Fixed Conversion Price in
respect of any shares of Preferred Stock held by such Holder (including any
shares as to which the Notice of Conversion has been so voided) shall thereafter
be the lesser of (i) the Fixed Conversion Price on the Conversion Date specified
in the Notice of Conversion which resulted in the Conversion Default and (ii)
the average of the three (3) lowest Closing Bid Prices occurring during the
fifteen (15) consecutive trading day period ending on the earlier of the Cure
Date and the date such Holder voided the Notice of Conversion, or a shorter
period if the Company cures such failure or such Holder voids such shares prior
to the fifteenth (15th) trading day after the Conversion Date specified in the
Notice of Conversion which resulted in the Conversion Default. If there shall
occur a Conversion Default of the type described in clause (y) of Section VII.A,
then the Fixed Conversion Price with respect to any conversion thereafter shall
be the lower of the Fixed Conversion Price and the average of the three (3)
lowest Closing Bid Prices occurring during the fifteen (15) consecutive trading
day period ending on the Cure Date, or a shorter period if the Company retracts
such statement prior to the fifteenth (15th) trading day after the Holder's
receipt of the notice which resulted in the Conversion Default. The Fixed
Conversion Price shall thereafter be subject to further adjustment under this
Certificate of Designation to the extent such adjustments result in a lower
Fixed Conversion Price.
VIII. CONSEQUENCES OF CERTAIN EVENTS
A. Events Within Company Control. An "Event Within Company Control" means
----------------------------- ----------------------------
any one of the following events, provided such event is Within the Company's
Control (as herein defined):
(i) (A) the Company does not file the Registration Statement
required to be filed by the Company pursuant to Section 2.1 of the Registration
Rights Agreement, within thirty (30) days of the Closing Date; (B) the Company
fails to use its best efforts to obtain effectiveness of the Registration
Statement or to have solicited by proxy, and to obtain, the Stockholder Approval
prior to the Approval Date; (C) the Company does not respond to written or oral
comments from the SEC or its staff regarding such Registration Statement or such
proxy statement, as applicable, as soon as practicable (it is understood that
the Company has an obligation to provide all such SEC comments to all Holders
and to offer the Holders the opportunity to review and comment on such SEC
comments; it is further understood that each Holder has only a limited time to
respond to the Company under the Registration Rights Agreement and hereunder and
that, failing such response, a Holder is deemed to accept the Company's response
to the SEC's comments); or (D) the Company fails to request acceleration of
effectiveness of such registration statement from the SEC as soon as
practicable, but in any case within three (3) business days of the actual
knowledge of a senior officer or the Company's outside counsel that the SEC and
the staff of the SEC have no comments (or further comments, as the case may be)
concerning such Registration Statement; except if any such failure under this
clause (i) was caused by an Act of God or was required by injunction or court or
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<PAGE>
SEC order, provided that the Company shall have used its best efforts to oppose,
remove and appeal such order or injunction;
(ii) upon a valid conversion of Preferred Stock or valid exercise of
Warrants by any Holder, the Company fails for any reason to issue shares of
Common Stock within ten (10) business days after the expiration of the Delivery
Period with respect to any such conversion of Preferred Stock or exercise of
Warrants (other than because such issuance would exceed such Holder's allocated
portion of the Cap Amount or other than to the extent the Company does not have
sufficient shares of Common Stock which are authorized but not outstanding with
which to honor such conversion or exercise), except if such failure was caused
by an Act of God or was otherwise Outside the Company's Control (as defined
below) or was required by injunction or court or SEC order, provided that the
Company shall have used its best efforts to oppose, remove and appeal such order
or injunction;
(iii) the Company fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the Holders of Preferred
Stock or Warrants upon conversion of the Preferred Stock or exercise of the
Warrants (as the case may be) as and when required by Section 5.1 and 5.2 of the
Securities Purchase Agreement, except if such failure was caused by an Act of
God or was otherwise Outside the Company's Control or was required by injunction
or court or SEC order, provided that the Company shall have used its best
efforts to oppose, remove and appeal such order or injunction;
(iv) the Company provides notice to any Holder, including by way of
public announcement, at any time, of its intention not to issue shares of Common
Stock to any Holder upon conversion in accordance with the terms of this
Certificate of Designation (other than because such issuance would exceed such
Holder's allocated portion of the Cap Amount, or other than to the extent the
Company does not have sufficient shares of Common Stock which are authorized but
not outstanding with which to honor such conversion or exercise), except if such
notice was required by injunction or court or SEC order or was otherwise Outside
the Company's Control, provided that the Company shall have used its best
efforts to oppose, remove and appeal such order or injunction;
(v) the Company knowingly commits any act or omission which
constitutes a breach of any material covenant or other material term of this
Certificate of Designation, the Warrants, the Securities Purchase Agreement or
the Registration Rights Agreement, except if the facts underlying such breach
are the subject matter under another clause of this Section VIII.A or under
Section VIII.C, and except if such breach was caused by an Act of God or was
required by injunction or court or SEC order or was otherwise Outside the
Company's Control, provided that the Company shall have used its best efforts to
oppose, remove and appeal such order or injunction;
(vi) subject to clause (ii) of Section VIII.H the Company's
execution or performance of its obligations under this Certificate of
Designation, the Warrants, the Securities Purchase Agreement or the Registration
Rights Agreement (the "Documents") constitutes an actual breach under any
---------
existing agreement of the Company (or would cause a default or acceleration (or
right of acceleration)
-12-
<PAGE>
under such existing agreement), or the Company enters into any new agreement
under which performance of any material obligation under the Documents would be
a breach or cause a default or acceleration (or right of acceleration) under
such new agreement, unless the entry into such new agreement was required by
injunction or court or SEC order, provided that the Company shall have used its
best efforts to oppose, remove and appeal such order or injunction or unless
such breach (and the consequences thereof, including any cross-defaults) are not
material to the Company;
(vii) the Company knowingly commits any act or omission which
constitutes a breach of any representation or warranty (at the time made)
contained in any of the Securities Purchase Agreement, the Registration Rights
Agreement, the Certificate of Designation, the Warrant, or any officer's
certificate given in writing in connection with the issuance of the Preferred
Stock if the facts underlying such breach would have a Material Adverse Effect
or such breach would have a material adverse effect on a Holder with respect to
its investment in the Securities (as defined in the Securities Purchase
Agreement);
(viii) the Company fails to increase the Reserved Amount as required
hereby within ten (10) days following an Authorization Trigger Date if such
increase requires solely approval of the Company's Board of Directors, unless
such failure was required by injunction or court or SEC order, provided that the
Company shall have used its best efforts to oppose, remove and appeal such order
or injunction or was caused by an Act of God;
(ix) the Company knowingly and materially breaches any agreement
involving indebtedness for borrowed money or purchase price, other than as set
forth in the Schedule of Exceptions to the Securities Purchase Agreement, the
breach of which results in the acceleration or right of acceleration (or with
the passage of time or the giving of notice or both would result in the
acceleration or right of acceleration) of the maturity of such debt owed by the
Company, or which would (or, with the passage of time or the giving of
notice or both, would) give rise to a right to accelerate the maturity
of such debt, unless such breach was caused by an Act of God or was otherwise
Outside the Company's Control or was required by injunction or court or SEC
order, provided that the Company shall have used its best efforts to oppose,
remove or appeal such order or injunction or unless such breach (and the
consequences thereof, including any cross-defaults) are not material to the
Company (taking into account the Company's good faith contesting off its rights
and obligations thereunder); or
(x) without the consent of each initial Holder and the Majority
Holders, (A) the Company fails to use its best efforts to avoid the occurrence
of an Override Election Event, or (B) if an Override Election Event occurs and
is continuing and the Company fails to make an Override Election for a period of
ten (10) business days, or (C) the Company makes an Override Election under
Section VIII.D hereof and fails to pay to the Holders, without having first made
a voluntary filing under Chapter 11 of the United States Bankruptcy Code, the
amounts required under that Section at the times required under that Section,
unless any such failure was caused by an Act of God or was required by
injunction or court or SEC order, provided that the Company shall have used its
best efforts to oppose, remove and appeal such order or injunction; or
-13-
<PAGE>
An event shall be "Outside the Company's Control" if the event shall be
caused by factors beyond the Company's control (notwithstanding the Company
having used its best efforts to avoid the occurrence of such event).
An event shall be "Within the Company's Control" if such event was a
voluntary choice by the Company or was otherwise within the Company's control.
B. Consequences of Events Within Company Control. Upon the occurrence of
---------------------------------------------
an Event Within Company Control, each Holder shall have the right to elect at
any time and from time to time by delivery of a Redemption Notice (as defined
herein) to the Company to require the Company to purchase for cash for an amount
per share equal to the Redemption Amount (as defined herein), any or all of the
then outstanding shares of Preferred Stock held by such Holder; provided,
however, that if the Company has used its best efforts to avoid such Event
Within Company Control, and not more than five (5) prior Events Within Company
Control and/or Override Election Events have occurred, such election must be
made prior to the cure (if possible) of such Event Within Company Control;
provided further that no inability to make an election pursuant to the
immediately foregoing proviso shall relieve the Company of any of its
obligations under this Certificate of Designation or the other Transaction
Documents (as defined in the Securities Purchase Agreement) or limit any rights
or remedies of the Holder hereunder or thereunder, in each case with respect to
the facts and circumstances giving rise to such Event Within Company Control. If
a Holder asserts by service of a Redemption Notice that an Event Within Company
Control has occurred, the service of such a Redemption Notice shall be a
definitive determination of the occurrence of such an Event within Company
Control unless the Company within five (5) business days provides a detailed
written statement to each Holder explaining why such purported Event Within
Company Control was not an Event Within Company Control.
C. Override Election Events. An "Override Election Event" means any one
------------------------ -----------------------
of the following:
(i) any event which, but for the fact that it was not knowingly
committed by the Company or was required by injunction, court or SEC order, or
was caused by an Act of God or was otherwise Outside the Company's Control or
was not Within the Company's Control, would be an Event Within Company Control;
(ii) the Common Stock (or any portion thereof) is suspended from
trading on any of, or de-listed (or unauthorized) for trading on any of, the
Nasdaq National Market System, the Nasdaq SmallCap Market, the American Stock
Exchange, or the New York Stock Exchange for an aggregate of five (5) trading
days in any nine (9) month period;
(iii) the Registration Statement required to be filed by the Company
pursuant to Section 2.1 of the Registration Rights Agreement is not declared
effective by the one hundred and eightieth (180th) day following the Closing
Date;
-14-
<PAGE>
(iv) a Registration Statement required to be filed by the Company
pursuant to the Registration Rights Agreement, after being declared effective,
cannot be utilized by the holders of Registrable Securities (as defined in the
Registration Rights Agreement) for the re-sale of all Registrable Securities for
a period of ten (10) consecutive business days or for an aggregate of more than
twenty (20) days in any twelve month period (not including any Permitted
Blackouts) (as defined in the Registration Rights Agreement));
(v) if shareholder approval is required for the Company to increase
the Reserved Amount as required hereby, the Reserved Amount is not so increased
within sixty (60) days (or one hundred and five (105) days in the event of SEC
review) following an Authorization Trigger Date;
(vi) the Company fails to obtain the effectiveness of any amendment
to an existing registration statement or of any new registration statement
within five (5) business days (in the case of an amendment) or within ten (10)
days following a Registration Trigger Date (as defined in the Registration
Rights Agreement) (in the case of a new registration statement), in each case as
required by Section 2.3 of the Registration Rights Agreement;
(vii) the Company fails to obtain the Stockholder Approval on or
before the Approval Date;
(viii) the Company at any time fails to fully honor a valid conversion
of Preferred Stock or a valid exercise of Warrants because the Company does not
have sufficient shares of Common Stock which are authorized but not outstanding
with which to honor such conversion or exercise; or
(ix) a Bankruptcy Event occurs.
D. Consequences of Override Election Events. Upon the occurrence of an
----------------------------------------
Override Election Event, the Company may elect (an "Override Election"), within
-----------------
five business days following notice to the Company of the occurrence of such an
event, to pay each Holder its pro rata portion, in cash, three percent (3%) the
first week, and five percent (5%) per week thereafter, of the sum of the
aggregate Face Amount of the Preferred Stock originally issued by the Company
plus any accrued and unpaid Premium with respect thereto, until such event no
longer exists, but in no event shall the Company be required to pay more than
the Total Amount, and in no event shall the Company pay any Holder more than
such Holder's theretofore unpaid allocable portion of the Total Amount (as
determined pursuant to Section XIV.C hereof). Any Override Election by the
Company shall be made by written notice to each Holder (via facsimile with a
copy by reputable overnight courier). Regardless of the number of Override
Elections, the Company shall not be required to pay more than the theretofore
unpaid portion of the Total Amount.
E. Definition of Redemption Amount. The "Redemption Amount" with respect
------------------------------- -----------------
to a share of Preferred Stock means an amount equal to the greater of (i) 1.33
times the aggregate Face
-15-
<PAGE>
Amount of the Preferred Stock for which a demand is being made and (ii) an
amount determined by the following formula:
( Face Amount + Premium + other applicable amounts due ) x M
--------------------------------------------------------
C P
where:
"CP" means the Conversion Price in effect on the date of the Redemption
--
Notice; and
"M" means the highest Closing Bid Price of the Company's Common Stock
-
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption, as reported on the principal securities exchange or
trading market on which the Common Stock is traded.
F. Redemption Defaults. The Company shall pay a Holder the Redemption
-------------------
Amount, in cash, with respect to each share of Preferred Stock which is subject
to a written notice electing such redemption (a "Redemption Notice") within five
-----------------
(5) business days of the Company's receipt of such Redemption Notice. In the
event the Company is not able to purchase all of the shares of Preferred Stock
subject to Redemption Notices, the Company shall redeem shares of Preferred
Stock from each Holder pro rata, based on the total number of shares of
Preferred Stock included by such Holder in the Redemption Notice relative to the
total number of shares of Preferred Stock in all of the Redemption Notices;
provided the foregoing shall not be deemed to limit the Company's obligation to
purchase shares of Preferred Stock hereunder. In addition, and notwithstanding
anything to the contrary contained in this Section VIII.F, so long as the
Company is prevented from redeeming shares of Preferred Stock pursuant to this
Section VIII.F, the Company shall be (and shall be deemed to be) in breach of
the redemption obligations set forth in this Article VIII and each Holder shall
have all rights and remedies under this Certificate of Designation or otherwise
at law for damages, with respect to such breach. In addition, during any such
period, without the prior written consent of each initial Holder, the Company
shall not enter into any agreement, consummate any transaction or otherwise
operate its business in any way outside of the ordinary course of the Company's
business. Furthermore, in this event, each Holder, upon written notice to the
Company, may void its Redemption Notice with respect to, and retain or have
returned, as the case may be, any shares of Preferred Stock that have not been
redeemed pursuant to such Holder's Redemption Notice; provided that the voiding
of a Holder's Redemption Notice shall not affect the Company's obligations to
make any payments which have accrued prior to the date of such notice of voiding
pursuant to this Section.
G. Additional Cap Amount Remedies. Upon the occurrence of an Override
------------------------------
Election Event described in clause (vii) of Section VIII.C, any Holder who is at
any time thereafter prohibited from converting its Preferred Stock or exercising
its Warrants as a result of the Cap Amount may, notwithstanding the Cap Amount
or restrictions with respect thereto, in addition to its other rights under this
Article VIII or otherwise, provided at least one hundred thousand dollars
($100,000) aggregate Face Amount of the Preferred Stock remains outstanding or
Warrants to purchase one
-16-
<PAGE>
hundred thousand (100,000) shares of Common Stock (appropriately adjusted for
stock splits, combinations and the like) remain outstanding, elect to require
the Company to use its best efforts to list its Common Stock on the over-the-
counter electronic bulletin board and to honor all valid conversions and
exercises, notwithstanding and without giving effect to the Cap Amount
restrictions. After any such election, the Company shall so use its best efforts
and so honor all conversions and exercises and the Cap Amount shall no longer
apply to the Preferred Stock or Warrants for all purposes.
H. Capital Impairment and Bank Document Limitation.
-----------------------------------------------
(i) In the event that Section 160 of the Delaware General Corporation
Law ("GCL"), would be violated by the redemption of any shares of Preferred
---
Stock that are otherwise subject to redemption pursuant to this Article VIII,
the Company: (I) will redeem the greatest number of shares of Preferred Stock
possible without violation of said Section; (II) the Company thereafter shall
use its best efforts to take all necessary steps permitted pursuant to this
Certificate of Designation and the agreements entered into in connection with
the issuance of Preferred Stock pursuant thereto in order to remedy its capital
structure in order to allow further redemptions without violation of said
Section (and not take any action inconsistent with so remedying such capital
structure); and (III) from time to time thereafter as promptly as possible the
Company shall redeem shares of Preferred Stock at the request of a Holder to
the greatest extent possible without causing a violation of Section 160 of the
GCL (such redemption to be at the greater of the redemption price in effect at
the time of the original Event Within Company Control giving rise to such
violation and the redemption price which would be applicable for an Event Within
Company Control at the time of such later election under this clause (III)). In
the event the Company is not able to redeem all the shares of Preferred Stock
subject to Redemption Notices, the Company shall redeem shares of Preferred
Stock from each Holder pro rata, based on the total number of shares of
Preferred Stock included by such Holder in the Redemption Notice relative to the
total number of Preferred Stock in all Redemption Notices. In addition, and
notwithstanding anything to the contrary contained in this Section VIII.H, so
long as the Company is prevented from redeeming shares of Preferred Stock
pursuant to this Section VIII.H, the Company shall be (and shall be deemed to
be) in breach of the redemption obligations set forth in this Article VIII and
each Holder shall have all rights and remedies under this Certificate of
Designation or otherwise at law for damages, with respect to such breach. In
addition, during any such period, without the prior written consent of each
initial Holder, the Company shall not enter into any agreement, consummate any
transaction or otherwise operate its business in any way outside of the ordinary
course of the Company's business.
(ii) In the event that the certain Credit Agreement dated as of May
15, 1998 among the Company and certain lenders, amended as of December 17, 1998
(the "Credit Agreement"), or any extension thereof or replacement facility which
----------------
does not adversely affect the rights, privileges or preferences of the Preferred
the Stock or the Holders thereof in any manner and to any extent materially
greater than such rights, privileges and preferences and such Holders are, as of
the initial issuance of the Preferred Stock, already adversely affected as a
result of the terms of the Credit Agreement (collectively, the "Loan
----
Documents"), would be violated by the redemption of, or Override Election
- ---------
-18-
<PAGE>
payments with respect to, any shares of Preferred Stock that are otherwise
subject to redemption or Override Election payments pursuant to this Article
VIII, the Company: (I) will redeem the greatest number of shares of Preferred
Stock possible and make the greatest Override Election payments possible, in
each case, without violation of the Loan Documents; (II) the Company thereafter
shall use its reasonable best efforts to take all reasonably necessary steps
permitted pursuant to this Certificate of Designation and the agreements entered
into in connection with the issuance of Preferred Stock would not result in a
violation or breach hereunder or thereunder) in order to allow further
redemptions and Override Election payments without violation of the Loan
Documents (including, without limitation replacement of or repayments under
under such Loan Documents); and (III) from time to time thereafter as promptly
as possible the Company shall redeem shares of Preferred Stock at the request of
a Holder to the greatest extent possible without causing a violation of the
Loan Documents. In the event the Company is not able to redeem all the shares of
Preferred Stock subject to Redemption Notices due to limitations in the Loan
Documents, the Company shall redeem shares of Preferred Stock from each Holder
pro rata, based on the total number of shares of Preferred Stock included by
such Holder in the Redemption Notice relative to the total number of Preferred
Stock in all Redemption Notices. In addition, and notwithstanding anything to
the contrary contained in this Article VIII, so long as the Company is prevented
from redeeming shares of Preferred Stock or from making Override Election
payments pursuant to this Section VIII.H, the Company shall not be (and shall
not be deemed to be) in breach of such obligations set forth in this Article
VIII.
I. Redemption at Company's Option.
------------------------------
(i) (A) So long as no Override Election Event and no Event Within
Company Control shall have occurred and remain uncured (such cure to have been
effective for at least the six (6) immediately preceding consecutive months),
and provided the Company is not then (and has not for the immediately preceding
six (6) consecutive months been) in violation of any of its material obligations
under the Securities Purchase Agreement, the Warrants, the Registration Rights
Agreement or this Certificate of Designation, then the Company shall have the
right to redeem for cash ("Redemption at Company's Election") all the then
--------------------------------
outstanding Preferred Stock (or a Partial Redemption as set forth below) for the
Optional Redemption Amount (as herein defined), which right shall be exercisable
by delivery of an Optional Redemption Notice (as defined herein) in accordance
with the procedures set forth below. The Company shall have the right to redeem
for cash (a "Partial Redemption", also a Redemption at Company's Election) less
------------------
than all the then outstanding Preferred Stock for the Optional Redemption Amount
upon delivery of an Optional Redemption notice in accordance with the procedures
set forth below, provided that (x) such Partial Redemption is allocated pro rata
among the Holders, based upon the number of shares of Preferred Stock held by
each Holder, and (y) such Partial Redemption is of at least five million dollars
($5,000,000) and, if more than $5,000,000, equal to an integer multiple of one
million dollars ($1,000,000) greater than $5,000,000. If the aggregate Optional
Redemption Amount for all outstanding shares of Preferred Stock is less than
$5,000,000, no Partial Redemption is permitted. Notwithstanding the delivery of
an Optional Redemption Notice, the Holders shall have the right to convert up to
and including the Effective Time of Redemption (as defined herein).
-18-
<PAGE>
(B) The Company may, subject to the other provisions of this
Article VIII (including of this clause (i)), effect a Redemption at Company's
Election in the following circumstances:
(1) on the dates set forth below, if the Closing Bid Price
of the Common Stock as of the tenth (10th) day immediately preceding both the
Optional Redemption Notice and the redemption itself is less than seventy-five
percent (75%) of the Closing Price. The "Optional Redemption Amount" with
--------------------------
respect to each share of Preferred Stock under this clause (1) means X% of the
sum of the Face Amount plus accrued but unpaid Premium plus any other amounts
due with respect thereto, where "X" is determined according to the following
schedule.
Redemption Dates (from the Closing Date) "X"
---------------------------------------- ---
180 days 130%
270 days 125%
360 days 120%
If a Redemption Date as set forth in the table above
falls on a weekend or on a national holiday, the Redemption Date shall be the
next business day following the day set forth in the table.
(2) at any time after the second anniversary of the Closing
Date if the Closing Bid Price of the Common Stock for ten (10) consecutive
trading days immediately prior to the deliver of an Optional Redemption Notice
and on the date of redemption exceeds two hundred percent (200%) of the
applicable Fixed Conversion Price. The "Optional Redemption Amount" with respect
--------------------------
to each share of Preferred Stock under this clause (2) means one hundred and
fifteen percent (115%) of the sum of the Face Amount plus accrued but unpaid
Premium plus any other amounts due with respect thereto.
(3) at any time after the second (2nd) anniversary of the
Closing Date and simultaneously with the closing of a firm commitment
underwriting for at least a minimum of eight dollars ($8.00) per share (subject
to equitable adjustment for any stock splits, stock dividends, reclassifications
or similar events) for a minimum aggregate amount of thirty million dollars
($30,000,000). The Company may not effect a redemption pursuant to this clause
(3) unless, simultaneously with the service of the Optional Redemption Notice,
the Company provides to the Holders a letter from a nationally recognized
underwriting firm advising the Holders that such firm is highly confident that
it can effect such underwriting. The "Optional Redemption Amount" with respect
to each share of Preferred Stock under this clause (3) means the greater of (x)
one hundred and twenty percent (120%) of the sum of the Face Amount plus the
accrued and unpaid Premium plus any other amounts due with respect thereto, and
(y) an amount determined by the following formula:
( Face Amount + Premium + other applicable amounts due ) x M
--------------------------------------------------------
C P
-19-
<PAGE>
where:
"CP" means the Conversion Price in effect on the date of the Redemption
--
Notice; and
"M" means the highest Closing Bid Price of the Company's Common Stock
-
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption, as reported on the principal securities exchange or
trading market on which the Common Stock is traded.
(4) at any time after the first (1st) anniversary of the
Closing Date and before the second (2nd) anniversary of the Closing Date. The
"Optional Redemption Amount" with respect to each share of Preferred Stock under
this clause (4) means the greater of (x) one hundred and sixty percent (160%)
(annualized from the Closing Date to the date of redemption pursuant to this
clause (4)) of the sum of the Face Amount plus the accrued and unpaid Premium
plus other amounts due with respect thereto, and (y) an amount determined by the
formula contained in clause (3)(y) hereof.
(ii) The Company may not deliver an Optional Redemption Notice for a
redemption for cash unless such redemption is with respect to all then-
outstanding shares of Preferred Stock (or as otherwise contemplated in clause
(i)(A) above) and unless the Company has ("Funding Availability"): (a) the full
--------------------
amount of the Optional Redemption Amount in cash, available in a demand or other
immediately available account in a bank or similar financial institution; or (b)
immediately available credit facilities, in the full amount of the Optional
Redemption Amount in cash with a bank or similar financial institution (or
binding commitment letters with respect thereto which commitment letters shall
be subject only to commercially reasonable conditions to closing as to which the
Company's Board of Directors has made a good faith business judgment will be
fulfilled to permit consummation of the redemption hereunder); or (c) an
agreement with a standby underwriter or qualified buyer ready, willing and able
to purchase from the Company a sufficient face amount or number of shares or any
debt or equity securities, subject to the limitations contained in the
Securities Purchase Agreement and herein, to provide net proceeds in the full
amount of the Optional Redemption Amount; or (d) a combination of the items set
forth in the preceding clauses (a), (b) and (c), aggregating the full amount of
the Optional Redemption Amount in cash. The Company may not deliver an Optional
Redemption Notice and the Company may not effect a Redemption at Company's
Election unless all of the Common Stock issuable upon conversion of the
Preferred Stock (at the time of delivery of the Optional Redemption Notice and
for each day thereafter through the Effective Time of Redemption) is covered by
an effective Registration Statement and all such Common Stock can be sold
pursuant thereto at all times during such period and all other Liquidity
Conditions (as defined in Section III.H hereof) are then met. Any Optional
Redemption Notice delivered in accordance with the foregoing shall be
accompanied by a statement executed by a duly authorized officer of the Company
certifying that the Company has Funding Availability and by other appropriate
documentation as evidence of the other provisions of this Section.
-20-
<PAGE>
(iii) The Company shall effect the Redemption at Company's Election
under this Section VIII.I by delivering written notice thereof (the "Optional
--------
Redemption Notice") on a business day that is at least 30 days, and not more
- -----------------
than 60 days, prior to the date on which such redemption is to become effective
(the "Effective Time of Redemption") to each Holder at the facsimile number of
----------------------------
each Holder appearing in the Company's register for the Preferred Stock. Once
the Company has made such an Election, it is irrevocable and binding. The
Optional Redemption Notice shall be deemed to have been delivered to a Holder:
(i) if such fax is received by such Holder on or prior to 3:00 p.m. New York
time, on the date of transmission of the Company's fax; and (ii) if such fax is
received by Holder after 3:00 p.m. New York time, on the next business day
following the date of transmission provided that, for any notice required under
this subsection to be valid, a copy of such notice must be sent to the Holders
on the same day by overnight courier.
(iv) The Optional Redemption Amount shall be paid to each Holder on
the third (3rd) day following the Effective Time of Redemption.
(v) If the Company fails to pay, when due and owing, any Optional
Redemption Amount, then each Holder entitled to receive such Optional Redemption
Amount shall have the right, at any time and from time to time, to require the
Company, upon written notice, to immediately convert (in accordance with the
terms of and subject to the limitations contained in Article IV) any or all of
the shares of Preferred Stock which are the subject of Redemption at Company's
Election into shares of Common Stock at the lower of the Fixed Conversion Price
and the lowest Conversion Price in effect following the Effective Time of
Redemption. In the event of such a default, (a) any future right to effect a
Redemption at Company's Election would be forfeited, and (b) if the average of
the lowest Closing Bid Prices of the Common Stock for any three (3) trading days
(the "Lowest Trade Average") during the during the period (the "Trade Period")
-------------------- ------------
beginning on the date of the Optional Redemption Notice and ending on the
Effective Time of Redemption is lower than the Fixed Conversion Price, then the
Fixed Conversion Price shall be adjusted to the Lowest Trade Average.
(vi) Commencing upon the date that is 181 days from the Closing Date
the Company may, upon advance notice by the Company as provided below and upon
receipt from a Holder of a Notice of Conversion with a Conversion Price that is
less than seventy-five percent (75%) of the Closing Price, elect to pay to such
Holder the "Equivalent Value" of the conversion in cash. In order for the
----------------
Company to elect to pay Equivalent Value with respect to conversions as
aforesaid during any given calendar month, the Company must give written notice
to the Holders at least ten (10) days prior to the first day of that calendar
month. Once the Company makes such an election, it is irrevocable and binding
for the entire following calender month. Any such notice shall be effective for
conversions for no more than one calendar month. If the Company sets a maximum
amount on the total Equivalent Value payments for a given calendar month, such
amount shall be allocated pro rata among the Holders. In the event of a default
in payment of Equivalent Value following such a notice, any right to effect
additional conversions for Equivalent Value shall be forfeited. The Equivalent
Value with respect to each share of Preferred Stock is computed according to the
following formula:
-21-
<PAGE>
Closing Bid Price on
the Conversion Date x A
--------------------------
Conversion Price on
the Conversion Date
A = $1000 + Premium (accrued but unpaid) + other amounts owing in
respect of such shares
Payment of Equivalent Value shall be made within three (3) business
days of the receipt of a Notice of Conversion.
(vii) If the Company redeems all outstanding shares of Preferred
Stock pursuant to this Article VIII and simultaneously issues securities for the
purpose of creating proceeds to effect such redemption, such issuance shall not
of itself constitute a breach of any obligations of, or limitations imposed on,
the Company under Sections IX.A, XIII.C or XIII.D hereof.
IX. RANK; PARTICIPATION
A. Rank. All outstanding shares of the Preferred Stock shall rank (i)
----
prior to the Common Stock; (ii) prior to any other class of capital stock of the
Company now outstanding and prior to any class or series of capital stock of the
Company hereafter created (unless, with the consent of the Holders obtained in
accordance with Article XIII hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Preferred
---- -----
Stock) (collectively, with the Common Stock, "Junior Securities"); (iii) pari
----------------- ----
passu with any class or series of capital stock of the Company hereafter created
- -----
(with the consent of the Holders obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Preferred Stock
(the "Pari Passu Securities"); and (iv) junior to any class or series of capital
---- ----- ----------
stock of the Company hereafter created (with the consent of the Holders obtained
in accordance with Article XIII hereof) specifically ranking, by its terms,
senior to the Preferred Stock (the "Senior Securities"); in each case as to
-----------------
dividends or as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
B. Participation. Subject to the rights of the holders (if any) of Pari
------------- ----
Passu Securities and Senior Securities, each Holder shall, as a Holder of
- -----
Preferred Stock, be entitled to dividends paid and distributions made to the
holders of Common Stock to the same extent as if such Holder had converted all
of the Preferred Stock held by such Holder on the record date for such dividends
or distributions into Common Stock (without regard to any limitations on
conversion herein or elsewhere contained) at the Conversion Price applicable on
such record date and such Common Stock had been issued on the day before such
record date. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.
-22-
<PAGE>
X. LIQUIDATION PREFERENCE
A. Liquidation of the Company. If a Bankruptcy Event shall occur and, on
--------------------------
account of any such event, the Company shall liquidate, dissolve or wind up, or
if the Company shall otherwise liquidate, dissolve or wind up (a "Liquidation
-----------
Event"), no distribution shall be made to the Holders of any shares of capital
- -----
stock of the Company (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto the Holders shall have received
the Liquidation Preference (as herein defined) with respect to each share. If,
upon the occurrence of a Liquidation Event, the assets and funds available for
distribution among the Holders and holders of Pari Passu Securities shall be
---- -----
insufficient to permit the payment to such Holders of the preferential amounts
payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Preferred Stock and the Pari Passu Securities
---- -----
shall be distributed ratably among such shares in proportion to the ratio that
the Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
B. Certain Acts Not a Liquidation. The purchase or redemption by the
------------------------------
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Company. Neither the consolidation or merger of the Company with or into any
other entity nor the sale or transfer by the Company of less than substantially
all of its assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.
C. Definition of Liquidation Preference. The "Liquidation Preference"
------------------------------------ ----------------------
with respect to a share of Preferred Stock means an amount equal to the Face
Amount thereof plus the accrued but unpaid Premium and other amounts unpaid
hereunder, including without limitation Redemption Amounts and Override Election
Amounts, with respect thereto plus any other amounts that may be due from the
Company with respect thereto through the date of final distribution. The
Liquidation Preference with respect to any Pari Passu Securities shall be as set
---- -----
forth in the charter of the Company.
XI. ADJUSTMENTS TO THE CONVERSION PRICE; CERTAIN PROTECTIONS
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
----------------------------------
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased.
B. Certain Public Announcements. In the event that (i) the Company makes
----------------------------
a public announcement that it intends to consolidate or merge with any other
entity (other than a merger in
-23-
<PAGE>
which the Company is the surviving or continuing entity and its capital stock is
unchanged and there is no issuance thereof) (or that any subsidiary of the
Company will merge or consolidate with any other person (other than a merger in
which the Company issues no securities)) or to sell or transfer all or
substantially all of the assets of the Company or (ii) any person, group or
entity (including the Company) publicly announces a tender offer in connection
with which such person, group or entity seeks to purchase 50% or more of the
Common Stock (the date of the announcement referred to in clause (i) or (ii) of
this paragraph is hereinafter referred to as the "Announcement Date"), then the
-----------------
Conversion Price shall, effective upon the Announcement Date and continuing
through the consummation of the proposed tender offer or transaction or the
Abandonment Date (as defined below), be equal to the lesser of (x) the
Conversion Price calculated as provided in Article IV and (y) the Conversion
Price which would have been applicable for a conversion occurring on the
Announcement Date (and in each case of (x) and (y), the Conversion Price shall
be deemed to be the lesser of the Fixed Conversion Price and the Variable
Conversion Price prior to May 15, 1999). From and after the Abandonment Date, as
the case may be, the Conversion Price shall be determined as set forth in
Article IV. The "Abandonment Date" means with respect to any proposed
-----------------
transaction or tender offer for which a public announcement as contemplated by
this paragraph has been made, the date which is sixteen (16) trading days after
the date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer which
causes this paragraph to become operative.
C. Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merge with
any other corporation or entity (other than a merger in which the Company is
the surviving or continuing entity and its capital stock is unchanged and
unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each Holder shall thereafter
be entitled to (a) in the event that the Common Stock remains outstanding or
holders of Common Stock receive any common stock or substantially similar
equity interest, in each of the foregoing cases which is publicly traded,
retain its Preferred Stock and such Preferred Stock shall continue to apply to
such Common Stock or shall apply, as nearly as practicable, to such other
common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for each share of
Preferred Stock held by it, equal to the greater of, as determined in the sole
discretion of such Holder: (i) the number of shares of stock or securities or
property of the Company, or of the entity resulting from such Major Transaction
(the "Major Transaction Consideration"), to which a holder of the number of
-------------------------------
shares of Common Stock delivered upon conversion of such shares of Preferred
Stock would have been entitled upon such Major Transaction had the Holder
exercised its right of conversion (without regard to any limitations on
conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion
Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) on
the trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock been
issued and outstanding and had such Holder been the holder of record of such
Common Stock at the time of the consummation of such Major Transaction, and (ii)
one hundred twenty five percent (125%) of the Face Amount plus accrued and
unpaid premiums of such shares of Preferred Stock in cash; and the Company shall
make lawful provision for the forgoing as a part of such Major Transaction and
shall cause the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume all
of the Company's obligations under the Registration Rights Agreement. In the
event that the Company shall consolidate or merge with any
-24-
<PAGE>
corporation in a transaction in which common stock of the surviving corporation
or parent thereof (the "Exchange Securities") is issued to the holders of Common
Stock in such transaction in exchange for all such Common Stock, and (a) the
Exchange Securities are publicly traded, (b) the average daily trading volume of
the Exchange Securities reported by Bloomberg during the ninety (90) day period
ending on the date on which such transaction is publicly disclosed is greater
than two million dollars ($2,000,000) per day, (c) the historical one hundred
(100) day volatility of the Exchange Securities reported by Bloomberg during the
period ending on the date on which such transaction is publicly disclosed is
greater than fifty percent (50%) and (d) the last sale price of the Exchange
Securities on the date immediately before the date on which such transaction is
publicly disclosed is not less than sixty five percent (65%) of the last sale
price of the Exchange Securities on any day during the twenty (20) trading day
period ending on such date (in each case as reported by Bloomberg) (a "Common
Stock Major Transaction"), then each Holder shall following consummation of such
transaction have the right to receive solely, in exchange for each share of
Preferred Stock held by it, consideration equal to the number of shares of
stock or securities or property issued or paid in such Common Stock Major
Transaction to which a holder of the number of shares of Common Stock which
would have been delivered upon conversion of a share of Preferred Stock would
have been entitled upon such Common Stock Major Transaction had the Holder of
such share of Preferred Stock exercised its right of conversion (without
regard to any limitations on conversion herein or elsewhere contained) (at the
lesser of the Fixed Conversion Price and the Variable Conversion Price (prior
to, on or after May 15, 1999)) with respect to such share of Preferred Stock
on the trading date immediately preceding the public announcement of the
transaction resulting in such Common Stock Major Transaction and had such
Common Stock been issued and outstanding and had such Holder been the holder
of record of such Common Stock at the time of the consummation of such Common
Stock Major Transaction; and the Company shall make lawful provision
for the foregoing as a part of such Common Stock Major Transaction and shall
cause the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume all
of the Company's obligations under the Registration Rights Agreement. No sooner
than ten (10) business days nor later than five (5) business days prior to the
consummation of the Major Transaction or Common Stock Major Transaction, as
the case may be, (each, a "Transaction") but not prior to the public
announcement of such Transaction, the Company shall deliver written notice
("Notice of Transaction") to each Holder, which Notice of Transaction shall
---------------------
be deemed to have been delivered one (1) business day after the Company's
sending such notice by telecopy (provided that the Company sends a confirming
copy of such notice on the same day by overnight courier) of such Notice of
Transaction. Such Notice of Transaction shall indicate the amount and type of
the Transaction consideration which such Holder would receive under this
Section. If the Major Transaction consideration does not consist entirely of
United States currency, such Holder may elect to receive United States
currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of the
Holder's receipt of the Notice of Transaction.
D. If George Roberts or Michael Sophie, during the period from December
1, 1998 until the date which is three hundred and sixty five (365) days from the
Closing Date, and while an officer or director, directly or indirectly, offer,
sell, transfer, assign, pledge, or otherwise dispose of any shares of Common
Stock, or any securities directly or indirectly convertible into or exercisable
or exchangeable for, or warrants, options or rights to purchase or acquire
shares of Common Stock (all such securities, "Options") or enter into any
agreement, contract, arrangement or understanding with respect to any such
offer, sale, transfer, assignment, pledge or other disposition of any Common
Stock or Options, in each case based upon a price of the Common Stock less than
the Fixed Conversion Price on the Closing Date (as adjusted for stock splits,
stock dividends, reclassifications or similar events during such period), then,
if the Lowest Trade Price during the period beginning on such date and ending on
the date twenty (20) days following public announcement of such event is
-25-
<PAGE>
less than the Fixed Conversion Price, then the Fixed Conversion Price shall be
adjusted to such Lowest Trade Price. The adjustments of this Section XI.D shall
not apply if and after the Company is sold or with respect to transfers made for
bona fide estate planning (for creation of trusts for spouses and relatives)
and/or charitable purposes (provided any transfers by such a transferee shall be
treated as a transfer by the transferor).
E. Issuance of Other Securities. If, at any time after the Closing Date
----------------------------
the Company shall issue any securities which are convertible into or
exchangeable or exercisable for Common Stock ("Convertible Securities") either
----------------------
(i) at a conversion, exercise or exchange rate based on a specified percentage
discount from the market price of the Common Stock at the time of conversion,
exercise or exchange or based upon a market-based rate (for clarification, a
discount would not include standard price-based anti-dilution protection
provisions) or (ii) with a fixed conversion, exchange or exercise price less
than the Fixed Conversion Price, then, at the Holder's option: (x) in the case
of clause (i), the Variable Conversion Price in respect of any conversion of
Preferred Stock after such issuance shall be calculated utilizing the greatest
discount applicable to any such Convertible Securities or, as applicable, such
market-based rate, and (y) in the case of clause (ii), the Fixed Conversion
Price shall be reduced to such lesser conversion, exchange or exercise price (in
each case of (x) and (y), subject to further adjustments as provided in this
Certificate of Designation (including
pursuant to this Section E)). This prohibition shall not apply to issuances (1)
in connection with the issuance to or grant and/or exercise by employees,
consultants or directors of stock or options, (2) pursuant to the Stockholders
Rights Plan and the Series A Preferred Stock, as amended as of the Closing Date
(or thereafter with the consent of each initial Holder and each initial Holder
and the Majority Holders), or (3) in connection with acquisitions of other
companies, material technologies or business entities.
F. [Intentionally Deleted].
G. [Intentionally Deleted].
H. Notice of Adjustments. Upon the occurrence of each adjustment or
---------------------
readjustment pursuant to this Article XI, the Company, at its expense, shall
promptly compute such adjustment or readjustment and prepare and furnish to each
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request at any time of any Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Preferred Stock.
XII. VOTING RIGHTS
The holders of Preferred Stock shall have no voting power whatsoever,
except as otherwise provided by applicable law.
-26-
<PAGE>
Notwithstanding the above, the Company shall provide each Holder with prior
notification of any meeting of the stockholders (and copies of proxy materials
and all other information sent to stockholders). If the Company takes a record
of its stockholders for the purpose of determining stockholders entitled to (a)
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the Company, or
any proposed merger, consolidation, liquidation, dissolution or winding up of
the Company, the Company shall fax a notice to each Holder, at least ten (10)
days prior to the record date specified therein (or ten (10) days prior to the
consummation of the transaction or event, whichever is earlier, but in no event
earlier than public announcement of such proposed transaction), of the date on
which any such record is to be taken for the purpose of such vote, dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such vote, dividend, distribution, right or other event to the
extent known at such time.
To the extent that under applicable law the vote of the holders of the
Preferred Stock, voting separately as a class or series, as applicable, is
required to authorize a given action of the Company, the affirmative vote or
consent of the Holders of at least a majority of the shares of the Preferred
Stock represented at a duly held meeting at which a quorum is present or by
written consent of the Majority Holders (except as otherwise may be required by
applicable law) shall constitute the approval of such action by the class or
series. To the extent that under applicable law Holders are entitled to vote on
a matter with holders of Common Stock, voting together as one class, each share
of Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible (without giving effect
to any limitation on conversion with respect thereto) using the record date for
the taking of such vote of stockholders as the date as of which the Conversion
Price is calculated.
XIII. PROTECTION PROVISIONS
The Company shall not, without first obtaining the approval of each initial
Holder of Preferred Stock (but with respect to (c) and (d) and (h) hereof, such
approval is necessary only so long as one hundred thousand dollars ($100,000)
Face Amount of Preferred Stock remains outstanding) : (a) alter or change the
terms of the Preferred Stock; (b) alter or change the terms of any capital stock
of the Company so as to affect adversely the Preferred Stock; (c) create or
issue any Senior Securities; (d) create or issue any Pari Passu Securities; (e)
---- -----
increase the authorized number of shares of Preferred Stock; (f) redeem, or
declare or pay any dividend or distribution on, any Junior Securities, except
repurchases of stock held by service providers to the Company upon termination
of service, and except redemptions effected with Junior Securities (subject to
the limitations contained herein and in the Securities Purchase Agreement); (g)
do any act or thing not authorized or contemplated by this Certificate of
Designations which would result in any taxation with respect to the Preferred
Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any
comparable provision of the Internal Revenue Code as hereafter from time to time
amended (or otherwise suffer to exist any taxation as a result of such section
or provision); or (h) sell or otherwise transfer all or
-27-
<PAGE>
substantially all of the assets of the Company (other than in the ordinary
course of business). The Company shall not issue additional shares of Preferred
Stock except to effect the purchase and sale to the Purchasers (as defined in
the Securities Purchase Agreement) in accordance with the Securities Purchase
Agreement and as contemplated by the Registration Rights Agreement.
XIV. MISCELLANEOUS
A. Cancellation of Preferred Stock. If any shares of Preferred Stock are
-------------------------------
converted or redeemed pursuant to Article IV, the shares so converted shall be
canceled, shall return to the status of authorized but unissued preferred stock
of no designated series, and shall not be issuable by the Company as Preferred
Stock.
B. Lost or Stolen Certificates. Upon receipt by the Company of (i)
---------------------------
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Company shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
Holder contemporaneously requests the Company to convert all of such Preferred
Stock.
C. Allocation of Cap Amount, Reserved Amount and Total Amount. The
----------------------------------------------------------
initial Cap Amount, initial Reserved Amount and the Total Amount shall be
allocated to the Holders in the same proportion as the number of shares of
Common Stock to which such each Holder would be entitled if all Preferred Stock
held by such Holder were converted and all Warrants held by such Holder were
exercised bears to the aggregate number of shares of Common Stock to which all
Holders would be entitled if all Preferred Stock held by the Holders were
converted and all Warrants held by the Holders were exercised (without giving
effect to any limitation on conversion or exercise). Each increase to the Cap
Amount or Reserved Amount shall be allocated pro rata among the Holders based on
the number of shares of Common Stock to which each Holder would be entitled if
all Preferred Stock held by such Holder were converted and all Warrants held by
such Holder were exercised (in each case of the foregoing, without giving effect
to any limitation on conversion or exercise) at the time of the increase in the
Cap Amount or Reserved Amount, as the case may be (in each case of the
foregoing, without giving effect to any limitation on conversion or exercise).
In the event a Holder shall sell or otherwise transfer any of such Holder's
shares of Preferred Stock, each transferee shall be allocated a pro rata portion
of such transferor's Cap Amount, Reserved Amount and Total Amount. Any portion
of the Cap Amount, Reserved Amount or Total Amount which remains allocated to
any person or entity which does not hold any Preferred Stock or Warrants (in the
case of the Cap Amount and the Reserved Amount) or Preferred Stock or Warrants
or Registrable Securities (as defined in the Registration Rights Agreement) (in
the case of the Total Amount) shall be allocated to the remaining Holders,
holders of Warrants and, in the case of the Total Amount, holders of Registrable
Securities pro rata based on (x) the number of shares of Common Stock to which
they would be entitled if all Preferred Stock then held by such Holders were
converted and all Warrants then held by such holders were exercised (in each
case of the foregoing, without giving
28
<PAGE>
effect to any limitation on conversion or exercise) and, in the case of the
Total Amount, (y) any additional shares of Common Stock constituting Registrable
Securities held by such holders.
D. Statements of Available Shares. Upon request, the Company shall
------------------------------
deliver to each Holder a written report notifying the Holders of any occurrence
which prohibits the Company from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of Preferred Stock
outstanding as of the date of the request, (ii) the total number of shares of
Common Stock issued upon all conversions of Preferred Stock through the date of
the request, (iii) the total number of shares of Common Stock which are reserved
for issuance upon conversion of the Preferred Stock as of the date of the
request, and (iv) the total number of shares of Common Stock which may
thereafter be issued by the Company upon conversion of the Preferred Stock
before the Company would exceed the Cap Amount and Reserved Amount. The Company
shall, within five (5) days after delivery to the Company of a written request
by any Holder, provide all of the information enumerated in clauses (i) - (v) of
this Section XIV.D and, to the extent that any such information constitutes
material non-public information, at the request of a Holder, make simultaneous
public disclosure thereof.
E. Payment of Cash; Defaults. Whenever the Company is required to make
-------------------------
any cash payment to a Holder under this Certificate of Designation (as a
Conversion Default Payment, Redemption Amount, Override Election Amount or
otherwise), such cash payment shall be made to the Holder by the method ( by
certified or cashier's check or wire transfer of immediately available funds)
elected by such Holder. If such payment is not delivered when due (any such
amount not paid when due being a "Default Amount") such Holder shall thereafter
--------------
be entitled to interest on the unpaid amount at a per annum rate equal to the
lower of eighteen percent (18%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the Holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by a
---------------------
Holder of Preferred Stock and the occurrence of the Conversion Date with respect
thereto, the shares covered thereby shall be deemed converted into shares of
Common Stock and the Holder's rights as a Holder of such converted shares of
Preferred Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein
or otherwise available at law or in equity to such Holder because of a failure
by the Company to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Preferred
Stock for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock) the Holder shall regain the rights of a
holder of Preferred Stock with respect to such unconverted shares of Preferred
Stock and the Company shall, as soon as practicable, return such unconverted
shares to the Holder. In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section VII.A to the extent required thereby for
such Conversion Default and any subsequent Conversion Default and (ii) the right
with respect to conversions in accordance with Section XIV.E, to the extent
applicable) for the Company's failure to convert Preferred Stock.
-29-
<PAGE>
G. Remedies, Characterizations, Other Obligations, Breaches and
------------------------------------------------------------
Injunctive Relief. The remedies provided in this Certificate of Designation
- -----------------
shall be cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to actual damages for any failure by
the Company to comply with the terms of this Certificate of Designation
(including, without limitation, damages incurred to effect "cover" of shares of
Common Stock anticipated to be received upon a conversion hereunder but not
received in accordance with the terms hereof). The Company covenants to each
Holder that there shall be no characterization concerning this instrument other
than as fully consistent with the express terms hereof. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder hereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the holders of Preferred Stock and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holders shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
H. Specific Shall Not Limit General; Construction. No specific provision
----------------------------------------------
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein. This Certificate of Designation shall be
deemed to be jointly drafted by the Company and all Purchasers and shall not be
construed against any person as the drafter hereof.
I. Failure or Indulgence Not Waiver. No failure or delay on the part of
--------------------------------
a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, not shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
RESOLVED FURTHER, that the officers of the Company be and they hereby are,
each authorized to execute, verify and file a Certificate of Designation in
accordance with Delaware law.
IN WITNESS WHEREOF, the undersigned has executed this certificate on
December 21, 1998.
P-COM, INC.
/s/ Michael J. Sophie
------------------------------------------
By: Michael J. Sophie
Title: Chief Financial Officer
-30-
<PAGE>
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert (the "Conversion") the Face
----------
Amount of the Series B Convertible Participating Preferred Stock (the "Preferred
Stock") set forth below, plus all accrued and unpaid Premium relating thereto
(each defined term used but not defined in this notice shall have the meaning
assigned to it in the Designation, Preferences and Rights of Series B
Convertible Participating Preferred Stock of P-Com, Inc. (the "Certificate of
Designation")), into shares of common stock ("Common Stock") of P-Com, Inc.
------------
(the "Company") according to the conditions of the Certificate of Designation,
-------
as of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. No fee will be charged to the Holder for any
conversion except as provided herein.
The undersigned covenants that all offers and sales by the undersigned of the
securities issuable to the undersigned upon conversion of this Preferred Stock
shall be made pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Act"), or pursuant to an exemption from
---
registration under the Act.
In the event of partial exercise, please reissue an appropriate certificate for
the balance of shares of Preferred Stock which shall not have been converted.
Date of Conversion:_______________________________
Applicable Conversion Price:______________________
Face Amount of Preferred Stock:___________________
Number of Shares of
Common Stock to be Issued:________________________
Signature:________________________________________
Name:_____________________________________________
Address:__________________________________________
Fax Number (for confirmation):
cc: [As a matter of courtesy, holders intend to send a carbon copy to Brobeck,
Phleger & Harrison, LLP, but it shall not be a requirement.]
<PAGE>
EXHIBIT 3.2E
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
P-COM, INC.
P-Com, Inc., a corporation organized under and by virtue of the General
Corporation law of the State of Delaware, does hereby certify:
FIRST: The Certificate of Designations, Preferences and Rights of Series B
Convertible Participating Preferred Stock of the corporation was filed in
the office of the Secretary of State of Delaware on December 21, 1998.
SECOND: The Certificate of Designations as so filed was incorrect in that
there was an error in Article III.B as follows:
"B. Closing Date" shall have the meaning set forth in the Securities
------------
Purchase Agreement, dated as of December 18, 1998, by and among the Company
and the other signatories thereto (the "Securities Purchase Agreement")."
-----------------------------
THIRD: Article III.B of the Certificate of Designations in corrected form
is as follows:
"B. Closing Date" shall have the meaning set forth in the Securities
------------
Purchase Agreement, dated as of December 21, 1998, by and among the Company
and the other signatories thereto (the "Securities Purchase Agreement")."
-----------------------------
FOURTH: The Certificate of Designations as so filed was incorrect in that
there was an error in Article III.F as follows:
"F. "Fixed Conversion Price" means: (i) up to and including May 14,
----------------------
1999 two hundred percent (200%) of the average of the Closing Bid Prices of
the common stock, $0.0001 par value per share, of the Company (the "Common
------
Stock") for the fifteen (15) consecutive trading days ending on the day
-----
prior to the Closing Date (the "Closing Price"); (ii) beginning on May 15,
-------------
1999 the lesser of the Fixed Conversion Price as defined in (i) of this
section and one hundred and five percent (105%) of the average of the
Closing Bid Prices of the Common Stock for the fifteen (15) consecutive
trading days immediately prior to and ending on May 14, 1999; (iii) if the
Company has not obtained
<PAGE>
Stockholder Approval (as herein defined) by the Approval Date (as defined
herein), then on each day thereafter until the Company obtains Stockholder
Approval, the lesser of the Fixed Conversion Price in effect on such day
and the Average Closing Bid Price (as herein defined) for the period
beginning on, and including, such Approval Date through and including such
day; (iv) if the Company has not obtained Stockholder Approval (as herein
defined) by the Approval Date, then beginning on the date on which the
Company obtains Stockholder Approval, the lesser of the Fixed Conversion
Price then in effect and the Average Closing Bid Price for the period
beginning on, and including, such Approval Date through and including the
date on which the Company obtained Stockholder Approval; (v) if the
Registration Statement (as such term is defined in the Registration Rights
Agreement, dated as of December 18, 1998, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement")) required
-----------------------------
to be filed by the Company pursuant to Section 2.1 of the Registration
Rights Agreement has not been declared effective by the SEC by the one
hundred eightieth (180th) day following the Closing Date, then on each day
thereafter until such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price in effect on any such day and the
Average Closing Bid Price for the period beginning on, and including, the
180th day following the Closing Date through and including such day; and
(vi) if the Registration Statement required to be filed by the Company
pursuant to the Registration Rights Agreement has not been declared
effective by the SEC by the 180th day following the Closing Date, beginning
on the date on which such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price then in effect and the Average Closing
Bid Price for the period beginning on, and including, the 180th day
following the Closing Date through and including the date on which such
Registration Statement is declared effective; in each case subject to
equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such period and in each case
subject to further adjustment as provided elsewhere herein. For purposes of
this Section F, "Average Closing Bid Price" shall mean the average of the
-------------------------
five (5) lowest Closing Bid Prices during the applicable period (including
the last day of the period); provided, however, that (x) in clauses (iii)
and (iv), if fewer than five (5) trading days have elapsed between the
Approval Date and the last day of the applicable period, Average Closing
Bid Price shall mean the average of the Closing Bid Prices on each trading
day during the period from and including the Approval Date through and
including the last day of the applicable period, and; (y) in clauses (v)
and (vi), if fewer than five (5) trading days have elapsed between the
180th day following the Closing Date and the last day of the applicable
period, Average Closing Bid Price shall mean the average of the Closing Bid
Prices on each trading day during the period from and including the 180th
day following the Closing Date through and including the last day of the
applicable period."
FIFTH: Article III.F of the Certificate of Designations in corrected form
is as follows:
"F. "Fixed Conversion Price" means: (i) up to and including May 14,
----------------------
1999 two hundred percent (200%) of the average of the Closing Bid Prices of
the common stock, $0.0001 par value per share, of the Company (the "Common
------
Stock") for the fifteen
-----
<PAGE>
(15) consecutive trading days ending on the day prior to the Closing Date
(the "Closing Price"); (ii) beginning on May 15, 1999 the lesser of the
-------------
Fixed Conversion Price as defined in (i) of this section and one hundred
and five percent (105%) of the average of the Closing Bid Prices of the
Common Stock for the fifteen (15) consecutive trading days immediately
prior to and ending on May 14, 1999; (iii) if the Company has not obtained
Stockholder Approval (as herein defined) by the Approval Date (as defined
herein), then on each day thereafter until the Company obtains Stockholder
Approval, the lesser of the Fixed Conversion Price in effect on such day
and the Average Closing Bid Price (as herein defined) for the period
beginning on, and including, such Approval Date through and including such
day; (iv) if the Company has not obtained Stockholder Approval (as herein
defined) by the Approval Date, then beginning on the date on which the
Company obtains Stockholder Approval, the lesser of the Fixed Conversion
Price then in effect and the Average Closing Bid Price for the period
beginning on, and including, such Approval Date through and including the
date on which the Company obtained Stockholder Approval; (v) if the
Registration Statement (as such term is defined in the Registration Rights
Agreement, dated as of December 21, 1998, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement")) required
-----------------------------
to be filed by the Company pursuant to Section 2.1 of the Registration
Rights Agreement has not been declared effective by the SEC by the one
hundred eightieth (180th) day following the Closing Date, then on each day
thereafter until such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price in effect on any such day and the
Average Closing Bid Price for the period beginning on, and including, the
180th day following the Closing Date through and including such day; and
(vi) if the Registration Statement required to be filed by the Company
pursuant to the Registration Rights Agreement has not been declared
effective by the SEC by the 180th day following the Closing Date, beginning
on the date on which such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price then in effect and the Average Closing
Bid Price for the period beginning on, and including, the 180th day
following the Closing Date through and including the date on which such
Registration Statement is declared effective; in each case subject to
equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such period and in each case
subject to further adjustment as provided elsewhere herein. For purposes of
this Section F, "Average Closing Bid Price" shall mean the average of the
-------------------------
five (5) lowest Closing Bid Prices during the applicable period (including
the last day of the period); provided, however, that (x) in clauses (iii)
and (iv), if fewer than five (5) trading days have elapsed between the
Approval Date and the last day of the applicable period, Average Closing
Bid Price shall mean the average of the Closing Bid Prices on each trading
day during the period from and including the Approval Date through and
including the last day of the applicable period, and; (y) in clauses (v)
and (vi), if fewer than five (5) trading days have elapsed between the
180th day following the Closing Date and the last day of the applicable
period, Average Closing Bid Price shall mean the average of the Closing Bid
Prices on each trading day during the period from and including the 180th
day following the Closing Date through and including the last day of the
applicable period."
<PAGE>
SIXTH: The Certificate of Designations as so filed was incorrect in that
there was an error in Article IV.A as follows:
"A. Conversion at the Option of the Holder. Subject to the
--------------------------------------
limitations on conversions contained in Section IV.G., each Holder may, at
any time and from time to time convert (an "Optional Conversion") any or
-------------------
all of its shares of Preferred Stock into a number of fully paid and non-
assessable shares of Common Stock determined, for each share of Preferred
Stock so to be converted, in accordance with the following formula:
(Premium (accrued but unpaid) + $1000)
-----------------------------------
Conversion Price"
SEVENTH: Article IV.A of the Certificate of Designations in corrected form
is as follows:
"A. Conversion at the Option of the Holder. Subject to the
--------------------------------------
limitations on conversions contained in Section IV.G., each Holder may, at
any time and from time to time convert (an "Optional Conversion") any or
-------------------
all of its shares of Preferred Stock into a number of fully paid and non-
assessable shares of Common Stock determined, for each share of Preferred
Stock so to be converted, in accordance with the following formula:
(Premium (accrued but unpaid) + $1000)
-----------------------------------
Conversion Price
Notwithstanding the foregoing, the Premium may be paid in cash, and if so
paid in cash, shall be due at the expiration of the Delivery Period."
EIGHTH: The Certificate of Designations as so filed was incorrect in that
there was an error in Article XI.C as follows:
"C. Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merge
with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is
unchanged and unissued in such transaction (except for Common Stock
constituting less than twenty percent (20%) of the Company's Common Stock
then outstanding)) or there shall occur any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into
other securities or property or any reclassification or change of the
outstanding shares of Common Stock (each of the foregoing being a "Major
-----
Transaction"), then each Holder shall thereafter be entitled to (a) in the
-----------
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each
of the foregoing cases which is publicly traded, retain its Preferred Stock
and such Preferred Stock shall continue to apply to such Common Stock or
shall apply, as nearly
<PAGE>
as practicable, to such other common stock or equity interest, as the case
may be, or (b) regardless of whether (a) applies, receive consideration, in
exchange for each share of Preferred Stock held by it, equal to the greater
of, as determined in the sole discretion of such Holder: (i) the number of
shares of stock or securities or property of the Company, or of the entity
resulting from such Major Transaction (the "Major Transaction
-----------------
Consideration"), to which a holder of the number of shares of Common Stock
-------------
delivered upon conversion of such shares of Preferred Stock would have been
entitled upon such Major Transaction had the Holder exercised its right of
conversion (without regard to any limitations on conversion herein or
elsewhere contained) (at the lesser of the Fixed Conversion Price and the
Variable Conversion Price (prior to, on or after May 15, 1999)) on the
trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock
been issued and outstanding and had such Holder been the holder of record
of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) one hundred twenty five percent (125%) of the Face
Amount plus accrued and unpaid premiums of such shares of Preferred Stock
in cash; and the Company shall make lawful provision therefor as a part of
such Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under the Registration
Rights Agreement to assume all of the Company's obligations under the
Registration Rights Agreement. In the event that the Company shall
consolidate or merge with any corporation in a transaction in which common
stock of the surviving corporation or the parent thereof (the "Exchange
Securities") is issued to the holders of Common Stock in such transaction
in exchange for all such Common Stock, and (a) the Exchange Securities are
publicly traded, (b) the average daily trading volume of the Exchange
Securities reported by Bloomberg during the ninety (90) day period ending
on the date on which such transaction is publicly disclosed is greater than
two million dollars ($2,000,000) per day, (c) the historical one hundred
(100) day volatility of the Exchange Securities reported by Bloomberg
during the period ending on the date on which such transaction is publicly
disclosed is greater than fifty percent (50%) and (d) the last sale price
of the Exchange Securities on the date immediately before the date on which
such transaction is publicly disclosed is not less than sixty five percent
(65%) of the last sale price of the Exchange Securities on any day during
the twenty (20) trading day period ending on such date (in each case as
reported by Bloomberg) (a "Common Stock Major Transaction"), then each
------------------------------
Holder shall following consummation of such transaction have the right to
receive solely, in exchange for each share of Preferred Stock held by it,
consideration equal to the number of shares of stock or securities or
property issued or paid in such Common Stock Major Transaction to which a
holder of the number of shares of Common Stock which would have been
delivered upon conversion of a share of Preferred Stock would have been
entitled upon such Common Stock Major Transaction had the Holder of such
share of Preferred Stock exercised its right of conversion (without regard
to any limitations on conversion herein or elsewhere contained) (at the
lesser of the Fixed Conversion Price and the Variable Conversion Price
(prior to, on or after May 15, 1999)) with respect to such share of
Preferred Stock on the trading date immediately preceding the public
announcement of the transaction resulting in such Common Stock Major
Transaction and had such Common Stock been issued and outstanding and had
such Holder been the holder of
<PAGE>
record of such Common Stock at the time of the consummation of such Common
Stock Major Transaction; and the Company shall make lawful provision
therefor as a part of such Common Stock Major Transaction and shall cause
the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume
all of the Company's obligations under the Registration Rights Agreement.
No sooner than ten (10) business days nor later than five (5) business days
prior to the consummation of the Major Transaction or Common Stock Major
Transaction, as the case may be, (each, a "Transaction") but not prior to
-----------
the public announcement of such Transaction, the Company shall deliver
written notice ("Notice of Transaction") to each Holder, which Notice of
---------------------
Transaction shall be deemed to have been delivered one (1) business day
after the Company's sending such notice by telecopy (provided that the
Company sends a confirming copy of such notice on the same day by overnight
courier) of such Notice of Transaction. Such Notice of Transaction shall
indicate the amount and type of the Transaction consideration which such
Holder would receive under this Section. If the Major Transaction
Consideration does not consist entirely of United States currency, such
Holder may elect to receive United States currency in an amount equal to
the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the
Company within five (5) business days of the Holder's receipt of the Notice
of Transaction."
NINTH: Article XI.C of the Certificate of Designations in corrected form
is as follows:
"C. Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merge
with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is
unchanged and unissued in such transaction (except for Common Stock
constituting less than twenty percent (20%) of the Company's Common Stock
then outstanding)) or there shall occur any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into
other securities or property or any reclassification or change of the
outstanding shares of Common Stock (each of the foregoing being a "Major
Transaction"), then each Holder shall thereafter be entitled to (a) in the
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each
of the foregoing cases which is publicly traded, retain its Preferred Stock
and such Preferred Stock shall continue to apply to such Common Stock or
shall apply, as nearly as practicable, to such other common stock or equity
interest, as the case may be, or (b) regardless of whether (a) applies,
receive consideration, in exchange for each share of Preferred Stock held
by it, equal to the greater of, as determined in the sole discretion of
such Holder: (i) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such Major Transaction (the
"Major Transaction Consideration"), to which a holder of the number of
--------------------------------
shares of Common Stock delivered upon conversion of such shares of
Preferred Stock would have been entitled upon such
<PAGE>
Major Transaction had the Holder exercised its right of conversion (without
regard to any limitations on conversion herein or elsewhere contained) (at
the lesser of the Fixed Conversion Price and the Variable Conversion Price
(prior to, on or after May 15, 1999)) on the trading date immediately
preceding the public announcement of the transaction resulting in such
Major Transaction and had such Common Stock been issued and outstanding and
had such Holder been the holder of record of such Common Stock at the time
of the consummation of such Major Transaction, and (ii) one hundred twenty
five percent (125%) of the Face Amount plus accrued and unpaid premiums of
such shares of Preferred Stock in cash; and the Company shall make lawful
provision for the foregoing as a part of such Major Transaction and shall
cause the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume
all of the Company's obligations under the Registration Rights Agreement.
In the event that the Company shall consolidate or merge with any
corporation in a transaction in which common stock of the surviving
corporation or the parent thereof (the "Exchange Securities") is issued to
the holders of Common Stock in such transaction in exchange for all such
Common Stock, and (a) the Exchange Securities are publicly traded, (b) the
average daily trading volume of the Exchange Securities reported by
Bloomberg during the ninety (90) day period ending on the date on which
such transaction is publicly disclosed is greater than two million dollars
($2,000,000) per day, (c) the historical one hundred (100) day volatility
of the Exchange Securities reported by Bloomberg during the period ending
on the date on which such transaction is publicly disclosed is greater than
fifty percent (50%) and (d) the last sale price of the Exchange Securities
on the date immediately before the date on which such transaction is
publicly disclosed is not less than sixty five percent (65%) of the last
sale price of the Exchange Securities on any day during the twenty (20)
trading day period ending on such date (in each case as reported by
Bloomberg) (a "Common Stock Major Transaction"), then each Holder shall
following consummation of such transaction have the right to receive
solely, in exchange for each share of Preferred Stock held by it,
consideration equal to the number of shares of stock or securities or
property issued or paid in such Common Stock Major Transaction to which a
holder of the number of shares of Common Stock which would have been
delivered upon conversion of a share of Preferred Stock would have been
entitled upon such Common Stock Major Transaction had the Holder of such
share of Preferred Stock exercised its right of conversion (without regard
to any limitations on conversion herein or elsewhere contained) (at the
lesser of the Fixed Conversion Price and the Variable Conversion Price
(prior to, on or after May 15, 1999)) with respect to such share of
Preferred Stock on the trading date immediately preceding the public
announcement of the transaction resulting in such Common Stock Major
Transaction and had such Common Stock been issued and outstanding and had
such Holder been the holder of record of such Common Stock at the time of
the consummation of such Common Stock Major Transaction; and the Company
shall make lawful provision for the foregoing as a part of such Common
Stock Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under the Registration
Rights Agreement to assume all of the Company's obligations under the
Registration Rights Agreement. No sooner than ten (10) business days nor
later than five (5) business days prior to the consummation of the Major
<PAGE>
Transaction or Common Stock Major Transaction, as the case may be, (each, a
"Transaction") but not prior to the public announcement of such
Transaction, the Company shall deliver written notice ("Notice of
---------
Transaction") to each Holder, which Notice of Transaction shall be deemed
-----------
to have been delivered one (1) business day after the Company's sending
such notice by telecopy (provided that the Company sends a confirming copy
of such notice on the same day by overnight courier) of such Notice of
Transaction. Such Notice of Transaction shall indicate the amount and type
of the Transaction consideration which such Holder would receive under this
Section. If the Major Transaction Consideration does not consist entirely
of United States currency, such Holder may elect to receive United States
currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of the
Holder's receipt of the Notice of Transaction."
<PAGE>
IN WITNESS WHEREOF, P-Com, Inc. has caused this Certificate to be executed
by the Chief Financial Officer of P-Com, Inc. this 23rd day of December, 1998.
/s/ Michael J. Sophie
------------------------------------
Michael J. Sophie
Chief Financial Officer
of P-Com, Inc.
<PAGE>
EXHIBIT 10.38
-------------
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
---------
December 21, 1998, by and among P-Com, Inc., a Delaware corporation (the
"Company"), with headquarters located at 3175 South Winchester Boulevard,
- --------
Campbell, California 95008 and the purchasers (each a "Purchaser" and together
---------
the "Purchasers") set forth on the execution pages hereof, with regard to the
----------
following:
RECITALS
--------
A. The Company and Purchasers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
---
as amended (the "Securities Act").
--------------
B. Purchasers desire to purchase, upon the terms and conditions stated in
this Agreement (and, as applicable, the Registration Rights Agreement (as
defined below)), (i) Series B Convertible Participating Preferred Stock of the
Company having the rights set forth in the Certificate of Designations,
Preferences and Rights (the "Certificate of Designation") attached hereto as
--------------------------
Exhibit A (the "Preferred Stock"), which shall be convertible into shares of the
- --------- ---------------
Company's Common Stock, par value $0.0001 per share (the "Common Stock") and
------------
(ii) a Warrant in the form of Exhibit B hereto (a "Warrant" and, when taken
--------- -------
together with all of the warrants issued hereunder, the "Warrants") entitling
--------
the holder thereof to purchase the number of shares (the "Warrant Shares") of
--------------
Common Stock as set forth below. The Preferred Stock and the Warrants are
sometimes collectively referred to herein as the "Convertible Securities." The
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Preferred Stock are referred to herein as the "Conversion Shares." The
-----------------
Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares are
collectively referred to herein as the "Securities."
----------
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
--------- -----------------------------
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws. The Certificate of Designation, the Warrants
and the Registration Rights Agreement, together with any other agreements,
documents and instruments to be delivered in connection with the transactions
contemplated hereby, are collectively referred to as the "Ancillary Documents".
-------------------
<PAGE>
AGREEMENTS
----------
NOW, THEREFORE, in consideration of their respective promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Purchaser
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase of Preferred Stock and Warrants. The purchase price (the
----------------------------------------
"Purchase Price") to be paid by each Purchaser for the Preferred Stock and
--------------
Warrant being purchased by such Purchaser shall be equal to $1,000 times the
-----
number of shares of Preferred Stock so purchased. Each Purchaser shall purchase
the number of shares of Preferred Stock set forth on the signature page executed
by such Purchaser.
On the date of the Closing (as defined herein), subject to the terms
and the satisfaction (or waiver) of the conditions set forth in Articles VI and
VII, the Company shall issue and sell to each Purchaser, and each Purchaser
shall purchase from the Company (i) the number of shares of Preferred Stock set
forth below such Purchaser's name on the signature pages hereof and (ii) a
Warrant entitling the holder thereof to purchase the number of Warrant Shares as
set forth in such Warrant. The aggregate purchase price for the Securities
purchased at the Closing shall be fifteen million dollars ($15,000,000).
1.2 Form of Payment. At the Closing, each Purchaser shall pay the
---------------
aggregate Purchase Price for the Preferred Stock and Warrant being purchased by
such Purchaser by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates for
the same, and the Company shall deliver such Preferred Stock and certificates
representing the Warrants against delivery of such aggregate Purchase Price. The
obligations in this Agreement of each Purchaser shall be separate from the
obligations of each other Purchaser and shall relate solely to the number of
shares to be purchased by such Purchaser. The obligations of the Company with
respect to each Purchaser shall be separate from the obligations of each other
Purchaser and shall not be conditioned as to any Purchaser upon the performance
of the obligations of any other Purchaser.
1.3 Closing Date. Subject to the satisfaction (or waiver) of the
------------
conditions set forth in Articles VI and VII below, the date and time of the
issuance, sale and purchase of the Securities pursuant to this Agreement shall
be as soon as practicable after execution of this Agreement, but in any event
within two (2) business days of the execution of this Agreement (the "Closing").
The Closing shall occur at 11:00 a.m. Chicago time, at the offices of Altheimer
& Gray, 10 S. Wacker Drive, Chicago, IL 60606. The date of the Closing is
hereinafter referred to as the "Closing Date."
2
<PAGE>
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself and
its purchase hereunder and not with respect to any other Purchaser or the
purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to
make or have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article II. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by a Purchaser
to the Company in connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior representations
and warranties, if any, shall not survive the execution and delivery of this
Agreement.
2.1 Purchase for Own Account. Purchaser is purchasing the Convertible
------------------------
Securities for investment and for Purchaser's own account and not with a view
toward or in connection with the public sale or distribution thereof. Purchaser
will not resell the Convertible Securities or any securities which may be issued
upon conversion thereof except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment until such time as the Convertible Securities and/or the
Conversion Shares are registered for resale pursuant to the Securities Act or an
exemption from such registration is available (and such securities are sold),
and that the Company has no present intention of registering the Convertible
Securities or the Conversion Shares other than as contemplated by the
Registration Rights Agreement. By making the representations in this Section
2.1, Purchaser does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of any of the Securities
at any time pursuant to a registration statement or an exemption from
registration under the Securities Act.
2.2 Accredited Investor Status. Purchaser is an "accredited investor" as
--------------------------
that term is defined in Rule 501(a) of Regulation D.
2.3 Reliance on Exemptions. Purchaser understands that the Convertible
----------------------
Securities are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Convertible Securities.
2.4 Information. Purchaser and its counsel have been furnished or given
-----------
access to all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Convertible
Securities which have been specifically requested by Purchaser. Purchaser has
been afforded the opportunity to ask questions of the Company and has received
what Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such
3
<PAGE>
inquiries nor any other due diligence investigation conducted by Purchaser or
any of its representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Article III.
Purchaser understands that Purchaser's investment in the Securities involves a
high degree of risk. Purchaser acknowledges that the Company's filings available
via the SEC's EDGAR document retrieval system as of November 20, 1998 shall be
deemed available to the Purchasers.
2.5 Governmental Review. Purchaser understands that no United States
-------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
2.6 Transfer or Resale. Purchaser understands that (i) except as provided
------------------
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be transferred unless subsequently registered thereunder or an exemption
from such registration is available (which exemption the Company expressly
agrees may be established as contemplated in clauses (b) and (c) of Section 5.1
hereof); (ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
--------
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act may
require compliance with some other exemption under the Securities Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement). The Company may issue stop
transfer instructions in the event that a Purchaser does not comply with the
provisions in this Section 2.6.
2.7 Legends. Purchaser understands that, subject to Article V hereof, the
-------
certificates for the Convertible Securities, and until such time as the
Conversion Shares or Warrant Shares (as the case may be) have been registered
under the Securities Act as contemplated by the Registration Rights Agreement or
may be sold by Purchaser pursuant to Rule 144 or otherwise without registration,
the certificates for the Conversion Shares or Warrant Shares (as the case may
be) will bear a restrictive legend (the "Legend") in the following form:
------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
4
<PAGE>
2.8 Authorization; Enforcement. This Agreement and the Registration
--------------------------
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms except as such
enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or
transfer, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth
---------
under Purchaser's name on the signature page hereto executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as of the date hereof
as set forth in this Article III. The Company makes no other representations or
warranties, express or implied, to any Purchaser in connection with the
transactions contemplated hereby and any and all prior representations and
warranties, if any, which may have been made by the Company to any Purchaser in
connection with the transactions contemplated hereby shall be deemed to have
been merged in this Agreement and any such prior representations and warranties,
if any, shall not survive the execution and delivery of this Agreement (provided
the foregoing shall not limit the scope of the Company's representation and
warranty in Section 3.9 hereof or any officer certification of the Company
delivered at the Closing).
3.1 Organization and Qualification. The Company and each of its
------------------------------
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
-----------------------
effect on either (i) the business, operations, properties, financial condition,
operating results or publicly-announced prospects (which prospects have not been
publicly modified prior to November 20, 1998) of the Company and its
subsidiaries, taken as a whole on a consolidated basis or (ii) the transactions
contemplated hereby or the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under this Agreement or any
Ancillary Document.
3.2 Authorization; Enforcement. (a) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, and to issue
and sell and perform its obligations with respect to, the Convertible Securities
in accordance with the terms hereof and to issue the Conversion Shares in
accordance with the terms and conditions of the Certificate of Designation and
the Warrant Shares in accordance with the terms and conditions of the Warrant;
(b) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company, the
5
<PAGE>
execution and filing of the Certificate of Designations and the execution and
delivery of the Warrant, and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Convertible Securities and the reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) have been duly authorized by all
necessary corporate action and, except as set forth on Schedule 3.2 hereof, no
------------
further consent or authorization of the Company, its board of directors, or its
stockholders or any other person, body or agency is required with respect to any
of the transactions contemplated hereby or thereby (whether under rules of the
Nasdaq National Market System ("Nasdaq"), the National Association of
--------
Securities Dealers or otherwise); (c) this Agreement, the Registration Rights
Agreement and the Convertible Securities have been (or will be when executed and
delivered) duly executed and delivered by the Company; and (d) this Agreement,
the Registration Rights Agreement and the Convertible Securities constitute (or
will, when issued, constitute) legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance
or transfer, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally.
3.3 Capitalization. The capitalization of the Company, including the
--------------
authorized capital stock, the number of shares issued and outstanding, the
number of shares reserved for issuance pursuant to the Company's stock option
and stock issuance plans, the number of shares reserved for issuance pursuant to
securities (other than the Convertible Securities and those shares reserved
under the Company's stock option and stock issuance plans) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares to be initially reserved for issuance upon conversion of the
Convertible Securities and the exercise of the Warrants is set forth on Schedule
--------
3.3. All of such outstanding shares of capital stock have been, or upon
- ---
issuance will be, validly issued, fully paid and non-assessable. No shares of
capital stock of the Company (including the Preferred Stock, the Conversion
Shares and the Warrant Shares) are subject to preemptive rights or to the
Company's knowledge after reasonable investigation any other similar rights of
the stockholders of the Company or any liens or encumbrances (other than as
caused by the Company's stockholders or the Purchasers). There are no
antidilution or any similar provisions triggered (either alone or together with
other action and either currently or after passage of time) by this Agreement or
the issuance of the Convertible Securities or any securities which may be issued
upon conversion or exercise thereof in accordance with the terms thereof.
Except as disclosed in Schedule 3.3, (i) there are no outstanding options,
------------
warrants, scrip, legally binding rights to subscribe for, legally binding calls
or legally binding commitments of any character whatsoever relating to, or
securities or legally binding rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries (or any securities exercisable or exchangeable therefor or
convertible thereto), or contracts, legally binding commitments, legally binding
understandings or legally binding arrangements by which the Company or any of
its subsidiaries is or may become (as a result of any of the foregoing in
existence as of the date hereof) legally bound to issue additional shares of
capital stock of the Company or any of its subsidiaries (or any such
securities), and (ii) there are no legally binding agreements or legally binding
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). The Company has furnished to
Purchaser true and
6
<PAGE>
correct copies of the Company's Certificate of Incorporation as currently in
effect ("Certificate of Incorporation"), and the Company's By-laws as currently
----------------------------
in effect (the "By-laws"). The Company has set forth on Schedule 3.3 all
------- ------------
instruments and agreements (other than the Certificate of Incorporation and By-
laws) governing securities convertible into or exercisable or exchangeable for
Common Stock of the Company (or any such securities) (and the Company shall
provide to Purchaser copies thereof upon the request of Purchaser). The Company
shall provide Purchaser with a written update of this representation signed by
the Company's Chief Executive Officer or Chief Financial Officer on behalf of
the Company as of the date of the Closing.
3.4 Issuance of Shares. The Conversion Shares and Warrant Shares are duly
------------------
authorized and reserved for issuance, and, upon conversion or exercise (as the
case may be) of the Convertible Securities in accordance with the terms thereof,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances, except as created by the Purchasers, and will
not be subject to preemptive rights, except as created by the Purchasers, or to
the Company's knowledge after reasonable investigation other similar rights of
stockholders of the Company. The Convertible Securities are duly authorized and
reserved for issuance, and are validly issued, fully paid and non-assessable,
and free from all taxes, liens claims and encumbrances (except as granted by the
Purchasers) and are not and will not be subject to preemptive rights (except as
granted by the Purchasers) or to the Company's knowledge after reasonable
investigation other similar rights of stockholders of the Company (other than as
created by the Purchasers). The Certificate of Designations has been duly filed
(or will be) as of the Closing Date with the Secretary of State of the State of
Delaware, and the Preferred Stock is (or shall be upon such filing) entitled to
all of the rights, preferences and privileges set forth therein. The Board of
Directors of the Company (the "Board") has unanimously approved the issuance of
shares of Common Stock upon conversion of shares of Preferred Stock and upon the
exercise of the Warrants pursuant to the terms hereof and thereof, including the
circumstance where such conversion would, in the aggregate, require issuance in
excess of twenty percent (20%) of the outstanding shares of Common Stock (the
"Rule 4460(i) Authorization") and has unanimously recommended to the
- ---------------------------
stockholders of the Company the approval of the Rule 4460(i) Authorization.
Accordingly, no further corporate authorization or approval (other than the
Stockholder Approval (as defined in Section 4.13)) is required under the rules
of Nasdaq with respect to the transaction contemplated by this Agreement,
including, without limitation, the issuance of the Conversion Shares and the
Warrant Shares and the inclusion thereof on Nasdaq.
3.5 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the Registration Rights Agreement by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for issuance, as
applicable, of the Convertible Securities, Conversion Shares and the Warrant
Shares) does not and will not (a) result in a violation of the Certificate of
Incorporation or By-laws, (b) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party (except for such conflicts, defaults,
terminations, amendments, accelerations, and cancellations as would not,
individually or in the aggregate, have a Material
7
<PAGE>
Adverse Effect), or (c) result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries, or by which any property or asset of the Company or any of its
subsidiaries, is bound or affected. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation, by-laws or
other organizational documents, and neither the Company nor any of its
subsidiaries is in default (and no event has occurred which, with notice or
lapse of time or both, would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, except for possible defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted, in
violation of any law, ordinance, rule, regulation, order, judgment or decree of
any governmental entity, court or arbitration tribunal except for possible
violations the sanctions for which either singly or in the aggregate would not
have a Material Adverse Effect. Except as set forth on Schedule 3.5, the
------------
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or the Convertible Securities or to perform its
obligations in accordance with the terms hereof or thereof. The Company is not
in violation of the listing requirements of Nasdaq and does not reasonably
anticipate that the Common Stock will be de-listed by Nasdaq for the foreseeable
future.
3.6 Registration and SEC Documents. The Common Stock is registered under
------------------------------
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and has been so registered since March 2, 1995. Except as disclosed in
Schedule 3.6, since March 2, 1995, the Company has timely filed all reports,
- ------------
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed after March 2, 1995 and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being referred to herein as the "SEC Documents"). The
-------------
Company has delivered or made available to each Purchaser true and complete
copies of the SEC Documents, except for exhibits, schedules and incorporated
documents (the SEC Documents filed prior to November 20, 1998, collectively, the
"Filed SEC Documents"). As of their respective dates, the SEC Documents complied
-------------------
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is
currently required to be updated or amended under applicable law and has not
been updated or amended in a subsequent filing with the SEC by November 20,
1998. The financial statements of the Company included in the SEC Documents have
been prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, and the rules and regulations of the SEC during the
periods involved (except (i) as may be otherwise indicated in such financial
8
<PAGE>
statements or the notes thereto, or (ii) in the case of unaudited interim
financial statements, to the extent they do not include footnotes or are
condensed or summary statements) and present accurately and completely the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, immaterial year-end audit adjustments). Except as clearly
set forth as an actual or potential liability of the Company in the Filed SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred subsequent to the date of such financial statements in
the ordinary course of business consistent with past practice and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, in each case of clause (i) and (ii) next
above which, individually or in the aggregate, are not material to the financial
condition, business, operations, properties, operating results or publicly-
announced prospects (which prospects have not been publicly modified prior to
November 20, 1998) of the Company and its subsidiaries taken on a whole. Except
as otherwise permitted by the rules and regulations of the SEC, the Filed SEC
Documents contain a complete and accurate list or description of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"). None of the Company, its
--------
subsidiaries or, to the knowledge of the Company, any of the other parties
thereto, is in breach or violation (or breach or violation alleged in writing)
of any Contract, which breach or violation (or breach or violation alleged in
writing) would have a Material Adverse Effect. Except as clearly set forth as
such in the Filed SEC Documents, no event, occurrence or condition exists which,
with the lapse of time, the giving of notice, or both, or the happening of any
further event or condition, would become a breach or default by the Company or
its subsidiaries under any Contract which breach or default would have a
Material Adverse Effect.
3.7 Absence of Certain Changes. Since December 31, 1997, there has been
--------------------------
no material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations or
publicly-announced prospects (which prospects have not been publicly modified
prior to November 20, 1998) of the Company, except as disclosed in Schedule 3.7
------------
or as clearly disclosed as such in the Filed SEC Documents filed with the SEC
since December 31, 1997.
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8, there is
--------------------- ------------
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against the Company, any of its subsidiaries, or any of their
respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect. To
the knowledge of the Company, there are no facts which, if known by a potential
claimant or governmental agency or authority, would reasonably be expected to
have a Material Adverse Effect.
9
<PAGE>
3.9 Disclosure. No information (written or oral) relating to or concerning
----------
the Company and set forth in this Agreement or provided to Purchaser in
connection with the transactions contemplated hereby contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No material adverse
fact (within the meaning of the federal securities laws of the United States)
exists with respect to the Company or any of its subsidiaries which has not been
publicly disclosed. The Company has not provided any Purchaser with any material
non-public information. In making the foregoing representation and warranty, it
is understood and agreed to that the Company has not provided any Purchaser with
any projections prepared by or on behalf of the Company or any assurances
concerning future stock prices.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
---------------------------------------------------------------
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by Purchaser, or
any of its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents to Purchaser that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
has been based solely on an independent evaluation by the Company and its
representatives.
3.11 Current Public Information. The Company is currently eligible to
---------------------------
register the resale of the Conversion Shares for the account of the Purchasers
on a registration statement on Form S-3 under the Securities Act.
3.12 No General Solicitation. Neither the Company, nor to the Company's
-----------------------
knowledge after reasonable investigation any person acting on behalf of the
Company, has conducted any "general solicitation," as described in Rule 502(c)
under Regulation D, with respect to any of the Securities being offered hereby.
3.13 No Integrated Offering. Neither the Company, nor to the Company's
----------------------
knowledge after reasonable investigation any of its affiliates, nor to the
Company's knowledge after reasonable investigation any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under the Securities Act
pursuant to the provisions of Regulation D. The transactions contemplated hereby
are exempt from the registration requirements of the Securities Act, assuming
the accuracy of the representations and warranties herein contained of each
Purchaser to the extent relevant for such determination.
10
<PAGE>
3.14 No Brokers. The Company has taken no action which would give rise to
----------
any claim by any person for brokerage commissions, finder's fees or similar
payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with PaineWebber Incorporated (the fees
of which shall be paid in full by the Company).
3.15 Acknowledgment of Dilution. The number of Conversion Shares issuable
--------------------------
upon conversion of the Convertible Securities may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. The Company's executive officers and directors
understand the nature of the securities being issued and sold hereunder and
recognize that they have a potential dilutive effect. The board of directors of
the Company has unanimously concluded in its good faith business judgment that
such issuance is in the best interests of the Company. The Company acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Stock and the Warrant Shares upon exercise of the Warrants is binding upon it
and enforceable regardless of the dilution that such issuance may have on the
ownership interests of other stockholders.
3.16 Intellectual Property. Each of the Company and its subsidiaries owns
---------------------
or possesses adequate and enforceable rights to use all material patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar material rights and
proprietary knowledge (collectively, "Intangibles") used or necessary for the
-----------
conduct of its business as now being conducted and as previously described in
the Company's Annual Report on Form 10-K for its most recently ended fiscal
year. Except as clearly specified in the Filed SEC Documents, to the Company's
knowledge after reasonable investigation, neither the Company nor any subsidiary
of the Company infringes on or is in conflict with any right of any other person
with respect to any Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its subsidiaries, which
infringement, conflict or claim, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
3.17 Foreign Corrupt Practices. To the Company's knowledge after
-------------------------
reasonable investigation, neither the Company, nor any of its subsidiaries, nor
to the Company's knowledge after reasonable investigation, any director,
officer, agent, employee or other person acting on behalf of the Company or any
subsidiary has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or, to the Company's knowledge after
reasonable investigation, is currently in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee. Without limiting the generality of the
foregoing, to the Company's knowledge after reasonable investigation, the
Company and its subsidiaries have not directly or indirectly made or agreed to
make (whether or not said payment is lawful) any payment to obtain, or with
respect to, sales other than
11
<PAGE>
usual and regular compensation to its or their employees and sales
representatives with respect to such sales.
3.18 Inapplicability of Rights Agreement. The Company and the Board have
-----------------------------------
heretofore taken all necessary action and the Rights Agreement (as defined
below) has heretofore been amended so that (a) no Purchaser (or any
transferee, other than a Competitor (as herein defined), of Convertible
Securities approved by the Company's Board of Directors, which approval shall
not be unreasonably withheld) has ever been or will ever be included in the
definition of "Acquiring Person" under the Company's Amended and Restated
Rights Agreement dated as of December 18, 1998 between the Company and
BankBoston, N.A. (the "Rights Agreement") by virtue of entry into this
Agreement, any of the transactions contemplated hereby or the acquisition by
such Purchaser (or such transferee) of any or all of the Securities and (b)
none of the entry into this Agreement, any of the transactions contemplated
hereby or the acquisition of Securities by the Purchaser (or any transferee,
other than a Competitor, of Convertible Securities approved by the Company's
Board of Directors, which approval shall not be unreasonably withheld) has
ever caused or will ever cause under any circumstances whatsoever any adverse
consequence to any of the Purchasers (or any of such transferees) or the
Company pursuant to the Rights Agreement, including, without limitation, the
occurrence of a Distribution Date (as defined in the Rights Agreement) or any
adjustment to the Purchase Price (as defined in the Rights Agreement).
ARTICLE IV
COVENANTS
4.1 Best Efforts. The Company and each Purchaser shall use their best
------------
efforts to timely cause to be satisfied (consistent with the terms of the
Transaction Documents (as defined herein)) each of the conditions described in
Articles VI and VII of this Agreement.
4.2 Securities Laws. The Company agrees to file a Form D with respect to
---------------
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser or its counsel on or within twenty (20) days of the
date of the Closing. The Company shall, on or prior to the date of the Closing,
take such action as is necessary to sell the Securities to each Purchaser in
accordance with applicable securities laws of the states of the United States,
and shall provide evidence of any such action so taken to each Purchaser on or
prior to the date of the Closing. Without limiting any of the Company's
obligations under this Agreement, the Registration Rights Agreement or the
Certificate of Designation or the Convertible Securities, from and after the
date of the Closing, neither the Company nor any person acting on its behalf
shall take any action which would adversely affect any exemptions from
registration under the Securities Act with respect to the transactions
contemplated hereby.
4.3 Reporting Status. So long as any Purchaser beneficially owns any of
----------------
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
12
<PAGE>
4.4 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Preferred Stock and the Warrants for working capital and general corporate
purposes.
4.5 Restriction on Issuance of Securities. For a period of three hundred
-------------------------------------
and sixty five (365) days following the date of the Closing, the Company shall
not issue or agree to issue (except (i) to Purchasers and their assignees
pursuant to this Agreement and the Ancillary Agreements, (ii) to an industry
partner(s) as part of "strategic investments" in the Company, (iii) in
connection with the grant and/or exercise of options by employees, consultants
or directors, (iv) in connection with direct stock issuances to employees,
consultants or directors, (v) in exchange solely for existing securities, (vi)
in exchange for the Securities, (vii) pursuant to the Stockholders Rights Plan
and the Series A Preferred Stock, as amended, (viii) in connection with
acquisitions of other companies, material technologies or business entities,
(ix) to equipment lessors or banks as an incentive in connection with an
ordinary course of business equipment financings or commercial loans which is
primarily for non-equity financing purposes, and (x) shares of Common Stock in
accordance with Article V of the Company's indenture dated November 1, 1997 and
Paragraph Nine of the notes thereunder) any equity securities at a price less
than the fair market value thereof or any variably or re-set priced equity
securities or equity like securities of the Company (or any security convertible
into or exercisable or exchangeable, directly or indirectly, for equity or
equity like securities of the Company) (each of the foregoing being a
"Restricted Security").
-------------------
4.6 Expenses. The Company shall pay to each Purchaser, or at its
--------
direction, at the Closing, reimbursement for the expenses reasonably incurred
by it and its affiliates and advisors in connection with the negotiation,
preparation, execution, and delivery of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, such
Purchaser's and its affiliates' and advisors' due diligence and attorneys' fees
and expenses (including the review and/or preparation of this Agreement, the
Certificate of Designation, the Warrant and the Registration Rights Agreement
(collectively, the "Transaction Documents"), the associated Registration
---------------------
Statement and all related due diligence and other documents) (the "Expenses");
--------
provided, however, that such reimbursement of Expenses for all Purchasers
shall not exceed $75,000 in the aggregate. In addition, from time to time
thereafter, upon any Purchaser's written request, subject to such $75,000
aggregate limit, the Company shall pay to such Purchaser such Expenses, if
any, not so paid at the Closing and/or covered by such payment, in each case
to the extent reasonably incurred by such Purchaser.
4.7 Information. The Company agrees to send the following reports to each
-----------
Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (a) within five (5) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within one (1) day after
release, copies of all material press releases issued by the Company or any of
its subsidiaries. The Company further agrees to promptly provide to any
Purchaser any information with respect to the Company, its properties, or its
business or Purchaser's investment as such Purchaser may reasonably request in
writing; provided, however, that the Company shall not be required to give any
Purchaser any material non-public information. If any information requested by a
Purchaser from the Company
13
<PAGE>
contains material non-public information, the Company shall inform the Purchaser
in writing that the information requested contains material non-public
information and shall in no event provide such information to Purchaser without
the express prior written consent of such Purchaser after being so informed;
provided, however, that the Company shall not be required to give any Purchaser
information subject to the attorney-client privilege or attorney work product
privileges. To the extent any such information is confidential, Purchaser agrees
to execute a customary confidentiality agreement prior to receipt of such
information.
4.8 [Intentionally Deleted]
4.9 Listing. For so long as any Purchaser owns any of the Securities, the
-------
Company shall use its best efforts to continue the listing and trading of its
Common Stock on The Nasdaq SmallCap Market, Nasdaq, the New York Stock Exchange,
the American Stock Exchange, or, in accordance with the Certificate of
Designation, on the over-the-counter electronic bulletin board, secure and
maintain listing and trading of the Conversion Shares and Warrant Shares on such
exchange, and comply in all material respects with the Company's reporting,
filing and other obligations under the by-laws or rules of such exchange.
4.10 Prospectus Delivery Requirement. Each Purchaser understands that the
-------------------------------
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by such Purchaser of the Common Stock
being sold, and each Purchaser shall comply with the applicable prospectus
delivery requirements of the Securities Act in connection with any such sale.
4.11 [Intentionally Deleted]
4.12 Corporate Existence. Without limiting any rights of the holders of
-------------------
Preferred Stock or Warrants, so long as any Purchaser beneficially owns any
Preferred Stock or Warrants, the Company shall maintain its corporate existence,
except in the event of a merger, consolidation or sale of all or substantially
all of the Company's assets, as long as the surviving or successor entity in
such transaction assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all Preferred Stock outstanding as of the date of such
transaction.
4.13 Share Authorization. The Company shall, unless otherwise consented to
-------------------
by each initial Holder (as defined in the Certificate of Designation), use its
best efforts to obtain the Stockholder Approval (as defined below) no later
than the Approval Date (as defined below). For purposes hereof, the "Approval
--------
Date" means the earliest to occur of (i) sixty (60) days (one hundred and five
- ----
(105) days in the event of SEC review of the Company's proxy statement with
respect to Stockholder Approval) following the earlier of a Trading Market
Trigger Event (as herein defined) or the issuance to any Holder upon conversion
of the Preferred Stock and/or exercise of the Warrants of a number of shares of
the Company's Common Stock equal to 3.3% of the Company's outstanding
14
<PAGE>
Common Stock as of the Closing Date, (ii) six (6) months from the Closing Date,
or (iii) the Company's next annual meeting of stockholders. For purposes hereof,
"Stockholder Approval" means authorization by the stockholders of the Company of
--------------------
the issuance of shares of Common Stock upon conversion of shares of Preferred
Stock pursuant to the terms hereof and the exercise of the Warrants pursuant to
the terms thereof in the aggregate in excess of twenty percent (20%) of the
outstanding shares of Common Stock and, if necessary, the elimination of any
prohibitions under the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities on the Company's ability to issue shares of
Common Stock in excess of the Cap Amount (as defined in the Certificate of
Designation). In addition, the Company shall, unless otherwise consented to by
each initial Holder, have a definitive proxy statement mailed to each
stockholder of the Company at least twenty (20) days prior to the Approval Date.
The Company shall deliver any SEC comments it receives with respect to its proxy
statement to each Holder and will not file such proxy statement (or any
revisions thereto), whether such proxy statement is in preliminary or definitive
form, without the approval of each initial Holder (as defined in the
Certificate of Designation), which approval shall not be unreasonably withheld
or delayed.
4.14 Conduct of Business. So long as any Purchaser beneficially owns any
-------------------
Securities, the business of the Company and its subsidiaries shall not be
conducted in violation of any law, ordinance, rule, regulation, order, judgement
or decree of any governmental entity, court or arbitration tribunal except for
possible violations the sanctions for which either singularly or in the
aggregate, would not have a Material Adverse Effect.
4.15 Indemnification. The Company will indemnify each Purchaser from and
---------------
against any fees and expenses sought or other claims made by PaineWebber
Incorporated relating to this Agreement and the transactions contemplated
hereby.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 Removal of Legend. The Legend shall be removed and the Company shall
-----------------
issue a certificate without any legend to the holder of any Security upon which
such Legend is stamped, and a certificate for a Security shall be originally
issued without the Legend, unless otherwise required by applicable state
securities laws if (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary or otherwise reasonable for
opinions of counsel (with the expense of such opinion paid by such holder) in
comparable transactions to the effect that a sale or transfer of such Security
may be made without registration under the Securities Act and without the
inclusion of the Legend on the certificate for such Security or (c) such
Security can be sold pursuant to Rule 144. Each Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Securities Act. In the event the Legend is
15
<PAGE>
removed from any Security or any Security is issued without the Legend and
thereafter such Security may not be sold pursuant to an effective registration
statement under the applicable securities laws, then upon reasonable advance
notice to Purchaser holding such Security, the Company may require that the
Legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or Rule 144 or with respect to which the
opinion referred to in clause (b) next above has not been rendered, which Legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or Rule 144 or such holder provides the opinion with
respect thereto described in clause (b) next above.
5.2 Transfer Agent Instructions. The Company shall instruct its transfer
---------------------------
agent to issue certificates, registered in the name of each Purchaser or its
nominee, for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by such Purchaser to the Company upon, and in
accordance with, the conversion of the Preferred Stock and the exercise of the
Warrants. Such certificates shall bear a legend only in the form of the Legend
and only to the extent permitted by Section 5.1 above. The Company warrants
that no instruction other than such instructions referred to in this Article V,
and no stop transfer instructions other than stop transfer instructions (i) to
give effect to Section 2.6 hereof in the case of the Conversion Shares prior to
registration of the Conversion Shares under the Securities Act, (ii) to comply
with SEC or court order and (iii) to suspend the use of the Company's then
effective Registration Statement(s) in the event an amendment or supplement
thereto must be filed in order to make a statement therein not misleading or to
correct the omission of a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, but, in the case of this clause (iii), only with respect to
transfers under such Registration Statement and only during the pendency of a
"Permitted Blackout" (as defined in the Registration Rights Agreement), will be
------------------
given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way a Purchaser's obligations and
agreement set forth in Section 5.1 hereof to re-sell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. In addition, if (a) a Purchaser
provides the Company with an opinion of counsel, which opinion of counsel shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions and reasonably satisfactory to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) a Purchaser transfers Securities to an
affiliate or pursuant to Rule 144, the Company shall permit the transfer, and,
in the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Purchaser in order to effect such a transfer
or sale. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Article V will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Article V, that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss
16
<PAGE>
and without any bond or other security being required. Purchasers shall not
knowingly transfer or otherwise dispose of, in any private off-market offering,
any Convertible Securities to any Competitor of the Company (or any of its
subsidiaries). For purposes of this section, "Competitor" shall mean any person
----------
or entity engaged in the manufacture, sale, distribution, installation,
relocation, engineering, commissioning or program management of microwave radio
equipment that directly competes with the Company.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 Conditions to the Company's Obligation to Sell. The obligation of the
----------------------------------------------
Company hereunder to issue and sell the Convertible Securities to a Purchaser at
the Closing is subject to the satisfaction, as of the date of the Closing and
with respect to such Purchaser, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(i) Such Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(ii) Such Purchaser shall deliver the applicable Purchase Price for
the Convertible Securities purchased at the Closing.
(iii) The representations and warranties of such Purchaser shall be
true and correct as of the date when made and as of the Closing as though
made at that time, and such Purchaser shall have performed, satisfied and
complied in all material respects with the covenants and agreements
required by this Agreement to be performed or complied with by such
Purchaser at or prior to the Closing.
(iv) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the
transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 Conditions to the Closing. The obligation of each Purchaser
-------------------------
hereunder to purchase the Convertible Securities to be purchased by it on the
date of the Closing is subject to the satisfaction of each of the following
conditions, provided that these conditions are for each Purchaser's sole benefit
and may be waived by such Purchaser (with respect to it) at any time in such
Purchaser's sole discretion:
17
<PAGE>
(i) The Company shall have executed the signature page to this
Agreement, the Warrant and the Registration Rights Agreement and delivered
the same to Purchaser.
(ii) The Company shall have delivered duly executed certificates for
the Preferred Stock (in such denominations as Purchaser shall reasonably
request) and the Warrant being so purchased by Purchaser at the Closing.
(iii) The Common Stock shall be listed on Nasdaq, the New York Stock
Exchange or the American Stock Exchange and trading in the Common Stock
shall not have been suspended by Nasdaq, the New York Stock Exchange or the
American Stock Exchange, the SEC or other regulatory authority and no de-
listing or suspension shall be reasonably likely for the foreseeable
future.
(iv) The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as
of the Closing as though made at that time and the Company shall have
performed, satisfied and complied in all material respects with the
covenants and agreements required by any of this Agreement or the
Ancillary Documents to be performed or complied with by the Company at or
prior to the Closing. Purchaser shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of the
Company, dated as of the Closing to the foregoing effect and as to such
other matters as may be reasonably requested by Purchaser.
(v) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(vi) Purchaser shall have received the officer's certificate
described in Section 3.3, dated as of the Closing.
(vii) Purchaser shall have received an opinion of the Company's
outside legal counsel, dated as of the Closing from Brobeck, Phleger &
Harrison LLP and in form and substance reasonably acceptable to Purchasers.
(viii) The Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
---------
(ix) The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to Purchaser and the Certificate of Designation shall not have
been amended, modified or rescinded.
18
<PAGE>
(x) The Company shall have received and delivered to Purchaser the
third amendment under its existing credit facility with Union Bank, N.A.
and Bank of America (the "Credit Agreement") and the Security Agreement
thereunder, in each case satisfactory to Purchaser in its sole discretion.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts
located in the State of Delaware and the state courts located in the County of
New Castle in the State of Delaware in any suit or proceeding based on or
arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by the first
class mail shall be deemed in every respect effective service of process upon
the Company in any suit or proceeding arising hereunder. Nothing herein shall
affect Purchaser's right to serve process in any other manner permitted by law.
The parties hereto agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
8.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
8.3 Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
8.5 Scope of Agreement; Amendments. Except as specifically set forth
------------------------------
herein, no Purchaser makes any representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this
19
<PAGE>
Agreement may be amended other than by an instrument in writing signed by the
Company, each initial Purchaser and Purchasers holding a majority in interest of
the Convertible Securities.
8.6 Notice. Any notice herein required or permitted to be given shall be
------
in writing and may be personally served or delivered by courier or by facsimile-
machine confirmed telecopy, and shall be deemed delivered at the time and date
of receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
If to any Purchaser, to such address set forth under such Purchaser's name on
the signature page hereto executed by such Purchaser. Each party shall provide
notice to the other parties of any change in address.
8.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each Purchaser may assign its rights and
obligations hereunder to any of its "affiliates," as that term is defined under
the Exchange Act, and to any permitted purchaser of Convertible Securities (in
connection with a permitted transfer) without the consent of the Company so long
as such affiliate or purchaser is an accredited investor and signs an assumption
agreement. This provision shall not limit each Purchaser's right to transfer the
Securities pursuant to the terms of this Agreement. In addition, and
notwithstanding anything to the contrary contained in this Agreement, the
Certificate of Designation, the Warrants or the Registration Rights Agreement,
the Securities may be pledged, and all rights of Purchaser under this Agreement
or any other agreement or document related to the transaction contemplated
hereby may be assigned, without further consent of the Company, to a bona fide
pledgee in connection with a Purchaser's margin or brokerage accounts.
20
<PAGE>
8.8 Third Party Beneficiaries. This Agreement is intended for the benefit
-------------------------
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 Survival. The representations and warranties and the agreements and
--------
covenants set forth in Articles II, III, IV, V and VIII shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of Purchaser. Notwithstanding such survival, no party shall bring
any claim or action after the second (2nd) anniversary of the Closing Date based
upon a breach of such representations and warranties. The Company agrees to
indemnify and hold harmless each Purchaser and each of each Purchaser's
officers, directors, employees, partners, agents and affiliates for actual loss
or damage to the extent arising as a result of (a) any breach by the Company of
any of its representations or covenants set forth herein or (b) any cause of
action, suit or claim brought or made against such indemnitee, other than by the
Company solely for breach of this Agreement or any of the other Transaction
Documents by the indemnitee or by governmental or regulatory authorities, and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto or contemplated hereby, any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Preferred Stock or the status of any Purchaser as an
investor in the Company, except to the extent that such actual loss or damage
directly results from a breach by such indemnitee of this Agreement or any of
the Other Transaction Documents or from a violation of law. The right to
indemnification shall include the right to advancement of expenses as they are
incurred.
8.10 Public Filings; Publicity. Immediately following execution of this
-------------------------
Agreement, the Company shall issue a press release with respect to the
transactions contemplated hereby. Prior to the expiration of three (3) days
following the date of the Closing, the Company shall file a Form 8-K regarding
the transaction contemplated by this Agreement; such Form 8-K shall have as
exhibits thereto this Agreement, the Certificate of Designation, the Warrant and
the Registration Rights Agreement. The Company and each Purchaser shall have
the right to review before issuance any press releases (including the foregoing
press release), SEC or other filings, or any other public statements, with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Purchaser, to make
any press release or SEC, Nasdaq, NASD or exchange filings with respect to such
transactions as is required by applicable law and regulations (although each
Purchaser shall (to the extent time permits) be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof). Notwithstanding the foregoing, without further
review or approval by the Purchasers or the consent of the Purchasers (provided
such filing or press release was originally reviewed and consented to by the
Purchasers, such filing or press release is not misleading, such filing or press
release has not been subsequently determined to be incorrect in any material
respect and the Purchasers do not otherwise reasonably request changes to or
restrictions on use of such descriptions) the Company may continue to use the
descriptions in the initial press release, the Form 8-K filing (if such filing
has been previously reviewed and approved by the Purchasers), or any other press
release or SEC filing previously reviewed by the Purchasers to describe the
transactions contemplated hereby in future public SEC filings as required by
law.
21
<PAGE>
8.11 Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 Remedies. No provision of this Agreement providing for any remedy to
--------
a Purchaser or the Company shall limit any remedy which would otherwise be
available to such Purchaser or the Company at law or in equity. Nothing in this
Agreement shall limit any rights a Purchaser or the Company may have under any
applicable federal or state securities laws with respect to the investment
contemplated hereby.
8.13 Termination. In the event that the Closing shall not have occurred
-----------
within two (2) business days of the execution of this Agreement, unless the
parties agree otherwise, this Agreement shall terminate. No such termination
shall relieve a party of its breach of this Agreement prior to such termination.
8.14 No Reliance. Each party acknowledges, without limiting any
-----------
representations or warranties or rights or obligations under this Agreement or
the Ancillary Documents, that (i) it has such knowledge in business and
financial matters as to be fully capable of evaluating the Transaction Documents
and the transactions contemplated hereby and thereby, (ii) it is not relying on
any advice or representation or warranty of the other party in connection with
entering into the Transaction Documents or such transactions (other than the
representations made in this Agreement or the Registration Rights Agreement or
certificates delivered at closing), and (iii) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary.
8.15 Integration. This Agreement, the Certificate of Designation, Warrants
-----------
and the Registration Rights Agreement (including all schedules and exhibits
thereto and all certificates and opinions and other documents required thereby)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Certificate of Designation, the Warrants and the
Registration Rights Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
* * *
22
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
BY: Castle Creek Partners LLC
ITS: Managing Member
BY: /s/ John D. Ziegelman
----------------------
NAME: John D. Ziegelman
TITLE: Managing Member
ADDRESS: COPY TO:
----------------------- --------------------
AGGREGATE NUMBER OF PREFERRED SHARES:
------
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
BY: /s/ Allan Weine
---------------
NAME: Allan Weine
Title: President
ADDRESS: COPY TO:
----------------------- --------------------
AGGREGATE NUMBER OF PREFERRED SHARES:
------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
BY: Heights Capital Management, Inc.
ITS: Authorized Agent
BY: /s/ Michael L. Spolan
----------------------
NAME: Michael L. Spolan
TITLE: General Counsel and Secretary
ADDRESS: COPY TO:
----------------------- --------------------
AGGREGATE NUMBER OF PREFERRED SHARES:
------
COMPANY:
BY: /s/ George P. Roberts
----------------------
NAME: George P. Roberts
TITLE: Chairman and Chief Executive Officer
23
<PAGE>
EXHIBIT 10.39
-------------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
---------
December 21, 1998, by and among P-Com, Inc. a Delaware corporation (the
- --------
"Company"), with headquarters located at 3175 South Winchester Boulevard,
Campbell, California, 95008 and the undersigned (the "Initial Purchasers").
------------------
RECITALS
--------
A. In connection with the Securities Purchase Agreement dated of even date
herewith by and among the Company and the Initial Purchasers (the "Securities
----------
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
- ------------------
conditions contained therein, to issue and sell to the Initial Purchasers (i)
shares of Series B Convertible Participating Preferred Stock of the Company (the
"Preferred Stock") that is convertible into shares (the "Conversion Shares") of
--------------- -----------------
the Company's common stock, par value $0.0001 per share (the "Common Stock")
------------
upon the terms and subject to the limitations and conditions set forth in the
Certificate of Designations, Preferences and Rights with respect to such
Preferred Stock (the "Certificate of Designation"), in the form attached as
--------------------------
Exhibit A to the Securities Purchase Agreement, and (ii) a Warrant (a "Warrant"
-------
and, when take together with all of the warrants issuable under the Securities
Purchase Agreement, the "Warrants") entitling the holder thereof to purchase the
--------
number of shares of Common Stock set forth in the Warrant (the "Warrant
-------
Shares").
- ------
B. To induce the Initial Purchasers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
--------------
AGREEMENTS
----------
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, and the Initial
Purchasers hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
<PAGE>
(a) "Purchasers" means the Initial Purchasers and any transferees
----------
or assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof or who otherwise take rights under this
Agreement in accordance with the terms hereof.
(b) "register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
--------
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
---
(c) "Registrable Securities" means the Conversion Shares issued
----------------------
or issuable with respect to the Preferred Stock, Warrant Shares issued or
issuable with respect to the Warrants (in each case without regard to any
limitations on conversion or exercise), any Common Stock issued upon conversion
of Preferred Stock issued pursuant to Section 2.3 hereof, and any shares of
capital stock issued or issuable, from time to time (with any adjustments) on or
in exchange for or otherwise with respect to the Common Stock or any other
Registrable Securities (including, without limitation, in the event of a Major
Transaction or a Common Stock Major Transaction (in each case as defined in
the Certificate of Designation and the Warrant).
(d) "Registration Statement" means any registration statement of
----------------------
the Company under the Securities Act subject to or pursuant to Article II or
another provision of this Agreement, as applicable.
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
-----------------
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
------------
2.1 Initial Registration. The Company shall prepare, and, on or prior to
--------------------
twenty (20) business days after the date of the Closing (the "Filing Date"),
-----------
file with the SEC a Registration Statement on Form S-3 covering the resale of
all of the Registrable Securities. The Registration Statement shall include at
least 11 million shares of Common Stock. The Registrable Securities included in
the Registration Statement shall be allocated among the Purchasers as set forth
in Section 11.11 hereof. The Registration Statement (and each amendment or
material supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided to (and subject to the approval of (which approval
shall not be unreasonably withheld or denied)) the Initial Purchasers and their
counsel prior to its filing. After receiving the Registration Statement, each
Initial Purchaser shall provide the Company with either its approval of the
Registration Statement or its comments or corrections to the Registration
Statement within five (5) business days of receipt of the draft Registration
Statement. Any Initial Purchaser who does not respond with approval or comments
2
<PAGE>
within five business days shall be deemed to approve the Registration Statement.
Without limiting the Company's obligations under this Section, if Form S-3 is
not available to the Company in connection with re-sales, the Company shall file
a Registration Statement on such form as is then available to effect a
registration, subject to the consent of each Initial Purchaser (as determined
pursuant to Section 11.10 hereof) as to the form used for such filing.
2.2 Underwritten Offering. If any offering pursuant to a Registration
---------------------
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
Purchasers who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of each Initial Purchaser,
shall have the right to select a total of one legal counsel to represent the
Purchasers and an investment banker or bankers and manager or managers to
administer the offering, which counsel and investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company.
2.3 Payments by the Company. The Company shall use its best efforts to
-----------------------
cause the registration statement to become effective as soon as practicable, but
in no event later than the ninetieth (90th) day following the date of the
Closing; provided, however, that if, notwithstanding such best efforts, the
registration statement is not declared effective on or prior to the 90th day
following the date of the Closing as a result of the SEC review process, the
Company shall, so long as it continues to use such best efforts, have an
additional thirty (30) days to cause the registration statement to become
effective prior to the imposition of any penalty or amount described in this
Section 2.3 (the "Registration Deadline"). The Company shall respond to each
---------------------
item of correspondence from the SEC or the staff of the SEC relating to such
registration statement as soon as practicable. If to the actual knowledge of a
senior officer of the Company or the Company's outside counsel the SEC and the
staff of the SEC have no comments (or no further comments) concerning such
registration statement, the Company shall as soon as practicable, but in any
case within three (3) business days request acceleration of effectiveness of the
registration statement from the SEC. If (i) the registration statement(s)
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2.1 hereof is not declared effective by the SEC on or before the
Registration Deadline (a "Registration Failure"), or (ii) except pursuant to a
Permitted Blackout (as defined below) herein, after the registration statement
has been declared effective by the SEC, sales of all the Registrable Securities
(including any Registrable Securities required to be registered pursuant to
Section 3.2 hereof) cannot be made pursuant to the registration statement (by
reason of a stop order or the Company's failure to update the registration
statement or any other reason outside the control of the Purchasers) (a
"Registration Suspension"), then the Company will make payments to the
Purchasers in such amounts and at such times as shall be determined pursuant to
this Section 2.3 as partial relief for the damages to the Purchasers by reason
of any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). In the event of a Registration Failure, the Company shall
pay to each Purchaser an amount equal to (x) (A) the applicable Registration
Failure Multiplier (as defined below) times (B) the aggregate purchase price of
-----
the Preferred Stock then held by such Purchaser which are not at that time
immediately saleable under an effective registration statement or pursuant to
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation
3
<PAGE>
of the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("Rule 144") (including, for this
--------
purpose shares of Preferred Stock that have been converted into Conversion
Shares which have not been sold pursuant to the Registration Statement or Rule
144) times (y) the number of months (prorated per day for partial months)
-----
following the Registration Deadline but prior to the date the Registration
Statement filed pursuant to Section 2.1 is declared effective by the SEC (the
"Effective Date"). The Registration Failure Multiplier shall be equal to: (i)
-------------------------------
for the first thirty (30) days after the Registration Deadline, 0.01; (ii) for
the second thirty (30) days after the Registration Deadline, 0.015; (iii) for
all days thereafter, 0.02. In the event of a Registration Suspension, the
Company shall pay to each Purchaser an amount equal to (x)(A) the applicable
Registration Failure Multiplier times (B) the aggregate purchase price of the
Preferred Stock then held by such Purchaser which are not at that time
immediately saleable under an effective registration statement or pursuant to
Rule 144 (including, for this purpose, shares of Preferred Stock that have then
been converted into Conversion Shares and which have not been sold pursuant to
the Registration Statement or Rule 144) times (y) the number of months (prorated
-----
for partial months) following the Effective Date but prior to the termination of
the Registration Period (as herein defined) that sales cannot be made pursuant
to the Registration Statement after the Effective Date. Any such amounts shall
be paid in cash or, at the Company's option, in additional shares of Preferred
Stock. Notwithstanding the foregoing, a Registration Suspension effected by the
Company pursuant to a Permitted Blackout (as defined below) shall not give rise
to an obligation to make such payments. For purposes of this Agreement,
"Permitted Blackout" shall mean the suspension of the Registration Statement
------------------
after the Effective Date for up to six (6) business days upon the good faith
determination by the Company's Board of Directors that (A) a material financing,
acquisition or other extraordinary corporate transaction is in the best interest
of the Company and the holders of its outstanding Common Stock, and that
disclosure thereof to the public would have a material adverse effect on the
ability of the Company to consummate such material financing, acquisition or
other extraordinary corporate transaction, all after receiving advice to such
effect from a nationally recognized investment banking firm which has been
engaged by the Company in connection with such financing, acquisition or other
extraordinary corporate transaction, or (B) facts with respect to a material
lawsuit or governmental investigation exist which, if disclosed, would have a
material adverse effect on the Company, provided, however, that no more than
-------- -------
three (3) such Permitted Blackouts may be imposed during any period of twelve
(12) consecutive months. Payments pursuant hereto shall be made within five (5)
business days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
payments shall be made for each such thirty (30) day period within five (5)
business days after the end of such thirty (30) day period. The payments
described herein, as applied to the new Registration Statement or amendment, in
each case, as required by Section 3.2, shall not commence until after the
expiration of ten (10) days after the Registration Trigger Date. Payments under
this Section 2.3 shall not exceed the previously unpaid portion of the Total
Amount (as defined in the Certificate of Designation) and no Purchaser shall
receive payments in excess of its theretofore unpaid allocated portion of the
Total Amount (as determined pursuant to the Certificate of Designation). In
addition, the damages payable in Preferred Stock pursuant to this Section 2.3
shall, without implication that the contrary would otherwise be true, be subject
to the Cap Amount (as defined in the Certificate of Designation) restrictions of
Section IV.G(i) of the Certificate of Designation.
4
<PAGE>
2.4 [Intentionally Deleted].
2.5 Eligibility for Form S-3. The Company represents and warrants that it
------------------------
currently meets the requirements for the use of Form S-3 for registration of the
re-sale by the Initial Purchasers and any other Purchaser of the Registrable
Securities and that the Company shall use its best efforts to continue to meet
such requirements, and that such re-sales may currently be effected pursuant to
Form S-3; 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 and shall use its best efforts in all other respects to maintain
such eligibility.
ARTICLE III
OBLIGATIONS OF THE COMPANY
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2.1, and use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as practicable after such filing, and keep the Registration
Statement continuously effective pursuant to Rule 415 and available for use at
all times, except as set forth herein, until such date as is the earlier of (i)
the date on which all of the Registrable Securities have been sold (and no
further Registrable Securities may be issued in the future) and (ii) the date on
which all of the Registrable Securities (in the reasonable opinion of counsel to
the Initial Purchasers) may be immediately sold to the public without
registration and without restriction as to the number of Registrable Securities
to be sold, whether pursuant to Rule 144 or otherwise, provided that if after
such date this clause (ii), as a result of a Common Stock Major Transaction, any
Registrable Securities (including, without limitation, any Registrable
Securities received as a result of such transaction) may not be so sold, then
the Registration Statement must be kept continuously effective from the date of
such Common Stock Major Transaction until the condition in either clause (i) or
clause (ii) is again satisfied (the "Registration Period").
-------------------
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective and available
for use at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statement until the termination of the Registration Period or, if earlier, such
time as all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement is,
for any five (5) consecutive trading days (the last of such five (5) trading
days being the "Registration Trigger Date"), insufficient to cover one hundred
-------------------------
fifty percent (150%) of the Registrable Securities issued or issuable upon
conversion of the Preferred Stock and exercise of Warrants (in each case without
giving effect to any limitations on conversion or exercise thereof) then held by
any Purchaser, the Company shall, if permissible, amend the Registration
Statement, or file a new Registration Statement (on the shortest form available
therefor), or both, so as to cover two hundred percent (200%) of the Registrable
Securities so issued or issuable
5
<PAGE>
to such Purchaser (in each case without giving effect to any limitation on
conversion or exercise thereof), in each case, as soon as practicable, but in
any event within five (5) days in the case of an amendment and ten (10) business
days in the case of a new Registration Statement after the Registration Trigger
Date (based on the market price of the Common Stock and other relevant factors
on which the Company reasonably elects to rely). The Company shall cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof.
3.3 The Company shall furnish to each Purchaser upon its written request
whose Registrable Securities are included in the Registration Statement and its
legal counsel promptly after the same is prepared and publicly distributed,
filed with the SEC, or received by the Company, one copy of the Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2.1, each letter written by or on behalf of the
Company to the SEC or the staff of the SEC, and each item of correspondence from
the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion, if any, thereof which contains information
for which the Company has sought confidential treatment), and such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Purchaser may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned (or to be owned) by such Purchaser.
3.4 The Company shall (a) register and qualify the Registrable Securities
covered by the Registration Statement under securities laws of such
jurisdictions in the United States as each Purchaser who holds (or has the right
to hold) Registrable Securities being offered reasonably requests, (b) 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 and availability for use during
the Registration Period, (c) take such other actions as may be reasonably
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (d) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3.4, (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause the Company material
expense or burden, or (v) 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.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select underwriters for the offering, the Company shall enter into and perform
its obligations under an underwriting agreement, in usual and customary
6
<PAGE>
form, including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
3.6 As soon as practicable after becoming aware of such event, the Company
shall publicly announce or notify by facsimile each Purchaser (at the facsimile
number for such Purchaser set forth on the signature page hereto) of the
happening of any event, of which the Company has actual knowledge, as a result
of which the prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and use its best efforts as soon as possible to (but in
any event it shall within five (5) business days) prepare a supplement or
amendment to the Registration Statement (and make all required filings with the
SEC) to correct such untrue statement or omission if not otherwise satisfied
through the filing of a report to the SEC or otherwise pursuant to applicable
securities laws (but such a supplement or amendment or other filing shall not be
required if, notwithstanding the Company's best efforts to so prepare and file
such supplement, amendment or other filing, such a supplement, amendment or
other filing is no longer required by applicable law to correct such untrue
statement or omission because such untrue statement or omission no longer
exists) and the Company shall simultaneously (and thereafter as requested)
deliver such number of copies of such supplement or amendment to each Purchaser
(or other applicable document) as such Purchaser may request in writing. Unless
such an event is publicly announced, the Company shall not, without the consent
of a Purchaser, give such Purchaser any material non-public information, but
shall inform the Purchasers that the such prospectus includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
3.7 The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable time, and the Company shall immediately notify by facsimile
each Purchaser (at the facsimile number for such Purchaser set forth on the
signature page hereto) who holds Registrable Securities (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
3.8 The Company shall permit counsel designated by the Initial Purchasers
in writing to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and not file any document in a form to which any such counsel reasonably
objects in writing. Any such review shall be conducted as soon as practicable.
3.9 The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
7
<PAGE>
3.10 If reasonably requested by a Purchaser in writing (taking into
account any applicable legal precedent and any SEC staff positions), the Company
shall use its reasonable efforts to furnish, on the date of effectiveness of the
Registration Statement and thereafter from time to time on such dates as a
Purchaser may reasonably request (a) an opinion, dated as of such applicable
date, from counsel representing the Company addressed to the Purchasers and in
form, scope and substances as is customarily given in an underwritten public
offering and reasonably satisfactory to such counsel and (b) a letter, dated as
of such applicable date, from the Company's independent certified public
accountants addressed to the Purchasers and in form, scope and substance as
customarily given to underwriters in an underwritten public offering; provided,
however, that a Purchaser shall only be entitled to the foregoing to the extent
it is reasonably requested by such Purchaser and consented to by the Company
after consultation with its counsel (which consent will not be unreasonably
withheld based upon all relevant facts and circumstances and taking into account
the advice of such counsel) and in any event no more than one time in any three-
month period (unless a shorter period would otherwise be reasonable under the
applicable circumstances).
3.11 The Company shall provide each Purchaser and its representatives the
opportunity to conduct a reasonable inquiry of the Company's financial and other
records during normal business hours and make available its officers, directors
and employees for questions regarding information which such Purchaser may
reasonably request in connection with the Registration Statement; provided,
however, each inspector shall hold in confidence and shall not make any
disclosure (except to a Purchaser) of any record or other information which the
Company determines in good faith to be confidential, and of which determination
the inspectors are so notified in writing, unless (a) the disclosure of such
records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (b) the release of such records is ordered pursuant to a
subpoena or other order from a court or government body of competent
jurisdiction, or is otherwise required by applicable law or legal process or (c)
the information in such records has been made generally available to the public
other than by disclosure in violation of this or any other agreement (to the
knowledge of the relevant inspector); provided further, that the Company is not
required to waive the attorney-client privilege and the Company shall not
provide the Purchaser with material non-public information in connection with
such inquiry except to a Purchaser who specifically requests such information in
writing (it being understood and agreed that, notwithstanding the foregoing, the
Company is required to disclose all material information pursuant to the
Registration Statements required to be filed under this Agreement).
3.12 The Company shall hold in confidence and not make any disclosure of
non-public information concerning a Purchaser provided to the Company by a
Purchaser unless (a) disclosure of such information is necessary to comply with
federal or state securities laws, rules, statutes or regulations, (b) the
disclosure of such information is necessary to avoid or correct a misstatement
or omission in any Registration Statement or other public filing by the Company,
(c) the release of such information is ordered pursuant to a subpoena or other
order from a court or governmental body of competent jurisdiction or is
otherwise required by applicable law or legal process, (d) such information has
been made generally available to the public other than by disclosure in
violation, to the knowledge of the Company, of this or any other agreement, or
(e) such Purchaser consents to the
8
<PAGE>
form and content of any such disclosure, which consent shall not be unreasonably
withheld. The Company agrees that it shall, upon learning that disclosure of
such information concerning a Purchaser is sought in or by a court or
governmental body of competent jurisdiction in or through other means, give
prompt notice to such Purchaser prior to making such disclosure, and allow the
Purchaser, at its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
3.13 The Company shall use its best efforts to cause the listing and the
continuation of listing of all the Registrable Securities covered by the
Registration Statement on The Nasdaq National Market System, The Nasdaq SmallCap
Market, the New York Stock Exchange or the American Stock Exchange, and cause
the Registrable Securities to be quoted or listed on each additional national
securities exchange or quotation system upon which the Common Stock is then
listed or quoted.
3.14 The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
3.15 The Company shall cooperate with the Purchasers who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or a Purchaser may reasonably request and registered in
such names as the managing underwriter or underwriters, if any, or a Purchaser
may request, and, within two (2) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to the Purchasers
whose Registrable Securities are included in such Registration Statement) an
opinion of such counsel in the form attached hereto as Exhibit 1.
---------
3.16 At the written request of any Purchaser, the Company shall promptly
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with the Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities covered by the
Registration Statement and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission).
3.18 The Company shall take all such other actions as any Purchaser or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities.
9
<PAGE>
3.19 From and after the date of this Agreement, the Company shall not, and
shall not agree to, allow the holders of any securities of the Company (other
than Purchasers with respect to Registrable Securities) to include any of their
securities in any Registration Statement or any amendment or supplement thereto
under Section 2.1 or 3.2 hereof without the consent of each initial Holder of
the Registrable Securities.
3.20 The Registration Statement shall state that it covers such
indeterminate number of additional shares as may be issuable upon conversion of
the Preferred Stock or exercise of the Warrants to prevent dilution resulting
from stock splits, stock dividends, and other similar transactions.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
-----------------------------
In connection with the registration of the Registrable Securities, each
Purchaser shall have the following obligations:
4.1 Purchaser 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 required to
effect the registration of such Registrable Securities. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Purchaser of the information the
Company so requires from each such Purchaser.
4.2 Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall comply with any
applicable prospectus delivery requirements of the Securities Act in connection
with any such sale.
4.4 [Intentionally Deleted].
4.5 Each Purchaser agrees that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 or advice that a supplement or amendment
is not required and, if so directed by the Company, such Purchaser shall deliver
to the Company (at the expense of
10
<PAGE>
the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Purchaser's possession (other than a limited
number of permanent file copies), of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. Purchaser's
obligations under this paragraph shall in no way limit the Company's obligations
under this Agreement or Purchaser's rights or remedies against the Company with
respect to any breach or threatened breach by the Company of any such
obligations.
4.6 Without limiting a Purchaser's rights under Section 2.1 or 3.2 hereof,
no Purchaser may participate in any underwritten distribution hereunder unless
such Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis provided in any underwriting agreements in usual and customary form
entered into by the Company pursuant to Section 3.5 hereof, (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (c) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Article V.
4.7 Each Purchaser agrees to use reasonable efforts to cooperate with the
Company (at the Company's expense) in responding to comments of the staff of the
SEC, provided nothing in this Section 4.7 shall affect the Registration Deadline
or any obligations of the Company under this Agreement or otherwise create any
liability on the part of any Purchaser or require any change to the terms and
conditions of this Agreement, the Certificate of Designation, the Preferred
Stock, the Warrants or the Securities Purchase Agreement.
ARTICLE V
EXPENSES OF REGISTRATION
------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Articles II and III, including, without limitation, the reasonable fees and
disbursements of one counsel of all of the Purchasers (up to $5,000), all
registration, listing and qualification fees, printers and accounting fees, and
the fees and disbursements of counsel for the Company, shall be borne by the
Company.
ARTICLE VI
INDEMNIFICATION
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any (each,
------------
an "Indemnified
-----------
11
<PAGE>
Person"), against any losses, claims, damages, liabilities or expenses
- ------
(collectively, together with actions, proceedings or inquiries whether or not
in any court, before any administrative body or by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
------
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). The Company shall reimburse each such Indemnified
----------
Person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6.1: (x) shall not apply to an Indemnified Person with
respect to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3.3 hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by a Purchaser pursuant to Article IX.
6.2 To the extent permitted by law, each such Purchaser agrees to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6.1, the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement, together with its
directors, officers and members, and any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act (such
an "Indemnified Party"), against any Claim to which any of them may become
-----------------
12
<PAGE>
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser expressly for use in connection with such Registration Statement; and
such Purchaser will reimburse any legal or other expenses (promptly as such
expenses are incurred and are due and payable) reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6.2 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Purchaser, which consent shall not be
unreasonably withheld; provided, further, however, that a Purchaser shall be
liable under this Agreement (including this Section 6.2 and Article VII) for
only that amount as does not exceed the net proceeds actually received by such
Purchaser as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by a Purchaser
pursuant to Article IX. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.2 with respect
to any preliminary prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party
under this Article VI 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
Article VI, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right (at its
expense) to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
and continue control of the defense thereof with counsel mutually satisfactory
to the indemnifying party and the Indemnified Person or the Indemnified Party,
as the case may be; provided, however, that such indemnifying party shall
diligently pursue such defense and an indemnifying party shall not be entitled
to assume (or continue) such defense if the representation by such counsel of
the Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying party, and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. Notwithstanding any assumption of
such defense and without limiting any indemnification obligation provided for in
Section 6.1 or 6.2, the Indemnified Party or Indemnified Person, as the case may
be, shall be entitled to be represented by counsel (at its own expense if the
indemnifying party is permitted to assume and continue control of the defense
and otherwise at the expense of the indemnifying party) and such counsel shall
be entitled to participate in such defense. 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
13
<PAGE>
Indemnified Party under this Article VI, except to the extent that the
indemnifying party is actually prejudiced in its ability to defend such action.
The indemnification required by this Article VI 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.
ARTICLE VII
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 Article
VI to the fullest extent permitted by law; provided, however, that (i) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation, and (ii) contribution (together
with any indemnification or other obligations under this Agreement) by any
Purchaser of Registrable Securities shall be limited in amount to the net amount
of proceeds received by such Purchaser from the sale of its Registrable
Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
------------------------------
With a view to making available to each Purchaser the benefits of Rule 144,
the Company agrees that so long as a Purchaser holds Preferred Stock, Warrants
or any Registrable Securities, the Company shall use its best efforts to:
8.1(a) Not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
8.1(b) File with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the filing and availability of such reports and
other documents is required for the applicable provisions of Rule 144; and
8.2 Furnish to each Purchaser promptly upon written 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 Purchaser to sell such securities
pursuant to Rule 144 without registration.
14
<PAGE>
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
---------------------------------
The rights of the Purchasers hereunder as to Registrable Securities
transferred by a Purchaser (or represented by Preferred Stock or Warrants
transferred by a Purchaser), including the right to have the Company register
Registrable Securities pursuant to this Agreement, shall be automatically
assigned by each Purchaser to any transferee of all or any portion of the
Preferred Stock or Warrants or the Registrable Securities, whether such transfer
occurs before or after the Registration Statement becomes effective, if: (a) the
Purchaser 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)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
or applicable state securities laws, and (d) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing for the benefit of the Company to be
bound by all of the provisions contained herein. The rights of a Purchaser
hereunder with respect to any Registrable Securities not transferred (and not
represented by Preferred Stock or Warrants transferred) shall not be assigned by
virtue of the transfer of other Registrable Securities or transferred Preferred
Stock or Warrants representing other Registrable Securities. Purchasers shall
not knowingly transfer or otherwise dispose of, in any private off-market
offering, any Convertible Securities to any Competitor (as defined in the
Securities Purchase Agreement) of the Company (or any of its subsidiaries).
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company and Initial
Purchasers who hold a majority in interest of the Registrable Securities which
are then held by Initial Purchasers (but not an Initial Purchaser who no longer
owns any Preferred Stock or Registrable Securities and who is not affected by
such amendment or waiver) and Purchasers (other than Initial Purchasers) who
hold a majority interest of the Registrable Securities held by Purchasers other
than Initial Purchasers. Any amendment or waiver effected in accordance with
this Article X shall be binding upon each Purchaser and the Company.
Notwithstanding the foregoing, no amendment or waiver shall retroactively affect
any Purchaser without its consent or prospectively adversely affect any
Purchaser who no longer owns any Preferred Stock, Warrants or Registrable
Securities without its consent. No amendment or waiver may adversely affect one
or more Purchasers or group of Purchasers vis-a-vis any other Purchaser or group
of Purchasers. Neither Article VI nor Article VII hereof may be amended or
waived in a manner adverse to a Purchaser without its consent. Notwithstanding
anything to the contrary contained in this Article X, no amendment or waiver
shall be applicable to an Initial Purchaser who does not consent in writing
thereto.
15
<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
11.1 A person or entity is deemed to be a holder (or a holder in interest)
of Registrable Securities whenever such person or entity owns of record such
Registrable Securities (or the Preferred Stock or Warrants which may be
converted into or exercised for 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 (or Preferred Stock or Warrants, as the
case may be).
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by machine
generated confirmed telecopy, and shall be deemed delivered at the time and date
of receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
If to any Initial Purchaser, as shown on the signature page hereto and if to any
other Purchaser, at such address as such Purchaser, 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 11.2.
11.3 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.
11.4 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware. The Company irrevocably consents to the
jurisdiction of the federal courts located in the State of Delaware and the
state courts of the State of Delaware located in the County of New Castle in the
16
<PAGE>
State of Delaware in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The parties hereto further agree that service of process upon the parties hereto
mailed by first class mail shall be deemed in every respect effective service of
process upon each such party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. The parties hereto agree that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11.5 This Agreement, the Preferred Stock, Warrants and the Securities
Purchase Agreement (including all schedules and exhibits thereto and all
certificates and opinions and other documents required thereby) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
This Agreement, the Preferred Stock, the Warrants and the Securities Purchase
Agreement supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto. Notwithstanding anything to the contrary contained
herein, including, without limitation, Article IX (and without compliance
therewith), the rights of a Purchaser hereunder shall be assignable to and
exercisable by a bona fide pledgee of the Registrable Securities in connection
with a Purchaser's margin or brokerage accounts.
11.7 The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
11.10 Unless otherwise provided herein, all consents and other
determinations to be made pursuant to this Agreement shall be made on the
basis of a majority in interest with respect to the Registrable Securities
(determined as if all Preferred Stock and Warrants then outstanding had been
converted into or exercised for
17
<PAGE>
Registrable Securities (without giving effect to any limitation on exercise or
conversion)) held by all Purchasers or Initial Purchasers, as the case may be.
11.11 The number of Registrable Securities included on any Registration
Statement shall be allocated pro rata among the Purchasers based on the number
of Registrable Securities held by each Purchaser at the time of establishment of
such number. In the event a Purchaser shall sell or otherwise transfer any of
such holder's Registrable Securities, each transferee shall be allocated a pro
rata portion of the number of Registrable Securities included on a Registration
Statement for such transferor. Any shares of Common Stock included on a
Registration Statement and which remain allocated to any person or entity which
does not hold any Registrable Securities shall be allocated to the remaining
Purchasers, pro rata based on the number of shares of Registrable Securities
then held by such Purchasers. Without implication that the contrary would
otherwise be true, for purposes of this paragraph, all Preferred Stock and
Warrants then outstanding shall be assumed converted into and exercised for
Registrable Securities (without giving effect to any limitations on conversion
or exercise).
11.12 If any provision of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement.
* * *
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
P-COM, INC.
BY: /s/ George P. Roberts with a copy to:
---------------------- --------------------
Name: George P. Roberts --------------------
Title: Chairman and Chief Executive Officer
----------------------
Address:
-----------------------
-----------------------
-----------------------
Facsimile Number:
---------------
Initial Purchasers:
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: Castle Creek Partners LLC
Its: Managing Member
By: /s/ John D. Ziegelman
-----------------------------------
Name: John D. Ziegelman
Title: Managing Member
Address: 333 W. Wacker Drive, Suite 1410
Chicago, Illinois 60606
Facsimile Number: (312) 435-2636
with a copy to:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
By: /s/ Allan Weine
-----------------------------------
Name: Allan Weine
Title: President
Address:
-------------------------------------
-------------------------------------
-------------------------------------
Facsimile Number: ( )
---- ------------------------
with a copy to:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.
Its: Authorized Agent
By: /s/ Michael L. Spolan
-----------------------------------
Name: Michael L. Spolan
Title: General Counsel and Secretary
Address:
-------------------------------------
-------------------------------------
-------------------------------------
Facsimile Number: ( )
---- ------------------------
with a copy to:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
EXHIBIT 1
TO REGISTRATION
RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: P-COM, INC.
Ladies and Gentlemen:
We are counsel to P-Com, Inc., a Delaware corporation (the "Company"), and
-------
we understand the [Name of Purchaser] (the "Holder") has purchased from the
------
Company Series B Convertible Participating Preferred Stock of the Company (the
"Preferred Stock"), convertible into shares of the Company's common stock, par
---------------
value $.0001 per share (the "Common Stock"). The Preferred Stock was purchased
------------
by the Holder pursuant to a Securities Purchase Agreement, dated as of December
21, 1998, by and among the Company and the signatories thereto (the
"Agreement"). Pursuant to a Registration Rights Agreement, dated as of December
---------
21, 1998, by and among the Company and the signatories thereto (the
"Registration Rights Agreement"), the Company agreed with the Holder, among
-----------------------------
other things, to register the Registrable Securities (as that term is defined in
the Registration Rights Agreement) under the Securities Act of 1933, as amended
(the ("Securities Act"), upon the terms provided in the Registration Rights
--------------
Agreement. In connection with the Company's obligations under the Registration
Rights Agreement, on December __, 1998, the Company filed a Registration
Statement on Form S-3 (File No. 333-_______________) (the "Registration
------------
Statement") with the Securities and Exchange Commission (the "SEC") relating to
- --------- ---
the Registrable Securities, which names the Holder as a selling stockholder
thereunder.
[Other customary introductory and scope of examination language to be
inserted, in each case as acceptable to Holders.]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate customary language to be included, in each case as
acceptable to Holders.]
Very truly yours,
cc: [Name of Purchaser]
19
<PAGE>
EXHIBIT 10.40
VOID AFTER 5:00 P.M. EASTERN STANDARD
TIME ON DECEMBER 21, 2003
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase Shares of
Common Stock, par value $0.0001 per share
Date: December 21, 1998
FORM OF
P-COM, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________ or its
registered assigns, is entitled to purchase from P-Com, Inc., a Delaware
corporation (the "Company"), at any time or from time to time during the period
-------
specified in Section 2 hereof, ___________ fully paid and nonassessable shares
of the Company's common stock, par value $0.0001 per share (the "Common Stock"),
------------
which number of shares was calculated as follows:
Dollar Amount of Holder's The average Closing x .25
Investment Pursuant to the / Bid Price (as defined
Securities Purchase Agreement herein) over the
(as defined below) fifteen (15) trading
day period immediately
preceding December 22,
1998 (the "Closing Date"
under the Securities
Purchase Agreement)
The Warrant exercise price per share of Common Stock (the "Exercise Price")
--------------
shall be equal to $3.47, which exercise price was calculated as 115% of the
average Closing Bid Price (as defined herein) over the fifteen (15) trading day
period immediately preceding December 22, 1998 (the "Closing Date" under that
------------
certain Securities Purchase Agreement (as defined below)). This Warrant is being
issued pursuant to that certain Securities Purchase Agreement dated December 21,
1998
<PAGE>
among the Company and the signatories thereto (the "Securities Purchase
-------------------
Agreement"). The number of shares of Common Stock purchasable hereunder (the
- ---------
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
--------------
in Section 4 hereof. The term "Warrants" means this Warrant and the other
--------
warrants of the Company issued pursuant to the terms of the Securities Purchase
Agreement.
The term "Closing Bid Price" means, for any security as of any date, the
-----------------
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
- -------
prices of such security (collectively, "Bloomberg"), or if the foregoing does
---------
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
---------------------
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
------------------
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 12(e) hereof),
together with a completed exercise agreement in the form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
------------------
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 12(c) below), delivery to the principal
executive office of the Company ("Attention: Corporate Secretary") of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder or Holder's designees, as the record owner of
such shares, as of the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment (or
notice of an election to effect a Cashless Exercise) shall have been made for
such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
------------------------
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall
2
<PAGE>
be delivered to the Holder within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised (the "Delivery
--------
Period"). The certificates so delivered shall be in such denominations as may be
- ------
requested by the Holder upon exercise and shall be registered in the name of
Holder or such other name as shall be designated by such Holder upon exercise.
If this Warrant shall have been exercised only in part, then, unless this
Warrant has expired, the Company shall, at its expense, at the time of delivery
of such certificates, deliver to the Holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have been
exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
-----------------
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than ten (10)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
-----------------
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
2. Period of Exercise. This Warrant is exercisable at any time or from
------------------
time to time on or after the date hereof and before 5:00 P.M., Eastern Standard
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
---------------
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, claims and encumbrances, except
such as are caused by the Holder.
(b) Reservation of Shares. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
3
<PAGE>
(c) Listing. The Company shall use its best efforts to secure the
-------
listing of the shares of Common Stock issuable upon exercise of this Warrant
upon The Nasdaq National Market System, the New York Stock Exchange or the
American Stock Exchange and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall use its best
efforts to so list on each national securities exchange or automated quotation
system, as the case may be, and shall use its best efforts to maintain such
listing of any other shares of capital stock of the Company issuable upon the
exercise of this Warrant so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
--------------------------
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price or number of Warrant Shares as required herein results in a
fraction of a cent or fraction of a share, as applicable, such Exercise Price or
number of Warrant Shares shall be rounded up or down to the nearest cent or
share, as applicable.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if
- ------------
and whenever after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the Exercise Price (as then in effect) (a "Dilutive Issuance"),
-----------------
then effective immediately upon the Dilutive Issuance, the Exercise Price will
be adjusted in accordance with the following formula:
E' = (E) (O+P/M) / (CSDO)
where:
4
<PAGE>
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the greater of the then current Market Price and the then
Current Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 4(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If, after the date hereof,
-----------------------------
the Company in any manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to purchase Common
Stock or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the issuance, grant
----------------------
or exercise of any stock or options which may hereafter be issued, granted or
exercised under any service provider benefit plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of non-
employee directors established for such purpose (such warrants, rights and
options to purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common Stock is
purchasable or issuable upon the exercise of such Options is less than the
Exercise Price (as then in effect) on the date of issuance of such Option or
direct stock grant ("Below Market Options"), then the maximum total number of
--------------------
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of such
Below Market Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon the
exercise of such Below Market Options is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or granting of such Below Market Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise of all such Below Market Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise,
5
<PAGE>
conversion or exchange of Convertible Securities issuable upon exercise of such
Below Market Options.
(ii) Issuance of Convertible Securities.
----------------------------------
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Exercise Price (as then in effect) on the date of issuance of such Convertible
Security, then the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon such exercise, conversion or exchange is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating or re-setting conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the price
----------------------------------
per share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of exercise, conversion or exchange of such Convertible
Security was 80% of the Market Price on the date of issuance of such Convertible
Security (the "Assumed Variable Market Price").
-----------------------------
(iii) Change in Option Price or Conversion Rate. Except for the
-----------------------------------------
issuance, grant or exercise of any stock or options which may hereafter be
granted or exercised under any service provider benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or
6
<PAGE>
exchangeable for Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such change will be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock issuable
- ----------
upon exercise of any Options or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the non-
surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee, consultant or director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) in
accordance with terms of the Certificate of Designations with respect to the
Company's shares of Series B Preferred
7
<PAGE>
Stock (the "Preferred Stock"); (iv) upon the exercise of the Warrants; or (v)
issuances of any equity securities pursuant to the Stockholders Rights Plan and
the Series A Preferred Stock, as amended.
(c) Subdivision or Combination of Common Stock. If the Company, at
------------------------------------------
any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merger
with any other corporation or entity (other than a merger in which the Company
is the surviving or continuing entity and its capital stock is unchanged and
unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant
shall thereafter be entitled to (a) in the event that the Common Stock remains
outstanding or holders of Common Stock receive any common stock or
substantially similar equity interest, in each of the foregoing cases which is
publicly traded, retain its Warrant and such Warrant shall continue to apply
to such Common Stock or shall apply, as nearly as practicable, to such other
common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for such Warrant,
equal to the greater of, as determined in the sole discretion of such holder,
(i) the number of shares of stock or securities or property of the Company, or
of the entity resulting from such Major Transaction (the "Major Transaction
Consideration"), to which the holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon such
Major Transaction had such holder exercised the Warrant (without regard to any
limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding
and had such Holder been the holder of record of such Common Stock at the time
of the consummation of such Major Transaction, and (ii) cash paid by the
Company in immediately available funds, in an amount equal to one hundred and
twenty five percent (125%) of the Black-Scholes Amount (as defined herein)
times the number of shares of Common Stock for which this Warrant was
exercisable (without regard to any limitations on exercise herein contained);
and the Company shall make lawful provision for the foregoing as a part of
such Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 21, 1998 among the Company and
the signatories thereto (the "Registration Rights Agreement") to assume all of
the Company's obligations under the Registration Rights Agreement. In the
event that the Company shall consolidate or merge with any corporation in a
transaction in which common stock of the surviving corporation or the parent
thereof (the "Exchange Securities") is issued to the holders of Common Stock
in such transaction in exchange for all such Common Stock, and (a) the
Exchange Securities are publicly traded, (b) the average daily trading volume
of the Exchange Securities reported by Bloomberg during the ninety (90) day
period ending on the date on which such transaction is publicly disclosed is
greater than two million dollars ($2,000,000) per day, (c) the historical one
hundred (100) day volatility of the Exchange Securities reported by Bloomberg
during the period ending on the date on which such transaction is publicly
disclosed is greater than fifty percent (50%) and (d) the last sale price of
the Exchange Securities on the date immediately before the date on which such
transaction is publicly disclosed is not less than sixty five percent (65%) of
the last sale price of the Exchange
8
<PAGE>
Securities on any day during the twenty (20) trading day period ending on such
date (in each case as reported by Bloomberg) (a "Common Stock Major
Transaction"), then each holder of a Warrant shall following consummation of
such transaction have the right to receive solely, in exchange for such Warrant,
consideration equal to the number of shares of stock or securities or property
issued or paid in such Common Stock Major Transaction to which a holder of the
number of shares of Common Stock which would have been delivered upon exercise
of such Warrant would have been entitled upon such Common Stock Major
Transaction had the holder of such Warrant exercised (without regard to any
limitations on conversion herein or elsewhere contained) the Warrant on the
trading date immediately preceding the public announcement of the transaction
resulting in such Common Stock Major Transaction and had such Common Stock been
issued and outstanding and had such holder been the holder of record of such
Common Stock at the time of the consummation of such Common Stock Major
Transaction; and the Company shall make lawful provision for the foregoing as a
part of such Common Stock Major Transaction and shall cause the issuer of any
security in such transaction which constitutes Registrable Securities under
that certain Registration Rights Agreement dated December 21, 1998 among the
Company and the signatories thereto (the "Registration Rights Agreement") to
assume all of the Company's obligations under the Registration Rights
Agreement. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction or Common
Stock Major Transaction, as the case may be, (each, a "Transaction") but not
prior to the public announcement of such Transaction, the Company shall
deliver written notice ("Notice of Transaction") to each holder of a Warrant,
---------------------
which Notice of Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Transaction. Such Notice of Transaction
shall indicate the amount and type of the Transaction consideration which such
holder of a Warrant would receive under this Section. If the Transaction
consideration does not consist entirely of United States currency, such holder
may elect to receive United States currency in an amount equal to the value of
the Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the Company within five
(5) business days of such holder's receipt of the Notice of Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating the
--------------------
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
9
<PAGE>
(f) Distribution of Assets. In case the Company shall declare or make
----------------------
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
like events (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
------------
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event which
---------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
--------------------
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
all (or substantially all) of the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
10
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
-------------------
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the Closing Bid
------------
Price for the shares of Common Stock as reported to Nasdaq National Market
System for the trading day immediately preceding such date, or (ii) if the
Nasdaq National Market System is not the principal trading market for the Common
Stock, the last reported bid price on the principal trading market for the
Common Stock during the same period, or, if there is no bid price for such
period, the last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the fair market value as reasonably determined by an investment
banking firm selected by the Company and reasonably acceptable to each initial
holder and the Holders of a majority in interest of the Warrants, with the
costs of the appraisal to be borne by the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing
11
<PAGE>
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes
------------
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Cap Amount. Prior to Stockholder Approval (as defined in the
----------
Securities Purchase Agreement), unless otherwise permitted by the Nasdaq
National Market System or unless the rules thereof do not apply to the Warrants,
in no event shall the total number of shares of Common Stock issued upon
exercise of the Warrants exceed the maximum number of shares of Common Stock
that the Company can without stockholder approval so issue pursuant to Nasdaq
Rule 4460(i) (or any successor rule) (the "Cap Amount") upon exercise of the
----------
Warrants and conversion of the Preferred Stock, which, as of the date of initial
issuance of the shares of Preferred Stock and Warrants, shall be eight million
seven hundred and six thousand four hundred and eighty three (8,706,483) shares
(or such higher number as such rules permit). The Cap Amount shall be allocated
pro-rata to the Holders. A Holder's allocable portion of the Cap Amount shall
be applicable to both shares of Preferred Stock and Warrants held by it and
shall be applied to such Preferred Stock and Warrants on the basis of the time
of conversion or exercise, as the case may be, thereof.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Stockholder. This Warrant shall not
-----------------------------------------
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
---------------------------------------------------------
a. Restriction on Transfer. This Warrant and the rights granted to
-----------------------
the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 8(e) below, provided, however, that any transfer or assignment
12
<PAGE>
shall be subject to the provisions of Sections 5.1 and 5.2 of the Securities
Purchase Agreement. Until due presentment for registration of transfer on the
books of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be affected
by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 9 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of December 21, 1998, by and among the Company and
the other signatories thereto (the "Registration Rights Agreement"). Holders
-----------------------------
shall not knowingly transfer or otherwise dispose of, in any private off-market
offering, any Warrants (or shares of Common Stock issuable upon exercise of any
Warrant) to any Competitor (as defined in the Securities Purchase Agreement) of
the Company (or any of its subsidiaries).
b. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 8(e) below, for new Warrants, in the form
hereof, of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 8, this Warrant shall be promptly canceled by the Company. The
Company shall pay all issuance taxes (other than securities transfer taxes) and
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
----------------
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
----------------------------------------------
anything to the contrary contained herein, the Warrants shall not be exercisable
by the Holder to the extent (but only to the extent) that, if exercisable by
Holder, Holder would beneficially own in excess of 4.9% (the "Applicable
----------
Percentage") of the shares of Common Stock. To the extent the above limitation
- ----------
applies, the determination of whether the Warrants shall be exercisable (vis-a-
vis other securities owned by Holder) and of which Warrants shall be exercisable
(as among Warrants) shall be made by
13
<PAGE>
Holder and submission of the Warrants for exercise shall be deemed to be the
Holder's determination of whether such Warrants are exercisable (vis-a-vis other
securities owned by Holder) and of which Warrants are exercisable (among
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations,
including without limitation, with respect to calculations of percentage
ownership, shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D and G
thereunder. The provisions of this paragraph may be implemented in a manner
otherwise than in strict conformity with the terms this Section (f) with the
approval of the Board of Directors of the Company and the Holder: (i) with
respect to any matter to cure any ambiguity herein, to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Applicable Percentage beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to
such Applicable Percentage limitation; and (ii) with respect to any other matter
only with the further consent of the holders of a majority of the then
outstanding shares of Common Stock. For clarification, it is expressly a term of
this security that the limitations contained in this paragraph shall apply to
each successor holder of Warrants.
9. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall
-------
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
14
<PAGE>
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that a final
nonappealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
12. Miscellaneous.
-------------
a. Amendments. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the Holders of a
majority of the Warrant Shares remaining subject to the Warrants.
b. Descriptive Headings. The descriptive headings of the several
--------------------
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
-----------------
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be such then current
Market Price per share of Common Stock.
d. Assignability. This Warrant shall be binding upon the Company and
-------------
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Warrant.
e. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
-------------------------------------------------
by the Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
15
<PAGE>
* * *
16
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be signed by their duly authorized officers.
P-Com, Inc.
By: /s/ George P. Roberts
-----------------------------------
Name: George P. Roberts
---------------------------------
Title: Chairman and Chief Executive
--------------------------------
Officer
--------------------------------
17
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of P-Com, Inc., a Delaware
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
-------
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) [If a cash exercise -- The undersigned makes the representations and
warranties contained in Sections 2.1 through 2.7 of the Securities Purchase
Agreement as of the date of the exercise.] The undersigned agrees not to offer,
sell, transfer or otherwise dispose of any Common Stock obtained on exercise of
the Warrant, except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:___________________ ___________________________________
Signature of Holder
___________________________________
Name of Holder (Print)
Address:
___________________________________
___________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
_________________________
Name:_______________________________________
Signature:__________________________________
Title of Signing Officer or Agent (if any):
_______________________________________
Address: __________________________________
__________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE>
EXHIBIT 10.41
SECOND AMENDMENT TO CREDIT AGREEMENT AND FIRST AMENDMENT TO
SECURITY AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT AND FIRST AMENDMENT TO SECURITY
AGREEMENT (this "Amendment") is entered into as of October 21, 1998, by and
among P-Com, Inc., a Delaware corporation ("Borrower"), the financial
institutions named on the signature pages hereof (each, a "Lender" and
collectively the "Lenders"), Union Bank of California, N.A., as administrative
agent for the Lenders ("Agent"), and Bank of America National Trust and Savings
Association, as syndication agent ("Syndication Agent"), with reference to the
following facts:
A. Borrower, Agent, Syndication Agent and Lenders are parties to that
certain Credit Agreement dated as of May 15, 1998, as amended (the "Credit
Agreement"). The Borrower and the Agent are parties to that certain Security
Agreement dated as of May 15, 1998 (the "Security Agreement"). The Credit
Agreement and all related and supporting documents collectively are referred to
in this Amendment as the "Loan Documents."
B. The parties desire to amend the Loan Documents in accordance with the
terms of this Amendment.
NOW, THEREFORE, in consideration of the promises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein shall
-------------
have the same meanings as set forth in the Credit Agreement and the other Loan
Documents.
2. Amendments to Credit Agreement. The Credit Agreement is hereby
------------------------------
amended as follows:
(a) The following defined term in Section 1.1 is amended to read as
follows: "Interest Payment Date:" As to any Base Rate Loan or LIBO Rate
----------------------
Loan until payment in full, the first Business Day of each month and the
Maturity Date.
(b) The following defined terms are added to Section 1.1 in their
proper alphabetical order:
"Consolidated Adjusted EBITDA": For any period of determination,
-----------------------------
the sum of net income, depreciation, amortization, interest expense and
income tax expense of the Borrower and its consolidated Subsidiaries for
the most recently ended fiscal quarter, minus any increases in accounts
-----
receivable or inventory during such fiscal quarter, minus any decreases
-----
payable during such fiscal quarter, plus any increases in accounts payable
----
in accounts during such fiscal quarter, plus any decreases in accounts
----
-1-
<PAGE>
receivable or inventory during such fiscal quarter, in each case of the
Borrower and its consolidated Subsidiaries for such period determined and
consolidated in accordance with GAAP; provided, that any decreases in
inventory or accounts receivable resulting from write-downs shall be
excluded from this calculation.
"Consolidated Annualized Adjusted EBITDA:" For any period of
---------------------------------------
determination, the sum of net income, depreciation, amortization, interest
expense and income tax expense of the Borrower and its consolidated
Subsidiaries for the most recently ended fiscal quarter, multiplied by
four, minus any increases in accounts receivable or inventory during such
-----
fiscal quarter, minus any decreases in accounts payable during such fiscal
-----
quarter, plus any increases in accounts payable during such fiscal quarter,
----
plus any decreases in accounts receivable or inventory during such fiscal
----
quarter, in each case of the Borrower and its consolidated Subsidiaries for
such period determined and consolidated in accordance with GAAP; provided,
that any decreases in inventory or accounts receivable resulting from
write-downs shall be excluded from this calculation.
(c) From the Effective Date until five (5) Business Days after
Agent's receipt of the Borrower's financial statements and Compliance
Certificate for the fiscal quarter ended September 30, 1998, the Applicable
Margin for Base Rate Loans, and the Commitment Fee Rate, shall be as set forth
in Level I in Exhibit E hereto. Notwithstanding any provision of the Credit
---------
Agreement to the contrary, from the Effective Date and for so long as Borrower's
ratio of Consolidated Funded Debt to Consolidated Annualized Adjusted EBITDA as
specified in Section 6.2(b) is equal to or greater than 4.00 to 1.00, (i)
Borrower shall not be permitted to request or receive LIBO Rate Loans, (ii) no
Loan may be converted to a Loan other than a Base Rate Loan, and (iii) any LIBO
Rate Loans shall bear interest on the unpaid principal amount thereof at a per
annum rate equal to the Base Rate plus the Applicable Margin for Base Rate
Loans.
(d) Section 2.5(f)(i) is amended to read as follows:
(i) with respect to each Letter of Credit, a Letter of
Credit fee for the period from and including the date of issuance of the
Letter of Credit to and including the date such Letter of Credit is drawn
in full, expires or is terminated for the ratable benefit of the Lenders at
a rate per annum equal to the Applicable Margin for LIBO Rate Loans (or,
for any period during which Borrower is not eligible to request or receive
LIBO Rate Loans, a rate per annum equal to 2.50%) multiplied by the stated
amount of the Letter of Credit, payable on the date of issuance of the
Letter of Credit for the period from the date of issuance to the first
Business Day of the next calendar month, and thereafter payable monthly in
arrears on the first Business Day of each month;
-2-
<PAGE>
(e) Section 6.1(a)(iii)(B) is amended to read as follows:
(B) a Compliance Certificate in the form of Exhibit D
---------
hereto demonstrating in reasonable detail compliance during and at the end of
such accounting periods with the restrictions contained in Sections 6.2(a), (b),
(c), (d), (e), (h), (w), and (x).
(f) Section 6.1(a) is amended by adding the following new clause
(v) in its proper alphanumeric order:
(v) as soon as available, but in any event within thirty
(30) days after the end of each calendar month, a copy of the unaudited
consolidated and consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated and consolidating statements of income and retained
earnings (or comparable statement) and changes in financial position and
cash flow for such period and year to date, setting forth in each case in
comparative form the figures as at the end of the previous fiscal year as
to the balance sheet and the figures for the previous corresponding period
as to the other statements, certified by a duly authorized officer of the
Borrower as being fairly stated in all material respects subject to year
end and audit adjustments, all such financial statements to be complete and
correct in all material respects and in accordance with GAAP subject to
normal year end and audit adjustments and the absence of footnotes, applied
consistently throughout the period reflected therein (except as approved by
such accountants and disclosed therein);
(g) Section 6.1(a) is amended by adding the following new clause
(vi) in its proper alphanumeric order:
(vi) as soon as available, but in any event within fifteen
(15) days after the end of each calendar month, aged listings of accounts
receivable and accounts payable, a summary of inventory, and an eight (8) week
rolling cash flow forecast, each in form and substance satisfactory to the
Agent;
(h) Section 6.1(b)(v) is amended to read as follows:
(v) promptly, but in any event within ten (10) days after
request, such budgets, sales projections, operating plans or other information
and data with respect to the Borrower or any of its Subsidiaries as from time to
time may be reasonably requested by the Agent or any Lender.
(i) Agent shall have a right from time to time hereafter to audit
the Collateral (as such term is defined in the Security Agreement) at
Borrower's expense, provided that such audits will be conducted no more
often than once in any period of twelve (12) consecutive months unless an
Event of Default or Potential Event of Default has occurred and is
continuing.
-3-
<PAGE>
(j) Section 6.2(a) is amended to read as follows:
(a) Quick Ratio. Permit the ratio of Consolidated Quick
-----------
to Consolidated Current Liabilities as of the last day of each of the
fiscal quarters of Borrower listed below to be less than the correlative
Assets amount indicated below:
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
September 30, 1998 0.70 : 1.00
December 31, 1998 0.80 : 1.00
March 31, 1999 0.90 : 1.00
June 30, 1999, and thereafter 1.00 : 1.00
</TABLE>
(k) Section 6.2(b) is amended to read as follows:
(b) Leverage Ratio. As at the end of any fiscal quarter of
--------------
the Borrower commencing with the fiscal quarter ending March 31, 1999,
permit the ratio of Consolidated Funded Debt as at the end of such fiscal
quarter, to Consolidated Annualized Adjusted EBITDA for such fiscal
quarter, to be greater than the correlative amount indicated below:
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
March 31, 1999 8.50 : 1.00
June 30, 1999 5.00 : 1.00
September 30, 1999 5.00 : 1.00
December 31, 1999, and thereafter 4.00 : 1.00
</TABLE>
For purposes of determining the ratio set forth in this Section
6.2(b), and for purposes of determining the "Applicable Margin" and
"Commitment Fee Rate" as set forth in Exhibit E, for any period of
---------
determination in which Consolidated Annualized Adjusted EBITDA is a sum
less than Zero Dollars ($0), such sum shall be deemed to be One Dollar
($1).
(l) Section 6.2(c) is amended to read as follows:
(c) Consolidated Tangible Net Worth. Commencing with the
-------------------------------
fiscal quarter ended September 30, 1998, permit Consolidated Tangible Net
Worth as of the last day of any fiscal quarter of Borrower to be less than
Thirty-Eight Million Dollars ($38,000,000) plus (i) 75% of Consolidated Net
Income (but not loss) for each fiscal quarter of the Borrower commencing
with the quarter ending September 30, 1998, plus (ii) 100% of the Net
Proceeds of any Equity Issuance by the Borrower after September 30, 1998.
-4-
<PAGE>
(m) Section 6.2(d) is amended to read as follows:
(d) Profitability. Permit (i) net income before taxes of
-------------
the Borrower and its consolidated Subsidiaries to reflect a loss exceeding
$82,000,000 on a fiscal year-to-date basis, calculated as of the last day
of each of the fiscal quarters ended September 30, 1998, and December 31,
1998, or (ii) commencing with the fiscal quarter ended March 31, 1999,
permit (a) net income before taxes of the Borrower and its consolidated
Subsidiaries or (b) Consolidated Net Income to be less than Zero Dollars
($0) for any fiscal quarter of Borrower.
(n) Section 6.2(e) is amended to read as follows:
(e) Interest Coverage Ratio. As at the end of any fiscal
-----------------------
quarter of Borrower commencing with the fiscal quarter ended March 31,
1999, permit the ratio of Consolidated Annualized Adjusted EBITDA for such
quarter, to Consolidated Interest Expense for the four fiscal quarters
ending on the last day of such fiscal quarter, to be less than the
correlative amount indicated below:
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
March 31, 1999 2.00 : 1.00
June 30, 1999, and thereafter 3.00 : 1.00
</TABLE>
(o) Clause (v) of Section 6.2(f) and clauses (iii) and (vi) of
Section 6.2(g) are deleted in their entirety; provided, however, that any Debt
in an aggregate amount of up to $5,000,000 incurred prior to September 30, 1998
that was permitted under clauses (iii) and (vi) of Section 6.2(g), and any Liens
created prior to September 30, 1998 that were permitted under clause (v) of
Section 6.2(f) shall be permitted notwithstanding this Clause (o); provided that
such Debt and Liens shall be listed on the Schedules delivered under clause
(iii) of Section 5(b) of this Amendment.
(p) Section 6.2(i) is amended in its entirety to read as follows:
(i) Consolidation, Merger. Consolidate or merge with any
---------------------
other Person, liquidate, wind-up or dissolve itself or acquire by purchase
or otherwise all or substantially all of the business, property or fixed
assets of, or stock or other evidence of beneficial ownership of, any
Person, or permit any of its Subsidiaries to do any of the foregoing,
except that any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower or any wholly-owned Subsidiary of the Borrower,
or be liquidated, wound up or dissolved, or all or any substantial part of
its business, property or assets may be conveyed, sold, leased, transferred
or otherwise disposed of, in one transaction or a series of transactions,
to the Borrower or any wholly-owned Subsidiary of the Borrower; provided
--------
that, in the case of such a merger or consolidation, the Borrower or such
wholly-owned Subsidiary shall be the continuing or surviving corporation.
-5-
<PAGE>
(q) A new Section 6.2(w) is added to the agreement, which shall
read as follows:
(w) Minimum Consolidated EBITDA; Minimum Consolidated
-------------------------------------------------
Adjusted EBITDA. Permit (i) Consolidated EBITDA to reflect a loss of
---------------
more than $15,500,000 for the fiscal quarter ended September 30, 1998, or
(ii) Consolidated Adjusted EBITDA to reflect a loss of more than $2,000,000
for the fiscal quarter ended December 31, 1998. For purposes of calculating
Consolidated EBITDA for the fiscal quarter ended September 30, 1998, such
calculation may include, without duplication, one-time charges not
exceeding $27,000,000.
(r) A new Section 6.2(x) is added to the agreement, which shall
read as follows:
(x) Consolidated Capital Expenditures. Make, or permit any
---------------------------------
Subsidiary to make, Consolidated Capital Expenditures, other than:
(i) Consolidated Capital Expenditures for the Borrower's
fiscal quarter ending September 30, 1998, not in excess of $7,500,000;
(ii) Consolidated Capital Expenditures for the Borrower's
fiscal quarter ending December 31, 1998, not in excess of $7,500,000; and
(iii) Consolidated Capital Expenditures for the Borrower's
fiscal quarter ending March 31, 1999, and for each fiscal quarter
thereafter, not in excess of $5,000,000.
(s) Section 7.1(c) is amended to read as follows:
(c) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 3.1, 6.1(a), (b) or (c), 6.2(a),
(b), (c), (d), (e), (g), (h), (i), (j), (l), (p), (q), (r), (s), (t), (u),
(v), (w) or (x) on its part to be performed or observed; or
(t) Section 7.1(d) is amended to read as follows:
(d) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in this Agreement or any other Loan
Document other than those referred to in Sections 7.1(a), (b), and (c)
above on its part to be performed or observed and any such failure shall
remain unremedied or uncured for fifteen (15) days after the Borrower knows
of such failure or, in the event such failure cannot by its nature be cured
within such fifteen (15) day period or cannot after diligent attempts by
Borrower be cured within such fifteen (15) day period, and the Borrower
determines and so notifies the Agent within such fifteen (15) day period
that such a remedy or cure is practicable within an additional fifteen (15)
days, such failure shall remain unremedied or uncured for thirty
-6-
<PAGE>
(30) days after the Borrower knows of such failure, provided, however, that
the cure period provided in this Section 7.1(d) shall not be in addition to
any grace period provided in Section 7.1(g) or (h), and no grace period or
cure period shall be given for Events of Default under Section 7.1(f), (i),
(j), (k), (l) or (m); or
(u) Section 7.1(e) is amended to read as follows:
(e) Any Loan Party shall default in the performance of or
compliance with any term contained in any Loan Document other than this
Agreement and such default shall not have been remedied or waived (A)
within any applicable grace period or (B) if not specified in the
applicable Loan Document, within fifteen (15) days after such Loan Party
knows of such default or, in the event that such a remedy or cure is not
practicable within such fifteen (15) day period but the Borrower determines
and so notifies the Agent within such fifteen (15) day period that such a
remedy or cure is practicable within an additional fifteen (15) days, such
default shall remain unremedied or uncured for thirty (30) days after the
Borrower knows of such default; or
(v) A new subsection (j) is added to Section 7.1, Events of
Default, immediately following subsection (i), which shall read as follows:
(j) an "event of repurchase" or similar event shall occur
under any agreement to which any Loan Party is a party with a third party
or parties relating to the purchase of any Loan Party's accounts
receivable, other than one receivable due from Telkom S.A. Limited in an
amount not to exceed $5,500,000, which event results in a right by the
purchaser of such receivables, whether or not exercised, to require such
Loan Party to repurchase and pay for purchased accounts receivable in an
aggregate amount in excess of $1,000,000 for any fiscal year; or
(w) A new subsection (k) is added to Section 7.1, Events of
Default, immediately following subsection (j), which shall read as follows:
(k) A "Change of Control," as such term is defined in the
Indenture dated as of November 1, 1997, between the Borrower and State
Street Bank and Trust Company of California, N.A., as Trustee, relating to
the Borrower's 4 1/4% Convertible Subordinated Notes due 2002, shall occur;
or
(x) A new subsection (l) is added to Section 7.1, Events of
Default, immediately following subsection (k), which shall read as follows:
(l) Any event or series of events occurs that creates or
results in a material adverse effect on (i) the business, assets,
operations, prospects or financial or other condition of the Borrower,
individually, or the Loan Parties, taken as a whole, (ii) the Borrower's
ability to pay any of the obligations to Lenders in accordance with the
terms thereof, or (iii) the collateral or Lenders' security interests
therein or the priority of
-7-
<PAGE>
such security interests, or (iv) Agent's or any Lender's rights and
remedies under this Agreement and the other Loan Documents; or
(y) A new subsection (m) is added to Section 7.1, Events of
Default, immediately following subsection (l), which shall read as follows:
(m) The Borrower shall fail to receive, on or prior to
November 15, 1998, Net Proceeds of at least $10,000,000 from an Equity
Issuance after September 30, 1998, on terms satisfactory to Lenders;
(z) Exhibit D is deleted and replaced with Exhibit D hereto.
--------- ---------
(aa) Exhibit E is deleted and replaced with Exhibit E hereto.
--------- ---------
(bb) A new Section 9.17 is added to the Credit Agreement, which
shall read as follows:
9.17 Designated Senior Indebtedness. The indebtedness of
------------------------------
the Borrower under the Credit Agreement and the other Loan Documents shall
be "Designated Senior Indebtedness" for purposes of the Indenture dated as
of November 1, 1997, between the Borrower and State Street Bank and Trust
Company of California, N.A., as Trustee, relating to Borrower's 4 1/4%
Convertible Subordinated Notes due 2002.
3. Amendments to Security Agreement. The Security Agreement is hereby
--------------------------------
amended as follows:
(a) Section 2 is amended by adding the following sentence at the end
thereof:
The term "Secured Obligations" shall also be deemed to include all
obligations and liabilities of every nature owed by Borrower to any Lender,
under or arising out of or in connection with the Credit Agreement or
otherwise.
4. Consent to Equity Issuance. Lenders hereby consent, pursuant to
--------------------------
Section 6.2(r) of the Credit Agreement, to an Equity Issuance by Borrower after
the Effective Date, on terms substantially the same as those set forth in the
term sheet dated October 10, 1998 presented to Lenders on the date of this
Amendment, subject in any case to Section 6.2(h) of the Credit Agreement.
5. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective as of October 21, 1998 (the
"Effective Date"), only upon:
(a) receipt by the Agent from the Borrower of an amendment fee as set
forth separately in a letter agreement by and among the Borrower, the Agent
and the Lenders;
-8-
<PAGE>
(b) receipt by the Agent of the following (each of which shall be in
form and substance satisfactory to the Agent and its counsel):
(i) counterparts of this Amendment duly executed on behalf of
the Borrower and the Lenders;
(ii) copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, authorizing the execution and
delivery of this Amendment;
(iii) within 15 days after the date hereof, updated copies of
Schedules 6.2(f) (Liens), 6.2(g) (Debt), and 6.2(k) (Contingent Obligations),
and Exhibits A, B and C to the Intellectual Property Security Agreement and each
of the Subsidiary Intellectual Property Security Agreements;
(c) affirmations of the Guaranty, duly executed on behalf of each
Guarantor;
(d) copies of the Borrower's 1998 and 1999 fiscal plan, certified by
an officer of Borrower as having been prepared in accordance with GAAP.
6. Representations and Warranties. In order to induce the Lenders to
------------------------------
enter into this Amendment, the Borrower represents and warrants to the Lenders
that the following statements are true, correct and complete as of the effective
date of this Amendment:
(a) Corporate Power and Authority. The Borrower has all requisite
-----------------------------
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "Amended Agreement"). The
Certificate of Incorporation and Bylaws of the Borrower have not been amended
since the copies previously delivered to the Lenders.
(b) Authorization of Agreements. The execution and delivery of this
---------------------------
Amendment and the performance by the Borrower of the Amended Agreement have been
duly authorized by all necessary corporate action on the part of the Borrower.
(c) No Conflict. The execution and delivery by the Borrower of this
-----------
Amendment do not and will not contravene (i) any law or any governmental rule or
regulation applicable to the Borrower, except to the extent not resulting in a
Material Adverse Effect, (ii) the Certificate of Incorporation or Bylaws of the
Borrower, (iii) any order, judgment or decree of any court or other agency of
government binding on the Borrower, or (iv) any material agreement or instrument
binding on the Borrower, except to the extent not resulting in a Material
Adverse Effect.
(d) Governmental Consents. The execution and delivery by the
---------------------
Borrower of this Amendment and the performance by the Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body (except routine
-9-
<PAGE>
reports required pursuant to the Securities and Exchange Act of 1934, as amended
(as such act is applicable to any Loan Party), which reports will be made in the
ordinary course of business).
(e) Binding Obligation. This Amendment and the Amended Agreement
------------------
have been duly executed and delivered by the Borrower and are the binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms, except in each case as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws and equitable principles relating to or affecting creditors'
rights.
(f) Incorporation of Representations and Warranties From Credit
-----------------------------------------------------------
Agreement. The representations and warranties contained in Section 5.1 of the
- ----------
Credit Agreement are correct on and as of the effective date of this Amendment
as though made on and as of such date. Without limiting the generality of the
foregoing, Borrower represents and warrants that all of Borrower's Copyrights,
Patents, and Trademarks, in connection with the Material Products, including any
such property acquired from Cylink Corporation, are set forth in Exhibits A, B
and C to the Intellectual Property Security Agreement, and that all such
Copyrights, Patents, and Trademarks have been registered with the U.S. Copyright
Office, or the U.S. Patent and Trademark Office, as applicable.
(g) Absence of Default. After giving effect to this Amendment, no
------------------
event has occurred and is continuing or will result from the consummation of the
transactions contemplated by this Amendment that would constitute an Event of
Default or a Potential Event of Default.
7. Release.
-------
(a) Each Loan Party acknowledges that Lenders would not enter into
this Amendment without the Loan Parties' assurance that each Loan Party has no
claims against any Lender, the Agent, Syndication Agent, or any of such parties'
officers, directors, employees or agents, arising out of or related to the Loan
Documents or any other agreement between any Loan Party and any Lender. Except
for the obligations arising hereafter under the Amended Agreement, each Loan
Party releases each Lender, the Agent, Syndication Agent, and each of such
parties' officers, directors and employees from any known or unknown claims
which any Loan Party now has against any Lender, the Agent, or Syndication Agent
of any nature, arising out of or related to the Loan Documents or any other
agreement between any Loan Party and any Lender, including any claims that any
Loan Party, or any Loan Party's successors, counsel, and advisors may in the
future discover they would have had now if they had known facts not now known to
them, whether founded in contract, in tort or pursuant to any other theory of
liability. Each Loan Party waives the provisions of California Civil Code
section1542, which states:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
-10-
<PAGE>
(b) The provisions, waivers and releases set forth in this section are
binding upon each Loan Party and each Loan Party's shareholders, agents,
employees, assigns and successors in interest. The provisions, waivers and
releases of this section shall inure to the benefit of each Lender, the Agent,
Syndication Agent, and each such party's agents, employees, officers, directors,
assigns and successors in interest as parties to the Credit Agreement.
(c) The provisions of this section shall survive payment in full of
the obligations, full performance of all the terms of this Amendment and the
Loan Documents, and/or the Agent's or any Lender's actions to exercise any
remedy available under the Loan Documents or otherwise.
(d) Each Loan Party warrants and represents that each such Loan Party
is the sole and lawful owner of all right, title and interest in and to all of
the claims released hereby and each such Loan Party has not heretofore
voluntarily, by operation of law or otherwise, assigned or transferred or
purported to assign or transfer to any person any such claim or any portion
thereof. Each Loan Party shall indemnify and hold harmless each Lender, the
Agent, and Syndication Agent, from and against any claim, demand, damage, debt,
liability (including payment of reasonable attorneys' fees and costs actually
incurred whether or not litigation is commenced) based on or arising out of any
assignment or transfer.
8. Miscellaneous.
-------------
(a) Reference to and Effect on the Credit Agreement and the Other Loan
------------------------------------------------------------------
Documents.
- ---------
(i) On and after the Effective Date, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import referring to the Credit Agreement, and each reference in the
other Loan Documents to the "Credit Agreement," "thereunder," "thereof" or words
of like import referring to the Credit Agreement, shall mean and be a reference
to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the Agent
or Lenders under the Credit Agreement or any of the other Loan Documents.
(b) Fees and Expenses. All costs and expenses of the Agent and
-----------------
Lenders, including, but not limited to, reasonable attorneys' fees and the
reasonable estimate of the allocated cost of in-house counsel and staff,
incurred by the Agent and Lenders in the preparation and negotiation of this
Amendment constitute costs and expenses in connection with the amendment and
restructuring of the Loan Documents, and as such are payable by the Borrower in
accordance with Section 9.5 of the Credit Agreement.
-11-
<PAGE>
(c) Headings. Section and subsection headings in this Amendment are
--------
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
(d) Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
--------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(e) Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[REMAINDER INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
P-COM, INC.
BY: /s/ Michael J. Sophie
________________________________
TITLE: CFO/VP Finance
_____________________________
AGENT:
UNION BANK OF CALIFORNIA, N.A.
BY: John Noble
________________________________
TITLE: Vice President
_____________________________
LENDERS:
UNION BANK OF CALIFORNIA, N.A.
BY: John Noble
________________________________
TITLE: Vice President
_____________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
BY: /s/ Fred L. Thome
________________________________
TITLE: Vice President
_____________________________
-13-
<PAGE>
EXHIBIT D
[FORM OF COMPLIANCE CERTIFICATE]
1. This Compliance Certificate ("Compliance Certificate") is executed and
delivered by P-Com, Inc., a Delaware corporation (the "Borrower"), to Union Bank
of California, N.A. (the "Agent"), pursuant to Section 6.1(a)(iii)(B) of the
Credit Agreement dated as of May 15, 1998, among the Borrower, the financial
institutions named therein and the Agent. Any terms used herein and not defined
herein shall have the meanings defined in the Credit Agreement. This Compliance
Certificate covers the Borrower's:
Fiscal quarter ended _________, 19__
Fiscal year ended _________, 19__
2. The following paragraphs set forth calculations in compliance with
obligations pursuant to Section 6.2(a), (b), (c), (d), (e), and (h) of the
Credit Agreement, as of the end of the fiscal period set forth in paragraph 1
hereof.
<TABLE>
<CAPTION>
A. Quick Ratio (Sec. 6.2(a)):
--------------------------
<S> <C>
(a) Consolidated Quick Assets $_________
(b) Consolidated Current Liabilities $_________
Ratio (a) : (b) __________
Minimum Permitted Ratio
Quarter Ending: Ratio:
--------------- -----
September 30, 1998 0.70 : 1.00
December 31, 1998 0.80 : 1.00
March 31, 1999 0.90 : 1.00
June 30, 1999, and thereafter 1.00 : 1.00
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
B. Leverage Ratio (Sec 6.2(b)):
---------------------------
<S> <C>
(a) Consolidated Funded Debt as at the end of the
most recent fiscal quarter $_________
(b) Consolidated Annualized Adjusted EBITDA for the
most recently ended fiscal quarter
$__________
Ratio (a) to (b) __________
Maximum Permitted Ratio
</TABLE>
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
March 31, 1999 8.50 : 1.00
June 30, 1999 5.00 : 1.00
September 30, 1999 5.00 : 1.00
December 31, 1999, and thereafter 4.00 : 1.00
</TABLE>
<TABLE>
<CAPTION>
C. Consolidated Tangible Net Worth (Sec. 6.2(c)):
---------------------------------------------
<S> <C>
(a) $38,000,000
(b) plus 75% of Consolidated Net Income (but not
loss) for each fiscal quarter of the Borrower
commencing with the fiscal quarter ending September
30, 1998 $_________
(c) plus 100% of Net Proceeds of any Equity Issuance
after September 30, 1998 $_________
Minimum Required Consolidated Tangible
Net Worth: (a) + (b) + (c): $_________
Actual Consolidated Tangible Net Worth: $_________
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
D. Profitability (Sec 6.2(d)):
--------------------------
<S> <C>
1. (a) Net income before taxes of Borrower
and its consolidated Subsidiaries on $_________
a fiscal year-to-date basis as of the
last day of the most recent fiscal
quarter, for the fiscal quarters
ended September 30, 1998,and December
31, 1998
Required: No loss exceeding $82,000,000
2. (a) Net income before taxes of Borrower
and its consolidated Subsidiaries $_________
for the most recent fiscal quarter,
commencing with the quarter ended
March 31, 1999
(b) Consolidated Net Income for the most
recent fiscal quarter, commencing $_________
with the quarter ended March 31, 1999
Required: (a) and (b): > $0
E. Interest Coverage Ratio (Sec. 6.2(e)):
-------------------------------------
(a) Consolidated Annualized Adjusted EBITDA $_________
for the most recent fiscal quarter
(b) Consolidated Interest Expense for the $_________
four fiscal quarters ending on the last
day of the most recent fiscal quarter
Ratio (a) to (b) ____ : 1.00
Minimum Permitted Ratio
Quarter Ending: Ratio:
-------------- -----
March 31, 1999 2.00 : 1.00
June 30, 1999, and thereafter 3.00 : 1.00
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
F. Dividends (Sec. 6.2(h)):
-----------------------
<S> <C>
Dividends declared or paid in current fiscal year $_________
Permitted: $0
G. Minimum Consolidated EBITDA; Minimum Consolidated
-------------------------------------------------
Adjusted EBITDA (Sec. 6.2(w)):
-----------------------------
Consolidated EBITDA for the fiscal quarter ended $_________
September 30, 1998
Required: No loss exceeding $15,500,000
Consolidated Adjusted EBITDA for the fiscal quarter $_________
ended December 31, 1998
Required: No loss exceeding $2,000,000
H. Consolidated Capital Expenditures (Sec. 6.2(x)):
-----------------------------------------------
Consolidated Capital Expenditures of the Borrower and $_________
its Subsidiaries for the current fiscal quarter
Permitted:
---------
Quarter Ending: Not more than:
-------------- -------------
September 30, 1998 $7,500,000
December 31, 1998 $7,500,000
March 31, 1999, and thereafter $5,000,000
</TABLE>
3. The undersigned has reviewed the terms of the Credit Agreement and has
made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of the Borrower and its Subsidiaries
during the fiscal period covered by this Compliance Certificate. The undersigned
does not (either as a result of such review or otherwise) have any
-17-
<PAGE>
knowledge of the existence as of the date of this Compliance Certificate of any
condition or event that constitutes an Event of Default or a Potential Event of
Default, with the exception set forth below in response to which the Borrower is
taking or proposes to take the following actions (if none, so state):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4. This Compliance Certificate is executed on _______________, ___, by the
Chief Executive Officer or Chief Financial Officer of the Borrower. The
undersigned hereby certifies that each and every matter contained herein is
derived from the Borrower's books and records and is, to the best knowledge of
the undersigned, true and correct.
P-Com, Inc.
A DELAWARE CORPORATION
BY:
------------------------------
TITLE:
---------------------------
-18-
<PAGE>
EXHIBIT E
PRICING GRID
The "Applicable Margin" and the "Commitment Fee Rate" shall mean the
variable number of percentage points determined in accordance with the grid set
forth below, based upon the Borrower's ratio of Consolidated Funded Debt as at
the end of each fiscal quarter to Consolidated Annualized Adjusted EBITDA as
specified in Section 6.2(b) (the "Leverage Ratio"), as determined by the Agent
with reference to the Borrower's most recently delivered financial statements
and Compliance Certificate. The effective date of any change in the Applicable
Margin and/or the Commitment Fee Rate shall be five (5) Business Days following
Agent's receipt of Borrower's financial statements and Compliance Certificate;
provided that if Borrower shall not have timely delivered its financial
statements and Compliance Certificate in accordance with Section 6.1(a), then
commencing five (5) Business Days following the date upon which such financial
statements should have been delivered and continuing until such financial
statements are actually delivered, it shall be assumed for purposes of
determining said rates that Borrower's Leverage Ratio is equal to or greater
than 7.00 to 1.00.
<TABLE>
<CAPTION>
Applicable Applicable
Margin for Margin for
Leverage Commitment LIBO Rate Base Rate
Level Ratio Fee Rate Loans Loans
- --------- ------------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
I. Equal to or greater than 0.50% N/A 1.00%
7.00 : 1.00
II. Equal to or greater than 0.50% N/A .50%
4.00 : 1.00 but less than
7.00 : 1.00
III. Equal to or greater than 0.30% 2.50% 0.00%
3.00 : 1.00 but less than
4.00 : 1.00
IV. Equal to or greater than 0.25% 1.50% 0.00%
2.00 : 1.00 but less than
3.00 : 1.00
V. Less than 2.00 : 1.00 0.20% 1.00% 0.00%
</TABLE>
-19-
<PAGE>
AFFIRMATION OF GUARANTY
-----------------------
The undersigned Guarantors hereby acknowledge and agree to the terms of the
foregoing Second Amendment to Credit Agreement (the "Amendment"), and further
acknowledge and agree that nothing contained in the Amendment in any way affects
the validity and enforceability of that certain Subsidiary Guaranty (the
"Guaranty") dated as of May 15, 1998, executed by each of the undersigned
Guarantors in favor of Lenders, the validity and effectiveness of which Guaranty
is hereby reaffirmed as of the Effective Date of the Amendment.
CONTROL RESOURCES CORPORATION
BY: /s/ Warren T. Lazarow
----------------------------
NAME:
TITLE:
P-COM NETWORK SERVICES, INC.
BY: /s/ Warren T. Lazarow
----------------------------
NAME:
TITLE:
P-COM FINANCE CORPORATION
BY: /s/ Warren T. Lazarow
----------------------------
NAME:
TITLE:
P-COM UNITED KINGDOM, INC.
BY: /s/ Warren T. Lazarow
----------------------------
NAME:
TITLE:
TELEMATICS, INC.
BY: /s/ Warren T. Lazarow
----------------------------
NAME:
TITLE:
-20-
<PAGE>
EXHIBIT 10.42
THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER
------------------------------------------------------
This THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this
"Amendment") is entered into as of December 17, 1998, by and among P-Com, Inc.,
a Delaware corporation ("Borrower"), the financial institutions named on the
signature pages hereof (each, a "Lender" and collectively the "Lenders"), Union
Bank of California, N.A., as administrative agent for the Lenders ("Agent"), and
Bank of America National Trust and Savings Association, as syndication agent
("Syndication Agent"), with reference to the following facts:
A. Borrower, Agent, Syndication Agent and Lenders are parties to that
certain Credit Agreement dated as of May 15, 1998, as amended (the "Credit
Agreement"). The Credit Agreement and all related and supporting documents
collectively are referred to in this Amendment as the "Loan Documents."
B. The parties desire to amend and waive certain provisions of the Credit
Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, in consideration of the promises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein shall
-------------
have the same meanings as set forth in the Credit Agreement and the other Loan
Documents.
2. Waiver. At the request of the Borrower, subject to the terms and
------
conditions contained herein and performance by the Borrower of all of the terms
of this Amendment and the Loan Documents after the date hereof, and in reliance
on the representations and warranties of the Borrower set forth herein, the
undersigned Lenders hereby waive the Borrower's obligation to comply with
Sections 6.2(a) and (d) of the Credit Agreement through June 30, 1999. Without
limiting the generality of the provisions of Section 9.1 of the Credit
Agreement, the waiver set forth herein shall be limited precisely as written and
relates solely to the waiver of compliance by the Borrower with Sections 6.2(a)
and (d) in the manner and to the extent described above, and nothing in this
Amendment shall be deemed to (i) constitute a waiver of compliance by the
Borrower with Sections 6.2(a) or (d) in any other instance, or (ii) constitute a
waiver of any other Event of Default or other failure by the Borrower to perform
in accordance with the Loan Documents or this Amendment, or (iii) prejudice any
right or remedy that the Agent or any Lender may now have or may have in the
future under or in connection with the Credit Agreement or the Loan Documents.
3. Amendments to Credit Agreement. The Credit Agreement is hereby
------------------------------
amended as follows:
(a) The defined term "Receivables Facilities" in Section 1.1 is
amended to read as follows:
"Receivables Facilities": Any agreement(s), approved in advance
----------------------
by all Lenders, by and between Borrower and no more than three (3)
Qualified Financial
<PAGE>
Institutions providing for the purchase by such financial institution(s) of
Borrower's accounts receivable, as the same may from time to time be
modified, supplemented, amended, restated, extended, renewed, or replaced
in a manner no less favorable to Lenders or with the prior written consent
of all Lenders.
(b) Clause (iii) of the proviso in Section 2.5(a) is amended to read
as follows:
(iii) Borrower shall not request any Letter of Credit, if after
giving effect to such issuance, the Letter of Credit Usage exceeds Five
Million Dollars ($5,000,000) or any regulatory, legal or internal limit on
the Issuing Bank's ability to issue the requested Letter of Credit.
(c) Section 6.2(b) is amended to read as follows:
(b) Leverage Ratio. As at the end of any fiscal quarter of the
--------------
Borrower commencing with the fiscal quarter ending March 31, 1999, permit
the ratio of Consolidated Funded Debt as at the end of such fiscal quarter,
to Consolidated Annualized Adjusted EBITDA for such fiscal quarter, to be
greater than the correlative amount indicated below:
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
March 31, 1999 18.00 : 1.00
June 30, 1999 10.00 : 1.00
September 30, 1999 5.00 : 1.00
December 31, 1999, and thereafter 4.00 : 1.00
</TABLE>
For purposes of determining the ratio set forth in this Section
6.2(b), and for purposes of determining the "Applicable Margin" and
"Commitment Fee Rate" as set forth in Exhibit E, for any period of
---------
determination in which Consolidated Annualized Adjusted EBITDA is a sum
less than Zero Dollars ($0), such sum shall be deemed to be One Dollar
($1).
(d) Section 6.2(c) is amended to read as follows:
(c) Consolidated Tangible Net Worth. Commencing with the
-------------------------------
fiscal quarter ended December 31, 1998, permit Consolidated Tangible Net
Worth as of the last day of any fiscal quarter of Borrower to be less than
Thirty-Eight Million Dollars ($38,000,000), plus (i) 100% of Consolidated
----
Net Income (or loss not to exceed $10,000,000) for the fiscal quarter ended
December 31, 1998, plus (ii) 100% of Consolidated Net Income (or loss not
----
to exceed $5,000,000) for the fiscal quarter ended March 31, 1999, plus
----
(iii) 100% of Consolidated Net Income (or loss not to exceed $2,000,000)
for the fiscal quarter ended June 30, 1999, plus (iv) 100% of Consolidated
----
Net Income (but not loss) for the fiscal quarter ended September 30, 1999
and each quarter thereafter, plus (v) 100% of the Net Proceeds of any
----
Equity Issuance by the Borrower after September 30, 1998.
<PAGE>
(e) Section 6.2(e) is amended to read as follows:
(e) Interest Coverage Ratio. As at the end of any fiscal
-----------------------
quarter of Borrower commencing with the fiscal quarter ended March 31,
1999, permit the ratio of Consolidated Annualized Adjusted EBITDA for such
quarter, to Consolidated Interest Expense for the four fiscal quarters
ending on the last day of such fiscal quarter, to be less than the
correlative amount indicated below:
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- ------
<S> <C>
March 31, 1999 1.00 : 1.00
June 30, 1999 1.00 : 1.00
September 30, 1999, and thereafter 3.00 : 1.00
</TABLE>
(f) Clause (iii) of Section 6.2(f) is amended to read as follows:
(iii) Liens in favor of no more than three (3) Qualified
Financial Institutions, upon specific accounts receivable of Borrower
purchased under the Receivables Facilities, provided that the obligations
secured by such Liens shall not exceed $25,000,000 in the aggregate at any
one time outstanding; and provided, further, that Borrower shall not permit
any of the Receivables Facilities to be modified, supplemented, amended,
restated, extended, renewed or replaced in a manner that is less favorable
to Lenders without the prior written consent of all Lenders;
(g) Clause (ii) of Section 6.2(l) is amended to read as follows:
(ii) the Borrower may assign and sell accounts receivable
to any three (3) Qualified Financial Institutions pursuant to the
Receivables Facilities, provided that the total outstanding amount of all
--------
purchased receivables under the Receivables Facilities shall not exceed
$25,000,000 at any time;
(h) Section 6.2(w) is amended to read as follows:
(w) Minimum Consolidated Adjusted EBITDA. Permit Consolidated
------------------------------------
Adjusted EBITDA to reflect a loss of more than $10,000,000 for the fiscal
quarter ended December 31, 1998.
(i) Section 7.1(f) is amended to read as follows:
(f) Any Loan Party shall (A) fail to pay any principal of, or
premium or interest on, any Debt, the aggregate outstanding principal
amount of which is at least $750,000 (excluding Debt evidenced by the
Notes, and excluding Debt owed to Cylink Corporation), when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt, or (B)
<PAGE>
fail to perform or observe any term, covenant or condition on its part to
be performed or observed under any agreement or instrument relating to any
such Debt, when required to be performed or observed, and such failure
shall result in a right, whether or not exercised, to accelerate the
maturity of any such Debt; or
(j) Section 7.1(m) is amended to read as follows:
(m) The Borrower shall fail to receive, on or before December
22, 1998, Net Proceeds of at least $10,000,000 from an Equity Issuance
after September 30, 1998, on terms satisfactory to Lenders;
(k) Consent to Equity Issuance; Certain Payments in Respect of
----------------------------------------------------------
Preferred Stock. Notwithstanding Section 6.2(r) or any other provision of the
- ---------------
Credit Agreement, subject to the terms and conditions contained herein, and in
reliance on the representations and warranties of the Borrower set forth herein,
Lenders hereby consent to the Borrower's issuance and sale of its equity
securities on the terms set forth in the Designations, Preferences and Rights of
Series B Convertible Participating Preferred Stock of P-Com, Inc. (the
"Certificate of Designation") as presented to Lenders. Notwithstanding Section
6.2(h) or any other provision of the Credit Agreement, Lenders hereby consent to
the Borrower's redemption of, or Override Election payments with respect to,
shares of the Borrower's Preferred Stock pursuant to the Certificate of
Designation (the terms "Override Election" and "Preferred Stock", as used in
this subsection (d), shall have the meanings set forth in the Certificate of
Designation); provided that (i) at the time of and immediately following any
--------
such redemption or Override Election payment there shall exist no condition or
event that constitutes an Event of Default or Potential Event of Default; (ii)
the Borrower shall not make any redemption or Override Election payment which is
optional or otherwise not required to be made pursuant to the Certificate of
Designation or other agreements entered into with respect to the issuance of the
Preferred Stock; and (iii) the aggregate of any such redemption or Override
Election payments shall not in any event exceed the lesser of (A) the difference
of (x) the aggregate Net Proceeds received by the Borrower from the issuance and
sale of such Preferred Stock minus (y) Nine Million Dollars ($9,000,000), or (B)
-----
Five Million Dollars ($5,000,000).
(l) Exhibit D is deleted and replaced with Exhibit D hereto.
--------- ---------
(m) Exhibit E is deleted and replaced with Exhibit E hereto.
--------- ---------
(n) Schedule 5.1(g) (Litigation), Schedule 6.2(f) (Liens),
--------------- ---------------
Schedule 6.2(g) (Debt), Schedule 6.2(k) (Contingent Obligations) to the Credit
- --------------- ---------------
Agreement are replaced with Schedule 5.1(g), Schedule 6.2(f), Schedule 6.2(g),
--------------- --------------- ---------------
and Schedule 6.2(k) attached hereto. Exhibit A to the Intellectual Property
--------------- ---------
Security Agreement is replaced with Exhibit A to Borrower Intellectual Property
Security Agreement attached hereto.
4. Conditions to Effectiveness.
---------------------------
This Amendment shall become effective as of December 17, 1998 (the
"Effective Date"), only upon:
<PAGE>
(a) receipt by the Agent from the Borrower of an amendment fee as set
forth separately in a letter agreement by and among the Borrower, the Agent and
the Lenders;
(b) receipt by the Agent of the following (each of which shall be in
form and substance satisfactory to the Agent and its counsel):
(i) counterparts of this Amendment duly executed on behalf of
the Borrower and the Lenders;
(ii) copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, authorizing the execution and delivery of
this Amendment;
(c) affirmations of the Guaranty, duly executed on behalf of each
Guarantor.
5. Representations and Warranties. In order to induce the Lenders to
------------------------------
enter into this Amendment, the Borrower represents and warrants to the Lenders
that the following statements are true, correct and complete as of the effective
date of this Amendment:
(a) Corporate Power and Authority. The Borrower has all requisite
-----------------------------
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "Amended Agreement"). The
Certificate of Incorporation and Bylaws of the Borrower have not been amended
since the copies previously delivered to the Lenders.
(b) Authorization of Agreements. The execution and delivery of this
---------------------------
Amendment and the performance by the Borrower of the Amended Agreement have been
duly authorized by all necessary corporate action on the part of the Borrower.
(c) No Conflict. The execution and delivery by the Borrower of this
-----------
Amendment do not and will not contravene (i) any law or any governmental rule or
regulation applicable to the Borrower, except to the extent not resulting in a
Material Adverse Effect, (ii) the Certificate of Incorporation or Bylaws of the
Borrower, (iii) any order, judgment or decree of any court or other agency of
government binding on the Borrower, or (iv) any material agreement or instrument
binding on the Borrower, except to the extent not resulting in a Material
Adverse Effect.
(d) Governmental Consents. The execution and delivery by the
---------------------
Borrower of this Amendment and the performance by the Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body (except routine reports required
pursuant to the Securities and Exchange Act of 1934, as amended (as such act is
applicable to any Loan Party), which reports will be made in the ordinary course
of business).
(e) Binding Obligation. This Amendment and the Amended Agreement
------------------
have been duly executed and delivered by the Borrower and are the binding
obligations of the
<PAGE>
Borrower, enforceable against the Borrower in accordance with their respective
terms, except in each case as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws and
equitable principles relating to or affecting creditors' rights.
(f) Incorporation of Representations and Warranties From Credit
-----------------------------------------------------------
Agreement. The representations and warranties contained in Section 5.1 of the
- ---------
Credit Agreement are correct in all material respects on and as of the effective
date of this Amendment as though made on and as of such date. Without limiting
the generality of the foregoing, Borrower represents and warrants that all of
Borrower's Copyrights, Patents, and Trademarks, in connection with the Material
Products, including any such property acquired from Cylink Corporation, are set
forth in Exhibits A, B and C to the Intellectual Property Security Agreement,
and that all such Copyrights, Patents, and Trademarks have been registered with
the U.S. Copyright Office, or the U.S. Patent and Trademark Office, as
applicable.
(g) Absence of Default. After giving effect to this Amendment, no
------------------
event has occurred and is continuing or will result from the consummation of the
transactions contemplated by this Amendment that would constitute an Event of
Default or a Potential Event of Default.
(h) Equity Issuance. Borrower shall account for the Net Proceeds
---------------
and any other amounts related to any Equity Issuance as equity or redeemable
equity and not debt.
6. Release.
-------
(a) Each Loan Party acknowledges that Lenders would not enter into
this Amendment without the Loan Parties' assurance that each Loan Party has no
claims against any Lender, the Agent, Syndication Agent, or any of such parties'
officers, directors, employees or agents, arising out of or related to the Loan
Documents or any other agreement between any Loan Party and any Lender. Except
for the obligations arising hereafter under the Amended Agreement, each Loan
Party releases each Lender, the Agent, Syndication Agent, and each of such
parties' officers, directors and employees from any known or unknown claims
which any Loan Party now has against any Lender, the Agent, or Syndication Agent
of any nature, arising out of or related to the Loan Documents or any other
agreement between any Loan Party and any Lender, including any claims that any
Loan Party, or any Loan Party's successors, counsel, and advisors may in the
future discover they would have had now if they had known facts not now known to
them, whether founded in contract, in tort or pursuant to any other theory of
liability. Each Loan Party waives the provisions of California Civil Code
section 1542, which states:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
(b) The provisions, waivers and releases set forth in this section
are binding upon each Loan Party and each Loan Party's shareholders, agents,
employees, assigns and successors in interest. The provisions, waivers and
releases of this section shall inure to the
<PAGE>
benefit of each Lender, the Agent, Syndication Agent, and each such party's
agents, employees, officers, directors, assigns and successors in interest as
parties to the Credit Agreement.
(c) The provisions of this section shall survive payment in full of
the obligations, full performance of all the terms of this Amendment and the
Loan Documents, and/or the Agent's or any Lender's actions to exercise any
remedy available under the Loan Documents or otherwise.
(d) Each Loan Party warrants and represents that each such Loan Party
is the sole and lawful owner of all right, title and interest in and to all of
the claims released hereby and each such Loan Party has not heretofore
voluntarily, by operation of law or otherwise, assigned or transferred or
purported to assign or transfer to any person any such claim or any portion
thereof. Each Loan Party shall indemnify and hold harmless each Lender, the
Agent, and Syndication Agent, from and against any claim, demand, damage, debt,
liability (including payment of reasonable attorneys' fees and costs actually
incurred whether or not litigation is commenced) based on or arising out of any
assignment or transfer.
7. Miscellaneous.
-------------
(a) Reference to and Effect on the Credit Agreement and the Other
-------------------------------------------------------------
Loan Documents.
- --------------
(i) On and after the Effective Date, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import referring to the Credit Agreement, and each reference in the
other Loan Documents to the "Credit Agreement," "thereunder," "thereof" or words
of like import referring to the Credit Agreement, shall mean and be a reference
to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the Agent
or Lenders under the Credit Agreement or any of the other Loan Documents.
(b) Fees and Expenses. All costs and expenses of the Agent and
-----------------
Lenders, including, but not limited to, reasonable attorneys' fees and the
reasonable estimate of the allocated cost of in-house counsel and staff,
incurred by the Agent and Lenders in the preparation and negotiation of this
Amendment constitute costs and expenses in connection with the amendment and
restructuring of the Loan Documents, and as such are payable by the Borrower in
accordance with Section 9.5 of the Credit Agreement.
<PAGE>
(c) Headings. Section and subsection headings in this Amendment are
--------
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
(d) Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL
--------------
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(e) Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
P-COM, INC.
BY: /s/ MICHAEL J. SOPHIE
-------------------------------
TITLE: CFO/VP FINANCE
----------------------------
AGENT:
UNION BANK OF CALIFORNIA, N.A.
BY: /s/ PATRICIA LEE
-------------------------------
TITLE: VICE PRESIDENT
----------------------------
LENDERS:
UNION BANK OF CALIFORNIA, N.A.
BY: /s/ PATRICIA LEE
-------------------------------
TITLE: VICE PRESIDENT
----------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
BY: /s/ FRED L. THORNE
-------------------------------
TITLE: VICE PRESIDENT
----------------------------
<PAGE>
EXHIBIT D
[FORM OF COMPLIANCE CERTIFICATE]
1. This Compliance Certificate ("Compliance Certificate") is executed and
delivered by P-Com, Inc., a Delaware corporation (the "Borrower"), to Union Bank
of California, N.A. (the "Agent"), pursuant to Section 6.1(a)(iii)(B) of the
Credit Agreement dated as of May 15, 1998, among the Borrower, the financial
institutions named therein and the Agent. Any terms used herein and not defined
herein shall have the meanings defined in the Credit Agreement. This Compliance
Certificate covers the Borrower's:
Fiscal quarter ended _________, 19__
Fiscal year ended _________, 19__
2. The following paragraphs set forth calculations in compliance with
obligations pursuant to Section 6.2(a), (b), (c), (d), (e), (h) and (w) of the
Credit Agreement, as of the end of the fiscal period set forth in paragraph 1
hereof.
A. Quick Ratio (Sec. 6.2(a)):
-------------------------
(a) Consolidated Quick Assets $_________
(b) Consolidated Current Liabilities $_________
Ratio (a) : (b) __________
Minimum Permitted Ratio
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
September 30, 1998 0.70 : 1.00
December 31, 1998 0.80 : 1.00
March 31, 1999 0.90 : 1.00
June 30, 1999, and thereafter 1.00 : 1.00
</TABLE>
B. Leverage Ratio (Sec 6.2(b)):
---------------------------
(a) Consolidated Funded Debt as at the end of the $_________
most recent fiscal quarter
(b) Consolidated Annualized Adjusted EBITDA $__________
for the most recently ended fiscal quarter
Ratio (a) to (b) __________
<PAGE>
Maximum Permitted Ratio
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
March 31, 1999 18.00 : 1.00
June 30, 1999 10.00 : 1.00
September 30, 1999 5.00 : 1.00
December 31, 1999, and thereafter 4.00 : 1.00
</TABLE>
C. Consolidated Tangible Net Worth (Sec. 6.2(c)):
---------------------------------------------
(a) $38,000,000
(b) plus 100% of Consolidated Net Income (or loss $_________
not to exceed $10,000,000) for the fiscal
quarter ended December 31, 1998
(c) plus 100% of Consolidated Net Income (or loss $_________
not to exceed $5,000,000) for the fiscal
quarter ended March 31, 1999
(d) plus 100% of Consolidated Net Income (or loss $_________
not to exceed $2,000,000) for the fiscal
quarter ended June 30, 1999
(e) plus 100% of Consolidated Net Income (but not $_________
loss) for the fiscal quarter ended September
30, 1999 and each quarter thereafter
(f) plus 100% of the capital Net Proceeds of any $_________
Equity Issuance after September 30, 1998
(Note: includes Net Proceeds from any options,
warrants or other similar rights exercised in
respect of Borrower'capital stock).
Minimum Required Consolidated Tangible
Net Worth: (a) + (b) + (c) + (d) + (e) + (f): $_________
Actual Consolidated Tangible Net Worth: $_________
D. Profitability (Sec 6.2(d)):
--------------------------
1. (a) Net income before taxes of Borrower $_________
and its consolidated Subsidiaries on a
<PAGE>
fiscal year-to-date basis as of the last
day of the most recent fiscal quarter, for
the fiscal quarters ended September 30,
1998, and December 31, 1998
Required: No loss exceeding $82,000,000
2. (a) Net income before taxes of Borrower $_________
and its consolidated Subsidiaries for the
most recent fiscal quarter, commencing
with the quarter ended March 31, 1999
(b) Consolidated Net Income for the most $_________
recent fiscal quarter, commencing with
the quarter ended March 31, 1999
Required: (a) and (b): greater than $0
E. Interest Coverage Ratio (Sec. 6.2(e)):
-------------------------------------
(a) Consolidated Annualized Adjusted EBITDA $_________
for the most recent fiscal quarter
(b) Consolidated Interest Expense for the four $_________
fiscal quarters ending on the last day of
the most recent fiscal quarter
Ratio (a) to (b) ____ : 1.00
Minimum Permitted Ratio
<TABLE>
<CAPTION>
Quarter Ending: Ratio:
-------------- -----
<S> <C>
March 31, 1999 1.00 : 1.00
June 30, 1999 1.00 : 1.00
September 30, 1999, and thereafter 3.00 : 1.00
</TABLE>
F. Dividends (Sec. 6.2(h)):
-----------------------
Dividends declared or paid in current fiscal year $_________
Permitted: $0
<PAGE>
G. Minimum Consolidated Adjusted EBITDA (Sec. 6.2(w)):
--------------------------------------------------
Consolidated Adjusted EBITDA for the fiscal quarter $_________
ended December 31, 1998
Required: No loss exceeding $10,000,000
H. Consolidated Capital Expenditures (Sec. 6.2(x)):
-----------------------------------------------
Consolidated Capital Expenditures of the Borrower $_________
and its Subsidiaries for the current fiscal quarter
Permitted:
---------
<TABLE>
<CAPTION>
Quarter Ending: Not more than:
-------------- -------------
<S> <C>
September 30, 1998 $7,500,000
December 31, 1998 $7,500,000
March 31, 1999, and thereafter $5,000,000
</TABLE>
3. The undersigned has reviewed the terms of the Credit Agreement and has
made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of the Borrower and its Subsidiaries
during the fiscal period covered by this Compliance Certificate. The undersigned
does not (either as a result of such review or otherwise) have any knowledge of
the existence as of the date of this Compliance Certificate of any condition or
event that constitutes an Event of Default or a Potential Event of Default, with
<PAGE>
the exception set forth below in response to which the Borrower is taking or
proposes to take the following actions (if none, so state):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4. This Compliance Certificate is executed on _______________, ___, by
the Chief Executive Officer or Chief Financial Officer of the Borrower. The
undersigned hereby certifies that each and every matter contained herein is
derived from the Borrower's books and records and is, to the best knowledge of
the undersigned, true and correct.
P-Com, Inc.
a Delaware corporation
By:_________________________________
Title:______________________________
<PAGE>
EXHIBIT E
PRICING GRID
The "Applicable Margin" and the "Commitment Fee Rate" shall mean the
variable number of percentage points determined in accordance with the grid set
forth below, based upon the Borrower's ratio of Consolidated Funded Debt as at
the end of each fiscal quarter to Consolidated Annualized Adjusted EBITDA as
specified in Section 6.2(b) (the "Leverage Ratio"), as determined by the Agent
with reference to the Borrower's most recently delivered financial statements
and Compliance Certificate. The effective date of any change in the Applicable
Margin and/or the Commitment Fee Rate shall be five (5) Business Days following
Agent's receipt of Borrower's financial statements and Compliance Certificate;
provided that if Borrower shall not have timely delivered its financial
statements and Compliance Certificate in accordance with Section 6.1(a), then
commencing five (5) Business Days following the date upon which such financial
statements should have been delivered and continuing until such financial
statements are actually delivered, it shall be assumed for purposes of
determining said rates that Borrower's Leverage Ratio is equal to or greater
than 8.50 to 1.00.
<TABLE>
<CAPTION>
Applicable Applicable
Margin for Margin for
Leverage Commitment LIBO Rate Base Rate
Level Ratio Fee Rate Loans Loans
----- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
I. Equal to or greater than 0.50% N/A 2.00%
8.50 : 1.00
II. Equal to or greater than 0.50% N/A 1.00%
7.00 : 1.00 but less than
8.50 : 1.00
III. Equal to or greater than 0.50% N/A .50%
4.00 : 1.00 but less than
7.00 : 1.00
IV. Equal to or greater than 0.30% 2.50% 0.00%
3.00 : 1.00 but less than
4.00 : 1.00
V. Equal to or greater than 0.25% 1.50% 0.00%
2.00 : 1.00 but less than
3.00 : 1.00
VI. Less than 2.00 : 1.00 0.20% 1.00% 0.00%
</TABLE>
<PAGE>
AFFIRMATION OF GUARANTY
-----------------------
The undersigned Guarantors hereby acknowledge and agree to the terms of the
foregoing Third Amendment to Credit Agreement (the "Amendment"), and further
acknowledge and agree that nothing contained in the Amendment in any way affects
the validity and enforceability of that certain Subsidiary Guaranty (the
"Guaranty") dated as of May 15, 1998, executed by each of the undersigned
Guarantors in favor of Lenders, the validity and effectiveness of which Guaranty
is hereby reaffirmed as of the Effective Date of the Amendment.
CONTROL RESOURCES CORPORATION
By: /s/ WARREN LAZAROW
-------------------------------
NAME:
TITLE:
P-COM NETWORK SERVICES, INC.
By: /s/ WARREN LAZAROW
-------------------------------
NAME:
TITLE:
P-COM FINANCE CORPORATION
By: /s/ WARREN LAZAROW
-------------------------------
NAME:
TITLE:
P-COM UNITED KINGDOM, INC.
By: /s/ WARREN LAZAROW
-------------------------------
NAME:
TITLE:
TELEMATICS, INC.
By: /s/ WARREN LAZAROW
-------------------------------
NAME:
TITLE:
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Page 1 of 2
COMPANY CONTACT:
Michael Sophie
Chief Financial Officer
(408) 866-3666
P-COM, INC. ENTERS INTO AN AGREEMENT FOR A $15 MILLION EQUITY INVESTMENT
- --------------------------------------------------------------------------------
CAMPBELL, CA--December 22, 1998--P-Com, Inc. (NASDAQ National Market:
PCMS) announced today that it has entered into an agreement for a $15 million
convertible preferred stock private placement with three investors, Castle
Creek Partners, LLC, Marshall Capital Management, and Heights Capital
Management. Each of the Investors specializes in equity investments in public
technology companies. Under the terms of the purchase agreement, P-Com will
sell 15,000 shares of newly designated Series B Convertible Preferred Stock
for an aggregate purchase price of $15 million. PaineWebber Incorporated
served as the Company's placement agent on this transaction.
The Series B Convertible Preferred Stock is convertible into shares of
Common Stock immediately upon issuance, at conversion rates that vary with
time and with the occurrence of certain events, and, subject to certain
exceptions, will automatically convert into Common Stock three years after the
date of its issuance by the Company. The Series B Convertible Preferred Stock
will accrue a 6% per year premium, payable in cash or Common Stock, and
carries 25% Common Stock purchase warrant coverage, which is exercisable at a
premium to the current stock price. The Series B Convertible Preferred Stock
is redeemable upon the occurrence of certain events.
"This financing will strengthen the cash position on our balance sheet,
positioning us to pursue P-Com's growth opportunities," said Michael J.
Sophie, Chief Financial Officer of the Company.
The securities to be issued in the private placement are not registered
under the Securities Act of 1933, as amended (the "Act"), and will be offered
and sold in the United States under the exemption from registration
requirements provided by Regulation D promulgated under the Act. The Company
will be filing a registration statement covering the resale of the Common
Stock underlying the Series B Convertible Preferred Stock and warrants.
P-Com, Inc. develops, manufactures and markets network access systems for
the worldwide wireless telecommunications market. The point-to-point, spread
spectrum, and point-to-multipoint radio links provided by P-Com are designed
to satisfy the network requirements of cellular and personal communications
services, corporate communications, public utilities and local governments. In
addition, P-Com provides comprehensive network services including system and
program planning and management, path design and installation. P-Com also
provides network performance monitoring devices.
--more--
<PAGE>
Page 2 of 2
P-COM, INC. ENTERS INTO AN AGREEMENT FOR A $15 MILLION EQUITY INVESTMENT
- --------------------------------------------------------------------------------
P-Com, Inc., with world headquarters in Campbell, California, USA and
offices in Florida, New Jersey, Virginia, the UK, Italy, France, Germany,
Poland, Mexico, and China, is an ISO 9001 certified company. For additional
information, contact P-Com at:
P-Com, Inc. * 3175 S. Winchester Boulevard * Campbell, CA 95008 * USA
TEL: (408) 866-3666 * FAX: (408) 866-3655
###
