U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 0-28581
5G WIRELESS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada 82-0351882
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2921 North Tenaya Way, Suite 234, Las Vegas, Nevada 89128
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (702) 647-4877
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) been subject to such filing requirements for the past 90 days.
Yes X No .
As of March 31, 2002, the Registrant had 116,297,169 shares of
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X .
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REVIEW REPORT 3
BALANCE SHEET AS OF
MARCH 31, 2002 4
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2002 AND MARCH 31, 2001 5
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED
MARCH 31, 2002 AND MARCH 31, 2001 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2. PLAN OF OPERATION 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURE 20
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
INDEPENDENT AUDITORS' REVIEW
Randy Simpson CPA, P.C.
11775 South Nicklaus Road
Sandy, Utah 84092
Fax & Phone (801) 572-3009
Board of Directors and Stockholders
5G Wireless Communications, Inc.
(Formerly Tesmark, Inc.)
Las Vegas, NV 89027
I have reviewed the accompanying balance sheet of 5G Wireless
Communications, Inc. (Formerly Tesmark, Inc.) as of March 31, 2002,
and the related statements of operations and cash flows for the three
months ended March 31, 2002 and March 31, 2001, in accordance with
Statements on Standards of Accounting and Review Services issued by
the American Institute of Certified Public Accountants. All
information included in these financial statements is the
representation of the management of 5G Wireless Communications, Inc.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on my review, I am not aware of any material modifications that
should be made to the accompanying financial statements in order for
them to be in conformity with generally accepted accounting
principles.
/s/ Randy Simpson, CPA, P.C.
Randy Simpson, CPA, P.C.
A Professional Corporation
May 15, 2002
Sandy, Utah
5G WIRELESS COMMUNICATIONS, INC.
BALANCE SHEET
MARCH 31, 2002
(Unaudited)
ASSETS
Current Assets:
Cash $ 40,505
Deposit 2,350
Advance for acquisition ( Wireless Think Tank) 105,309
Total Current Assets 148,164
Fixed Assets:
Computer Equipment 2,557
Accumulated Depreciation (236)
Total Fixed Assets 2,321
TOTAL ASSETS $ 150,485
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 13,617
Advances from officers/directors 3,145
Accrued management/consulting fees 42,500
Notes payable w/ accrued interest 250,055
Total Current Liabilities 309,317
Stockholders' Deficit:
Preferred Stock $.001 par value; authorized
10,000,000 shares; no shares outstanding at
March 31, 2002. -
Common Stock, $.001 par value; authorized
150,000,000 shares; with 116,297,169 issued and
outstanding at March 31, 2002. 116,297
Paid-In Capital 9,146,848
Accumulated Deficit (9,421,977)
Total Stockholders' Deficit (158,832)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 150,485
See Accompanying Notes to Financial Statements
5G WIRELESS COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2002 March 31, 2001
Interest Income: $ - $ -
Expenses:
Interest / depreciation expenses 72 -
Debt issuance costs 26,000 -
Consulting & marketing expenses 3,333,290 43,813
General and administrative expenses 25,492 122
Officer compensation & management fees 48,000 -
Professional fees 17,316 175
Total Expenses 3,450,170 44,110
Net Loss $ (3,450,170) $ (44,110)
Net Loss Per Common Share
(Basic and Fully Dilutive) $ (0.05) $ (0.00)
Weighted Average Shares
Common Stock Outstanding 75,088,064 12,556,035
See Accompanying Notes to Financial Statements
5G WIRELESS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2002 March 31, 2001
Cash Flows used in Operating Activities:
Net Loss $ (3,450,170) $ (44,110)
Expenses Not Requiring an Outlay
of Cash:
Common stock issued in write-off of
goodwill -- acquisition of technology
from 5G Partners - (420,000)
Liabilities assumed by stockholder 47,655 -
Provision for depreciation 18 -
Common stock issued for services 3,315,520 35,000
Changes to Operating Assets and
Liabilities:
Increase in deposits (2,050) -
Increase in accrued
management/consulting fees payable 18,500 -
Decrease in accounts payable (36,272) -
Net Cash used in Operating Activities (106,799) (429,110)
Cash Flows Provided by Investing
Activities:
Advances for acquisition (105,309) (105,000)
Common stock issued for acquisitions - 525,000
Capital expenditure - computers (800) -
Net Cash used in Investing Activities (106,109) 420,000
Cash Flows Provided by Financing
Activities:
Increase in notes payable and accrued interest 250,055
Increase in advances from officers/directors 3,145 9,006
Net Cash Provided by Financing Activities 253,200 9,006
Net Increase (Decrease) in Cash 40,292 (104)
Cash at Beginning of Period 213 276
Cash at End of Period 40,505 172
See Accompanying Notes to Financial Statements
5G WIRELESS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
A. ORGANIZATION AND ACCOUNTING POLICIES
5 G Wireless Communications, Inc. ("Company") (formerly Tesmark, Inc.)
was incorporated September 10, 1979, as an Idaho corporation. On
October 23, 1998 the Company merged with Tesmark, Inc., a Nevada
corporation; the net effect was transfer of domicile of the
corporation from Idaho to Nevada. In connection with this merger, the
stock was forward split 500 for 1, resulting in an increase of the
total outstanding shares to 2,500,100. The Company incurred $1,355 in
reorganization costs in 2000, which was expensed in accordance with
Statement of Position ("SOP") 98-5. This statement requires that
organizational expenses be expensed at the time they are incurred
rather than amortized over a period of years.
In March of 2001, the Company merged with 5G Partners, (a private
Canadian partnership), resulted in the changing of the Company's name
from "Tesmark, Inc." to "5G Wireless Communications, Inc."
Consideration included the issuance of 750,000 shares of the Company's
common stock, (to be divided among 5G Partners' three officers), in
exchange for 5G Partners' technology. On March 20, 2001, the partners
were issued 150,000 shares of the Company's common stock, marking the
finalization of the agreement, in lieu of the agreed upon 750,000
shares. As of December 31, 2001, 600,000 shares remained unissued.
However, in March of 2002, the shares were issued to each of the three
partners, with an additional 50,000 shares per recipient.
The Company recorded $525,000 as goodwill in connection with the
issuance of the stock and cash, and wrote off $420,000 as an
adjustment to the value of goodwill in the quarter ended March 31,
2001. The write-off reduced the value of the transaction to the
estimated fair market value ($105,000) for the technology transferred
to the Company in the transaction. At December 31, 2001, all goodwill
remaining on the Company's balance sheet were expensed as acquisition
costs; reflected on the Company's Statement of Operations.
During the year 2000, the Company was authorized by its Articles of
Incorporation, as amended, to issue an aggregate of 50,000,000 shares
of common stock at a par value of $.001, and 10,000,000 shares
preferred stock, also at a par value of $.001. On July 10, 2001, a
meeting of the Company's board of directors was held, wherein, it was
agreed to an increase of the Company's authorized common stock to
150,000,000 shares.
Financial Capacity
In February of 2002, the Company entered into a debenture whereby it
received a wire transfer of $250,000 with guarantee of a second wire
in the amount of $100,000. The entire $350,000 carries an interest
rate of 5%, and is payable in three years. As collateral, the Company
issued 16,000,000 shares at par value ($.001) to be held in escrow
until further notice, thus providing the Company with an additional
debt satisfaction option should they choose to convert all or some of
the debt to common stock.
To date, most debt incurred by the Company is satisfied through the
sale of the Company's common stock or advances from officers, as no
revenue has yet been realized through its minimal operations.
Therefore, it is anticipated that their ability to continue will, as
in the past, be largely dependant upon the sale of common stock, cash
on hand, various credit facilities available to the Company, and any
internally generated funds.
The Company has devoted substantial resources to the build out of its
networks and the expansion of its marketing programs. As a result,
the Company has historically experienced operating losses and negative
cash flows. These operating losses and negative cash flows may
continue through additional periods, however, the Company is currently
focusing on several new areas of expansion, including the development
of a new market strategy, establishing a credit line, expanding their
network and hiring more technicians to service their networks. The
Company intends to implement these new developments during the second
quarter of 2002.
B. COMMON STOCK REVISIONS
As of December 31, 2001, the Company issued 150,000 shares in
connection with the merger acquisition between Tesmark and 5G
Partners, Inc., and 50,000 shares of common stock as compensation for
consulting, all of which were re-valued as of December 31, 2001 from
$.70 per share to $.05 per share. Additionally, 12,000,000 shares of
the Company's common stock, valued at $.36 per share, were issued and
held in escrow in connection with a pending merger with Peteson
Investments Pte. Ltd. ("Peteson"), a privately held company providing
wireless data solutions in Singapore. Of those 12,000,000, 6,000,000
are to be returned to the Company as stated in the signed Mutual
Release Agreement (see Note E below). All shares issued for
acquisitions have been expensed as the Company has elected not to
pursue the acquisitions' line of business or technology.
Stock Based Compensation
In order to incentivize and retain highly skilled employees, officers
and directors, outsider service providers and to obtain general
funding, the Company's Board of Directors occasionally grants
unqualified stock options to various individuals, generally at equal
or above market price.
Also, the Company periodically issues stock to various service
providers as a form of compensation. The services are valued at the
fair market value of the service performed, as well as the fair market
value of the stock when issued. As of the March 31, 2002, the
Company's total issued and outstanding common stock totaled 116,297,169.
C. PRIVATE PLACEMENT OF COMMON STOCK AND WARRANTS
In May 2000, the Company sold 20 units of common stock and warrants.
Each unit consisted of 50,000 shares of common stock and one Class A
Warrant to purchase 50,000 shares of common stock at twenty cents
($.20) and one Class B Warrant to purchase 50,000 shares of common
stock at twenty-five cents ($.25) per share. The Class A Warrants may
be exercised upon issuance and expire 365 days from the date of
issuance, and the Class B Warrants may also be exercised upon issuance
and expire on the 730th day after issuance. During the year 2001, the
Company's common stock issued for cash included: 200,000 shares
issued as a private placement; valued at $.25 per share ($50,000);
3,721,127 shares were issued on July 18, 2001; for a total cash value
of $280,300 (less $44,500 offering costs), and 816,404 shares of
common stock were issued for a cash value of $65,000 (less $5,200
offering costs) on August 14, 2001.
D. CONVERTIBLE PROMISSORY NOTE (UNCOLLECTABLE), AND TERMINATION OF
INTENT TO ACQUIRE INTERACTIVE ENGINE, INC.
In June of 2000, the Company advanced funds for a promissory note in
the amount of $55,000 to Interactive Engine, Inc. The notes bore
interest at 10%, and were due in 90 days. Although the notes gave the
option of converting the entire amount, including interest, into its
common stock, at terms to be negotiated prior to the 90-day renewal
term, Interactive Engine and the Company could not come to terms. The
Company reserved the note and accrued interest as uncollectable at
December 31, 2000. No activity occurred in 2001 and the Company
eliminated the note and the related reserve from its balance sheet at
December 31, 2001.
E. ACQUISITION AGREEMENT WITH PETESON INVESTMENT, PTE. LTD.
On March 9, 2001, the Company entered into an acquisition agreement
with Peteson. Under this agreement, the Company agreed to assume
control of Peteson after verifying, through an independent attorney in
Singapore, the corporate structure and names of all its shareholders.
Tentative terms of the acquisition provided for the issuance of
12,000,000 restricted shares of the Company's common stock for 75% of
the outstanding shares of Peteson Investment, Pte Ltd.
Although numerous closing dates were scheduled, Peteson continued to
ignore their contractual obligations, causing the inability to close
and the inconvenience of continuously extending the date.
In February of 2002, the Company presented a Mutual Release Agreement
to the officers of Peteson Investment Pte. Lt. On February 15, 2002,
the agreement was signed by officers from both Peteson Investment Pte.
Ltd. and 5G Wireless Communications, Inc., thus, releasing all
contractual parties from any liabilities that may be associated with
the acquisition activities. The agreement also provided for the
return of 6,000,000 of the 12,000,000 shares issued per terms of the
acquisition agreement, to the Company. In exchange for the 6,000,000
shares of the Company's common stock remaining in Singapore; Peteson
agreed to assume all responsibility for debts incurred, contracts,
agreements, commitments made, and equipment purchased having to do
with the acquisition or any other project engaged in, by the
Companies. Additionally, Peteson has assumed, in accordance with the
agreement, responsibility for all past and present salaries and
expenses incurred by the Companies officers during the Peteson
acquisition period. The collective monetary value of the debt assumed
by Peteson is approximately $6,000,000.
F. 2001 FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 2001, the Company adjusted the valuation
of 150,000 shares of common stock, which were issued in connection
with the merger between 5G Partners, Inc. and Tesmark, Inc., as well
as the valuation of an additional 50,000 shares of common stock issued
during the same time period for compensation. Originally, the shares
were valued at $.70 per share, however, a new valuation of $.05 as
specified by board members, was recorded in the Company's year-end
December 31, 2001, financial statements.
Assets relating to acquisitions on the Company's balance sheets for
the first three quarters of 2001, including advances for acquisitions,
goodwill and amortization of goodwill, were written off as acquisition
expenses during the fourth quarter of 2001. The combined total of the
above-mentioned transactions ($225,187) is included in the Statements
of Operations for December 31, 2001, as a portion of the total balance
of $4,534,892 in acquisition costs.
The Company's "accounts receivable" reflected a balance of $71,476 in
the Company's financial statements for September 31, 2001. The entire
balance related to the Peteson Investment Pte. Ltd. acquisition,
resulting in the write-off of the entire "accounts receivable"
balance, also reflected in the fourth quarter 2001 Statements of
Operations, as a portion of the acquisition costs balance.
The Company's remaining balances for prepaid marketing and consulting
contracts was written off in the fourth quarter as well. Out of the
Company's three current contracts, two had reached their ending term
in the fourth quarter of 2001, resulting in final balances being
expensed. The third prepaid contract, however did not reach its
ending term until April of 2002, but written off as well in December
31, 2001 financial statements, due to both non-performance and their
eventual declaration of bankruptcy. The Company is currently seeking
the return of the common stock issued (580,000 shares valued at $.10
per share), in accordance with the contract. Even so, the Company
realizes the success in recovery of these shares to be highly
unlikely, as the task of locating a former officer of the now non-
existent company has thus far produced futile results. All balances
involving these contracts are reflected as a portion of the consulting
costs in the Company's December 31, 2001 Statements of Operations.
G. NEWLY APPOINTED MANAGEMENT
On January 10, 2002, the Company announced the realignment of its
operating management. The Company promoted Jerry Dix as President and
CEO, Brian Corty as Chief Technical Officer and Secretary, Don
Boudewyn and Assistant Secretary, and Bob Kirish as Treasurer and
Director. The Company's newly appointed management also announced
plans of changing focus by way of certain changes to their business
strategy, reflecting capital market and strategic factors. Under the
new management team, the Company will undertake a complete strategic
review of its business lines, including analysis of capital
consumption and profitability.
ITEM 2. PLAN OF OPERATION.
The following discussion should be read in conjunction with the
financial statements of the Registrant and notes thereto contained
elsewhere in this report.
Twelve-Month Plan of Operation.
(a) Business of the Registrant.
The Registrant will utilize its wireless platform to extend
services to locations beyond those currently serviced by the cable and
DSL providers. The platform will reduce overall cost by as much as
40% over other wireless providers and allow us to be profitable in
areas that will not be serviced by others because of the capital
requirements. The immediate focus will be to expand the current
network in New York State by adding two neighboring states by the end
of the second quarter and the beginning of the third quarter of 2002.
The Registrant's rollout will balance the needs of an initial
base location and our evolving network footprint. The network
footprint is the single greatest asset of the Registrant. The
Registrant's network engineers can accurately predict capabilities,
extensive network modeling and business intelligence analysis into one
integrated environment, providing opportunities to optimize the value
of our network coverage. This means the Registrant will have a cost
advantage compared to its closest competitor.
The Registrant is also looking at a series of smaller companies
to acquire to increase our penetration into new markets and to
establish a new bases of operation. In addition the company is seeking
relationships with ISP's who would like to offer broadband services to
their subscriber base and are willing to oversee the expansion as
local operators in a given territory.
The Registrant's research and development will focus on
developing new technology capable of delivering higher bandwidth
capacity over the existing network as well as development of a voice
over IP service for both business and residential users.
The Registrant plans to expand its network through the
negotiations with a number of building management companies, tower
suppliers, and site acquisition companies to assist in the timely
rollout of our network. Costs for these locations can vary widely,
ranging in cost between $3,000 and $50,000 depending on the capacity
requirements and equipment needed to service that particular area.
To facilitate this growth, the Registrant intends to acquire
engineers and technicians to service and maintain its networks. There
will also be a need to increase sales and support staff to ensure
continued growth and maintenance of the company's high quality of
service. These numbers may vary from 10-30 depending on the rollout
time frames, capital costs, and acquisition of engineers from any
potential company acquisitions.
The Registrant has devoted substantial resources to the build out
of its networks and the expansion of its marketing programs. As a
result, the Registrant has historically experienced operating losses
and negative cash flows. These operating losses and negative cash
flows may continue through additional periods, however, the Registrant
is currently focusing on several new areas of expansion, including the
development of a new market strategy, establishing a credit line,
expanding their network and hiring more technicians to service their
networks. The Registrant intends to implement these new developments
during the second quarter of 2002.
(b) Financing Plan of Operation.
On February 12, 2002, the Registrant closed on a private
placement funding with investors represented by May Davis Group, Inc.
through subscription agreements. The funding consists of a total of
$250,000 principal amount, 5% coupon convertible debentures due in
2005. This funding was placed with a total of 2 investors, both of
whom are accredited. These debentures are convertible into common
stock of the Registrant at (i) 120% of the closing bid price (as
reported by Bloomberg) on the closing date, or (ii) 75% of the average
of the three (3) lowest closing bid prices (as reported by Bloomberg)
during the ten (10) trading days immediately prior to the conversion
date. As collateral, the Registrant issued 16,000,000 shares at par
value ($.001) to be held in escrow until further notice, thus
providing the Registrant with an additional debt satisfaction option
should they choose to convert all or some of the debt to common stock.
To date, most debt incurred by the Registrant is satisfied
through the sale of the Registrant's common stock or advances from
officers, as no revenue has yet been realized through its minimal
operations. Therefore, it is anticipated that their ability to
continue will, as in the past, be largely dependant upon the sale of
common stock, cash on hand, various credit facilities available to the
Registrant, and any internally generated funds.
In addition the Registrant is seeking private placements to
expand it growth in key markets segments. The Registrant has also
secured financing for capital equipment which will allow the company
to manufacture and install our client premises equipment and access
points.
Risk Factors Connected with Plan of Operation.
(a) Limited Prior Operations, History of Operating Losses, and
Accumulated Deficit May Affect Ability of Registrant to Survive.
The Registrant has had limited prior operations to date. Since
the Registrant's principal activities to date have been limited to
organizational activities, research and development, and prospect
development, it has no record of any revenue-producing operations
under its current plan of business. Consequently, there is only a
limited operating history upon which to base an assumption that the
Registrant will be able to achieve its business plans. In addition,
the Registrant has only limited assets. As a result, there can be no
assurance that the Registrant will generate significant revenues in
the future; and there can be no assurance that the Registrant will
operate at a profitable level. If the Registrant is unable to obtain
customers and generate sufficient revenues so that it can profitably
operate, the Registrant's business will not succeed. Accordingly, the
Registrant's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in connection with
the establishment of a new business.
The Registrant has incurred losses from operations: $75,905 for
the fiscal year ended December 31, 2000, $5,889,967 for the fiscal
year ended December 31, 2001, and $3,450,170 for the three months
ended March 31, 2002. At March 31, 2002, the Registrant had an
accumulated deficit of $9,421,977.
As a result of the fixed nature of many of the Registrant's
expenses, the Registrant may be unable to adjust spending in a timely
manner to compensate for any unexpected delays in the development and
marketing of the Registrant's products or any capital raising or
revenue shortfall. Any such delays or shortfalls will have an
immediate adverse impact on the Registrant's operations and financial
condition.
(b) Need for Additional Financing May Affect Operations and Plan of
Business.
The working capital requirements associated with the plan of
business of the Registrant will continue to be significant. The
Registrant anticipates, based on currently proposed assumptions
relating to its operations, that it cannot continue its operations
without securing additional financing. The Registrant anticipate, at
the present time, that it will need to raise up to $10,000,000 in the
next twelve months to implement its sales and marketing strategy and
grow. In the event that the Registrant's plans change or its
assumptions change (due to unanticipated expenses, technical
difficulties, or otherwise), the Registrant would be required to seek
additional financing sooner than currently anticipated or may be
required to significantly curtail or cease its operations.
Regardless of whether the Registrant's cash assets prove to be
inadequate to meet the Registrant's operational needs, the Registrant
might seek to compensate providers of services by issuance of stock in
lieu of cash.
If funding is insufficient at any time in the future, the
Registrant may not be able to take advantage of business opportunities
or respond to competitive pressures, any of which could have a
negative impact on the business, operating results and financial
condition. In addition, if additional shares were issued to obtain
financing, current shareholders may suffer a dilutive effect on their
percentage of stock ownership in the Registrant.
(c) Substantial Competition May Affect Ability to Sell Products.
The Registrant may experience substantial competition in its
efforts to locate and attract customers for its products. Many
competitors in the wireless industry have greater experience,
resources, and managerial capabilities than the Registrant and may be
in a better position than the Registrant to obtain access to attract
customers. There are a number of larger companies which will directly
compete with the Registrant. Such competition could have a material
adverse effect on the Registrant's profitability or viability.
(d) The Registrant's Success Will Depend on Its Ability to Develop
Products and Services That Keep Pace with Technological Advances.
The market for data access and communications services is
characterized by rapidly changing technology and evolving industry
standards in both the wireless and wire line industries. The
Registrant's success will depend to a substantial degree on our
ability to develop and introduce, in a timely and cost-effective
manner, enhancements to our high-speed service and new products that
meet changing customer requirements and evolving industry standards.
For example, increased data rates provided by wired data access
technologies, such as digital subscriber lines, may affect customer
perceptions as to the adequacy of our service and may also result in
the widespread development and acceptance of applications that require
a higher data transfer rate than our high-speed service provides. The
Registrant's technology or systems may become obsolete upon the
introduction of alternative technologies. If the Registrant does not
develop and introduce new products and services in a timely manner, it
may lose users to competing service providers, which would adversely
affect its business and results of operations.
(e) The Registrant's Intellectual Property Protection May Be
Inadequate to Protect Its Proprietary Rights.
The Registrant relies on a combination of patent, copyright,
trademark and trade secret protection laws and non-disclosure
agreements to establish and protect its proprietary rights. The
Registrant cannot provide assurance that patents will issue from any
pending applications or, if patents do issue, that claims allowed will
be sufficiently broad to protect its technology. Further, any of the
Registrant's current or future patents or trademarks may be
challenged, invalidated, circumvented or rendered unenforceable, and
the rights granted under those patents or trademarks may not provide
us with significant proprietary protection or commercial advantage.
Moreover, our patents may not preclude competitors from developing
equivalent or superior products and technology.
The Registrant also relies upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to
develop and maintain its competitive position. Others may
independently develop equivalent proprietary information or otherwise
gain access to or disclose the Registrant's information. The
Registrant cannot provide assurance that the confidentiality
agreements on which it relies will provide meaningful protection of
its trade secrets or adequate remedies in the event of unauthorized
use or disclosure of confidential information or prevent its trade
secrets from otherwise becoming known to or independently discovered
by its competitors.
The Registrant's potential commercial success may also depend in
part on it not infringing the proprietary rights of others or not
breaching technology licenses that cover technology the Registrant
uses in its products. Third-party patents may require the Registrant
to develop alternative technology or to alter its products or
processes, obtain licenses or cease some of its activities. If these
licenses are required, the Registrant may be unable to obtain them on
commercially favorable terms, if at all.
(f) Other External Factors May Affect Viability of Registrant.
The industry of the Registrant in general is a speculative
venture necessarily involving some substantial risk. There is no
certainty that the expenditures to be made by the Registrant will
result in a commercially profitable business. The marketability of
its products will be affected by numerous factors beyond the control
of the Registrant. These factors include market fluctuations, and the
general state of the economy (including the rate of inflation, and
local economic conditions), which can affect companies' spending.
Factors which leave less money in the hands of potential customers of
the Registrant will likely have an adverse effect on the Registrant.
The exact effect of these factors cannot be accurately predicted, but
the combination of these factors may result in the Registrant not
receiving an adequate return on invested capital.
(g) Loss of Any of Current Management Could Have Adverse Impact on
Business and Prospects for Registrant.
The Registrant's success is dependent upon the hiring of key
administrative personnel. Only the Registrant's three officers have
employment agreements with the Registrant; therefore, there can be no
assurance that other personnel will remain employed by the Registrant,
or that the three officers will remain after the termination of such
agreements. Should any of these individuals cease to be affiliated
with the Registrant for any reason before qualified replacements could
be found, there could be material adverse effects on the Registrant=s
business and prospects. In addition, management has no experience is
managing companies in the same business as the Registrant.
In addition, all decisions with respect to the management of
the Registrant will be made exclusively by the officers and directors
of the Registrant. Shareholders of the Registrant will only have
rights associated with such ownership to make decision which effect
the Registrant. The success of the Registrant, to a large extent,
will depend on the quality of the directors and officers of the
Registrant. Accordingly, no person should invest in the shares unless
he is willing to entrust all aspects of the management of the
Registrant to the officers and directors.
(h) Limitations on Liability, and Indemnification, of Directors
and Officers May Result in Expenditures by Registrant.
The Registrant's Articles of Incorporation include provisions to
eliminate, to the fullest extent permitted by the Nevada Revised
Statutes as in effect from time to time, the personal liability of
directors of the Registrant for monetary damages arising from a breach
of their fiduciary duties as directors. In addition, the Registrant's
Bylaws provide that the company shall indemnify the officers,
directors, and employees in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, except
in relation to matters as to which it shall be adjudged in such
action, suit or proceeding, or in connection with any appeal therein
that such officer, director or employee is liable for gross negligence
or misconduct in the performance of his duties. Any limitation on the
liability of any director, or indemnification of directors, officer,
or employees, could result in substantial expenditures being made by
the Registrant in covering any liability of such persons or in
indemnifying them.
(i) Potential Conflicts of Interest May Affect Ability of Officers
and Directors to Make Decisions in the Best Interests of Registrant.
The officers and directors have other interests to which they
devote time, either individually or through partnerships and
corporations in which they have an interest, hold an office, or serve
on boards of directors, and each will continue to do so
notwithstanding the fact that management time may be necessary to the
business of the Registrant. As a result, certain conflicts of interest
may exist between the Registrant and its officers and/or directors
which may not be susceptible to resolution. All of the potential
conflicts of interest will be resolved only through exercise by the
directors of such judgment as is consistent with their fiduciary
duties to the Registrant. It is the intention of management, so as to
minimize any potential conflicts of interest, to present first to the
board of directors to the Registrant, any proposed investments for its
evaluation.
(j) Control by Officers and Directors Over Affairs of the
Registrant May Override Wishes of Other Stockholders.
The Registrant's officers and directors beneficially own
approximately 25% of the outstanding shares of the Registrant's common
stock. As a result, such persons, acting together, have the ability
to exercise significant influence over all matters requiring
stockholder approval. Accordingly, it could be difficult for the
investors hereunder to effectuate control over the affairs of the
Registrant. Therefore, it should be assumed that the officers,
directors, and principal common shareholders who control these voting
rights will be able, by virtue of their stock holdings, to control the
affairs and policies of the Registrant.
(k) Non-Cumulative Voting May Affect Ability of Shareholders to
Influence Registrant Decisions.
Holders of the shares are not entitled to accumulate their votes
for the election of directors or otherwise. Accordingly, the holders
of a majority of the shares present at a meeting of shareholders will
be able to elect all of the directors of the Registrant, and the
minority shareholders will not be able to elect a representative to
the Registrant's board of directors.
(l) Absence of Cash Dividends May Affect Investment Value of
Registrant's Stock.
The board of directors does not anticipate paying cash dividends
on the shares for the foreseeable future and intends to retain any
future earnings to finance the growth of the Registrant's business.
Payment of dividends, if any, will depend, among other factors, on
earnings, capital requirements, and the general operating and
financial condition of the Registrant, and will be subject to legal
limitations on the payment of dividends out of paid-in capital.
(m) No Assurance of Continued Public Trading Market and Risk of Low
Priced Securities May Affect Market Value of Registrant's Stock.
There has been only a limited public market for the common stock
of the Registrant. The common stock of the Registrant is currently
quoted on the Over the Counter Bulletin Board. As a result, an
investor may find it difficult to dispose of, or to obtain accurate
quotations as to the market value of the Registrant's securities. In
addition, the common stock is subject to the low-priced security or so
called "penny stock" rules that impose additional sales practice
requirements on broker-dealers who sell such securities. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure in connection with any trades involving a stock
defined as a penny stock (generally, according to recent regulations
adopted by the U.S. Securities and Exchange Commission, any equity
security that has a market price of less than $5.00 per share, subject
to certain exceptions), including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. The regulations governing
low-priced or penny stocks sometimes limit the ability of broker-
dealers to sell the Registrant's common stock and thus, ultimately,
the ability of the investors to sell their securities in the secondary
market.
(n) Effects of Failure to Maintain Market Makers.
If the Registrant is unable to maintain a National Association of
Securities Dealers, Inc. member broker/dealers as market makers, the
liquidity of the common stock could be impaired, not only in the
number of shares of common stock which could be bought and sold, but
also through possible delays in the timing of transactions, and lower
prices for the common stock than might otherwise prevail.
Furthermore, the lack of market makers could result in persons being
unable to buy or sell shares of the common stock on any secondary
market. There can be no assurance the Registrant will be able to
maintain such market makers.
(o) Shares Eligible For Future Sale.
All of the approximate 32,000,000 shares of common stock which
are currently held, directly or indirectly, by management have been
issued in reliance on the private placement exemption under the
Securities Act of 1933. Such shares will not be available for sale in
the open market without separate registration except in reliance upon
Rule 144 under the Securities Act of 1933. In general, under Rule 144
a person (or persons whose shares are aggregated) who has beneficially
owned shares acquired in a non-public transaction for at least one
year, including persons who may be deemed affiliates of the Registrant
(as that term is defined under that rule) would be entitled to sell
within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of common stock, or
the average weekly reported trading volume during the four calendar
weeks preceding such sale, provided that certain current public
information is then available. If a substantial number of the shares
owned by these shareholders were sold pursuant to Rule 144 or a
registered offering, the market price of the common stock could be
adversely affected.
Forward Looking Statements.
The foregoing Plan of Operation contains "forward looking
statements" within the meaning of Rule 175 of the Securities Act of
1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as
amended, including statements regarding, among other items, the
Registrant's business strategies, continued growth in the Registrant's
markets, projections, and anticipated trends in the Registrant's
business and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-
looking statements are based largely on the Registrant's expectations
and are subject to a number of risks and uncertainties, certain of
which are beyond the Registrant's control. The Registrant cautions
that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the
forward looking statements, including, among others, the following:
reduced or lack of increase in demand for the Registrant's products,
competitive pricing pressures, changes in the market price of
ingredients used in the Registrant's products and the level of
expenses incurred in the Registrant's operations. In light of these
risks and uncertainties, there can be no assurance that the forward-
looking information contained herein will in fact transpire or prove
to be accurate. The Registrant disclaims any intent or obligation to
update "forward looking statements."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Registrant is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by or
against the Registrant has been threatened.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Specific Sales.
The Registrant sold the following securities without registration
(restricted) during the three months ended March 31, 2002:
(a) On February 12, 2002, the Registrant closed on a private
placement funding with investors represented by May Davis Group, Inc.
through subscription agreements (see Exhibit 4.4 to this Form 10-QSB).
The funding consists of a total of $250,000 principal amount, 5%
coupon convertible debentures due in 2005. Funds were paid out of an
escrow account at First Union National Bank (see Exhibit 4.5 to this
Form 10-QSB), as follows: (i) the Registrant received $224,000; (b)
legal fees and other expenses of $6,000; and (c) commissions of
$20,000 to May Davis Group, Inc.). This funding was placed with a
total of 2 investors, both of whom are accredited. These debentures
are convertible into common stock of the Registrant at (i) 120% of the
closing bid price (as reported by Bloomberg) on the closing date, or
(ii) 75% of the average of the three (3) lowest closing bid prices (as
reported by Bloomberg) during the ten (10) trading days immediately
prior to the conversion date.
(b) On February 13, 2002, the Registrant issued 16,000,000
shares of common stock, which have been deposited into an escrow
account held by Joseph LaRocco, Esq. pursuant to the terms of the
debenture offering until further notice (see Exhibit 4.6 to this Form
10-QSB). An interest in these shares is secured by a security
agreement in favor of the investors (see Exhibit 4.7 to this Form 10-
QSB).
(c) On February 20, 2002, the Registrant issued a total of
31,313,604 shares of common stock to five individuals for various
consulting services to be performed for the Registrant (three of these
individuals are affiliates of the Registrant). These shares were
valued at $0.054 per share. On this date the closing trading price of
the stock was $0.06.
(d) On February 27, 2002, the Registrant issued 500,000 shares
of common stock to the chief operating officer of the Registrant for
consulting services to be performed for the Registrant. These shares
were valued at $0.054 per share. On this date the closing trading
price of the stock was $0.06.
(e) On March 8, 2002, the Registrant issued a total of
11,078,946 shares of common stock to the president of the Registrant
for consulting services to be performed for the Registrant. These
shares were valued at $0.045 per share. On this date, the closing
trading price of the stock was $0.06.
(f) On March 19, 2001, the Registrant issued 100,000 shares of
common stock to one company for consulting services rendered to the
company. These shares were valued at $0.054 per share.
On this date, the Registrant also issued a total of 750,000
shares of common stock to three individuals (one of which is an
affiliate of the Registrant) in connection with the Registrant's
previous merger with 5G Partners, a private Canadian partnership.
These shares were valued at $0.054 per share.
On March 19, 2002, the closing trading price of the stock was
$0.06.
(b) General Information.
Other than as set forth above, no commissions were paid in
connection with any of these sales. These sales were undertaken under
Rule 506 of Regulation D under the Securities Act of 1933, as amended
("Act"), by the fact that:
- the sales were made to a sophisticated or accredited investors as
defined in Rule 502;
- the Registrant gave each purchaser the opportunity to ask
questions and receive answers concerning the terms and conditions
of the offering and to obtain any additional information which
the Registrant possessed or could acquire without unreasonable
effort or expense that is necessary to verify the accuracy of
information furnished;
- at a reasonable time prior to the sale of securities, the
Registrant advised each purchaser of the limitations on resale in
the manner contained in Rule 502(d)2 of this section;
- neither the Registrant nor any person acting on its behalf sold
the securities by any form of general solicitation or general
advertising; and
- the Registrant exercised reasonable care to assure that each
purchaser of the securities is not an underwriter within the
meaning of Section 2(11) of the Act in compliance with Rule 502(d).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits.
Exhibits included or incorporated by reference herein are set
forth in the attached Exhibit Index.
Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the
first quarter of the fiscal year covered by this Form 10-QSB.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
5G Wireless Communications, Inc.
Dated: May 17, 2002 By: /s/ Jerry Dix
Jerry Dix, President
EXHIBIT INDEX
Number Exhibit Description
2.1 Agreement and Plan of Reorganization and Merger between
Tesmark, Inc., an Idaho corporation, and the Registrant
(formerly know as Tesmark, Inc.), a Nevada corporation,
dated November 10, 1998 (incorporated by reference to
Exhibit 2 of the Form 10-SB filed on December 15, 1999).
2.2 Acquisition Agreement between the Registrant, and Richard
Lejeunesse, Curtis Mearns, and Don Boudewyn, a partnership
(known as 5G Partners), dated December 15, 2000, as amended
(incorporated by reference to Exhibit 10 of the Form 8-K
filed on February 14, 2001).
2.3 Share Purchase Agreement between the Registrant, and Sea
Union Industries Pte. Ltd., Richard Lajeunesse, Rita Chou,
Peter Chen, Yeo Lai Ann, Tan Lam Im, Choa So Chin, Tan Ching
Khoon, Tan Sek Toh, and 5G Wireless Communication Pte. Inc.
(formerly known as Peteson Investment Pte Ltd.), dated May
5, 2001 (incorporated by reference to Exhibit 2 of the Form
8-K filed on June 5, 2001).
2.4 Purchase Agreement between the Registrant and Skyhub Asia
Holdings Limited, eVision USA.com, and eBanker USA.com,
dated May 19, 2001 (incorporated by reference to Exhibit 2.4
of the Form 10-KSB filed on April 18, 2002).
3.1 Articles of Incorporation, dated September 24, 1998
(incorporated by reference to Exhibit 3 of the Form 10-SB
filed on December 15, 1999).
3.2 Certificate of Amendment to the Articles of Incorporation,
dated May 5, 2000 (incorporated by reference to Exhibit 3.3
of the Form SB-2 filed on January 10, 2002).
3.2 Certificate of Amendment to the Articles of Incorporation,
dated January 19, 2001 (incorporated by reference to Exhibit
3.1 of the Form 8-K filed on February 14, 2001).
3.3 Bylaws, dated October 30, 1998 (incorporated by reference to
Exhibit 3 of the Form 10-SB filed on December 15, 1999).
4.1 2001 Stock Incentive Plan, dated November 1, 2001
(incorporated by reference to Exhibit 10 of the Form S-8
filed on December 10, 2001).
4.2 Non-Employee Directors and Consultants Retainer Stock Plan,
dated January 30, 2002 (incorporated by reference to Exhibit
4.1 of the Form S-8 filed on January 31, 2002).
4.3 Amended and Restated Stock Incentive Plan, dated January 30,
2002 (incorporated by reference to Exhibit 4.2 of the Form
S-8 filed on January 31, 2002).
4.4 Form of Subscription Agreement Between the Registrant and
investors, dated February 12, 2002 (including the following
exhibits: Exhibit A: Form of Notice Of Conversion; Exhibit
B: Form of Registration Rights Agreement; Exhibit C: Form of
Debenture; and Exhibit D: Form of Opinion of Registrant's
Counsel) (the following to this agreement have been omitted:
Exhibit E: Board Resolution; Schedule 3(A): Subsidiaries;
Schedule 3(C): Capitalization; Schedule 3(E): Conflicts;
Schedule 3(G): Material Changes; Schedule 3(H): Litigation;
Schedule 3(L): Intellectual Property; Schedule 3(n): Liens;
and Schedule 3(t): Certain Transactions) (see below).
4.5 Escrow Agreement between the Registrant, First Union Bank,
and May Davis Group, Inc., dated February 12, 2002 (see below).
4.6 Form of Escrow Agreement between the Registrant, Joseph B.
LaRocco, Esq., and investors, dated February 12, 2002 (see below).
4.7 Security Agreement (Stock Pledge) between the Registrant and
investors, dated February 12, 2002 (see below).
10.1 Consulting Agreement between the Registrant and Allan
Schwabe, dated November 1, 2000 (incorporated by reference
to Exhibit 10.1 of the Form 10-KSB filed on April 18, 2002).
10.2 Consulting Agreement between the Registrant and Cameron
House Publishing, LLC, dated April 1, 2001 (incorporated by
reference to Exhibit 10.2 of the Form 10-KSB filed on April
18, 2002).
10.3 Consulting Agreement between the Registrant and 519021 BC.
Ltd., dated April 1, 2001 (incorporated by reference to
Exhibit 10.3 of the Form 10-KSB filed on April 18, 2002).
10.4 Employment Agreement between the Registrant and Richard
Lajeunesse, dated April 1, 2001 (incorporated by reference
to Exhibit 10.4 of the Form 10-KSB filed on April 18, 2002).
10.5 Finder's Fee Agreement for Financing between the Registrant
and Allen Schwabe, dated April 1, 2001 (incorporated by
reference to Exhibit 10.5 of the Form 10-KSB filed on April
18, 2002).
10.6 Consulting Agreement between the Registrant and Michael Tan,
dated May 1, 2001 (incorporated by reference to Exhibit 10.6
of the Form 10-KSB filed on April 18, 2002).
10.7 Consulting Agreement between the Registrant and Market Force
Inc., dated May 3, 2001 (incorporated by reference to
Exhibit 10.7 of the Form 10-KSB filed on April 18, 2002).
10.8 Employment Agreement between the Registrant and Cameron
Robb, dated July 1, 2001 (incorporated by reference to
Exhibit 10.8 of the Form 10-KSB filed on April 18, 2002).
10.9 Independent Contractor/Consulting Agreement between the
Registrant and Brent Fouch, dated September 1, 2001
(incorporated by reference to Exhibit 10 of the Form S-8
filed on October 4, 2001).
10.10 Independent Contractor/Consulting Agreement between the
Registrant and Cameron Robb, dated November 1, 2001
(incorporated by reference to Exhibit 10 of the Form S-8
filed on December 10, 2001).
10.11 Independent Contractor/Consulting Agreement between the
Registrant and Michael Tan, dated November 1, 2001
(incorporated by reference to Exhibit 10 of the Form S-8
filed on December 10, 2001).
10.12 Employment Agreement between the Registrant and Jerry Dix,
dated February 1, 2002 (incorporated by reference to Exhibit
10.12 of the Form 10-KSB filed on April 18, 2002).
10.13 Employment Agreement between the Registrant and Don
Boudewyn, dated February 1, 2002 (incorporated by reference
to Exhibit 10.13 of the Form 10-KSB filed on April 18, 2002).
10.14 Consulting Services Agreement between the Registrant and
Steve Lipman, dated February 6, 2002 (incorporated by
reference to Exhibit 10.14 of the Form 10-KSB filed on April
18, 2002).
10.15 Consulting Services Agreement between the Registrant and
Robert Kirish, dated February 6, 2002 (incorporated by
reference to Exhibit 10.15 of the Form 10-KSB filed on April
18, 2002).
10.16 Employment Agreement between the Registrant and Brian Corty,
dated March 1, 2002 (incorporated by reference to Exhibit
10.16 of the Form 10-KSB filed on April 18, 2002).
10.17 Employment Agreement Amendment between the Registrant and
Don Boudewyn, dated April 1, 2002 (incorporated by reference
to Exhibit 10.17 of the Form 10-KSB filed on April 18, 2002).
EX-4.4
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO REGISTRATION
OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
FORM OF SUBSCRIPTION AGREEMENT
To: 5G WIRELESS COMMUNICATIONS, INC.
This Subscription Agreement is made between 5G WIRELESS
COMMUNICATIONS, INC., a Nevada corporation, (the "Company"), and the
undersigned prospective purchaser ("Purchaser") who is subscribing
hereby for the Company's convertible debentures (the "Debentures").
This subscription is submitted to you in accordance with and subject
to the terms and conditions described in this Subscription Agreement,
together with any Exhibits thereto, relating to an offering (the
"Offering") of up to $350,000 of Debentures. The Offering is limited
to accredited investors and is made in accordance with the exemptions
from registration provided for under Section 4(2) of the 1933 Act and
Rule 506 of Regulation D promulgated under the 1933 Act ("Regulation D").
1. SUBSCRIPTION.
(a) The Purchaser hereby irrevocably subscribes for and agrees
to purchase that amount of Debentures as stated on the signature page
upon the terms set forth in this Subscription Agreement. The
Debentures shall pay a 5% cumulative interest, payable in arrears at
the time of each conversion, in cash or in common stock of the
Company, $.001 par value ("Common Stock"), at the Company's option.
If paid in Common Stock, the number of shares of the Company's Common
Stock to be received shall be determined pursuant to the conversion
terms of the Debenture. If the dividend is to be paid in cash, the
Company shall make such payment within five (5) business days of the
conversion date. If the dividend is to be paid in Common Stock, said
Common Stock shall be delivered to the Purchaser, or per Purchaser's
instructions, within five (5) business days of the conversion date.
The Debentures are subject to automatic conversion at the end of three
(3) years from the date of issuance at which time all Debentures
outstanding will be automatically converted based upon the terms set
forth in the Debenture. The closing shall be deemed to have occurred
on the date funds, less placement fees, escrow fees and attorney fees,
are received by the Company (the "Closing Date"). Funds shall be
disbursed from escrow as follows: net proceeds shall be disbursed from
escrow upon the execution and delivery of all Transaction Documents,
including a Security Agreement and Escrow Agreement for 16,000,000
shares of Common Stock securing the debenture loan. Delivery may be
made of the Transaction Documents (as defined below) by e-mail, and
execution may be evidenced by faxed signature pages. "Transaction
Documents" shall mean this Subscription Agreement, the Registration
Rights Agreement, the Debentures, the Escrow Agreement and all
exhibits to any of the aforementioned documents.
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased, the Debentures so purchased will be
forwarded by the Escrow Agent to the Purchaser or its broker, as
listed on the signature page, and the name of such Purchaser will be
registered on the Debenture transfer books of the Company as the
record owner of such Debentures. The Escrow Agent shall not be liable
for any action taken or omitted by him in good faith and in no event
shall the Escrow Agent be liable or responsible except for the Escrow
Agent's own gross negligence or willful misconduct. The Escrow Agent
has made no representations or warranties in connection with this
transaction and has not been involved in the negotiation of the terms
of this Agreement or any matters relative thereto. The Company and
Purchaser each agree to indemnify and hold harmless the Escrow Agent
from and with respect to any suits, claims, actions or liabilities
arising in any way out of this transaction including the obligation to
defend any legal action brought which in any way arises out of or is
related to this Agreement.
(c) As long as the Purchaser owns the Debenture, the Purchaser
shall have the right to change the terms for the balance of the
Debenture it then holds, to match the terms of any other debenture
offering made by the Company.
(d) Conditions Precedent. The following shall be conditions
precedent to closing and release of funds from escrow: (i) the
Company arranges to have 16,000,000 shares of its Common Stock placed
into escrow as a stock pledge and (ii) all Transaction Documents are
properly executed.
2. REPRESENTATIONS AND WARRANTIES.
The Purchaser hereby represents and warrants to, and agrees with,
the Company as follows:
a. The Purchaser has been furnished with, and has carefully
read the applicable form of Registration Rights Agreement annexed
hereto as Exhibit B (the "Registration Rights Agreement"), and the
Debenture annexed hereto as Exhibit C and is familiar with and
understands the terms of the Offering. With respect to tax and other
economic considerations involved in his investment, the Purchaser is
not relying on the Company. The Purchaser has carefully considered and
has, to the extent the Purchaser believes such discussion necessary,
discussed with the Purchaser 's professional legal, tax, accounting
and financial advisors the suitability of an investment in the
Company, by purchasing the Debentures, for the Purchaser 's particular
tax and financial situation and has determined that the investment
being made by the Purchaser is a suitable investment for the
Purchaser.
b. The Purchaser acknowledges that all documents, records, and
books pertaining to this investment which the Purchaser has requested
have been made available for inspection or the Purchaser has had
access thereto.
c. The Purchaser has had a reasonable opportunity to ask
questions of and receive answers from a person or persons acting on
behalf of the Company concerning the Offering and if such opportunity
was taken, all such questions have been answered to the full
satisfaction of the Purchaser.
d. The Purchaser will not sell or otherwise sell the Debentures
or the Common Stock issued upon conversion of the Debentures without
registration under the 1933 Act or applicable state securities laws or
compliance with an exemption therefrom. The Debentures have not been
registered under the 1933 Act or under the securities laws of any
state. Resales of the Common Stock underlying the Debentures or issued
in payment of accrued interest on the Debentures are to be registered
by the Company pursuant to the terms of the Registration Rights
Agreement attached hereto as Exhibit B and incorporated herein and
made a part hereof. The Purchaser represents that the Purchaser is
purchasing the Debentures for the Purchaser's own account, for
investment and not with a view to resale or distribution except in
compliance with the 1933 Act. The Purchaser has not offered or sold
any portion of the Debentures being acquired nor does the Purchaser
have any present intention of dividing the Debentures with others or
of selling, distributing or otherwise disposing of any portion of the
Debentures either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or non-occurrence
of any predetermined event or circumstance in violation of the 1933
Act. Except as provided in the Registration Rights Agreement, the
Company has no obligation to register the Common Stock underlying
Debentures and the Common Stock that may be issued in lieu of cash
dividends.
e. The Purchaser recognizes that an investment in the
Debentures involves substantial risks, including loss of the entire
amount of such investment. Further, the Purchaser has carefully read
and considered the schedule entitled Pending Litigation matters
attached hereto as Schedule 3(h).
f. The Purchaser acknowledges that each certificate
representing the Debentures (and the shares of Common Stock issued
upon conversion of the Debentures, unless registered) or in payment of
dividends on the Debentures shall be stamped or otherwise imprinted
with a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
If Purchaser sends a Notice of Conversion and indicates on said notice
that the conversion is for an immediate sale, then in such event the
Company shall have its transfer agent send Purchaser the appropriate
number of shares of Common Stock without restrictive legends and not
subject to stop transfer instructions.
g. The Purchaser acknowledges and agrees that it shall not be
entitled to seek any remedies with respect to the Offering from any
party other than the Company.
h. If this Subscription Agreement is executed and delivered on
behalf of a corporation: (i) such corporation has the full legal
right and power and all authority and approval required (a) to execute
and deliver, or authorize execution and delivery of, this Subscription
Agreement and all other instruments (including, without limitation,
the Registration Rights Agreement) executed and delivered by or on
behalf of such corporation in connection with the purchase of the
Debentures and (b) to purchase and hold the Debentures; and (ii) the
signature of the party signing on behalf of such corporation is
binding upon such corporation.
i. The Purchaser is not subscribing for the Debentures as a
result of, or pursuant to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or
meeting.
j. The Purchaser is purchasing the Debentures for its own
account for investment, and not with a view toward the resale or
distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; provided, however, that by
making the representations herein, Purchaser does not agree to hold
any of the Debentures for any minimum or other specific term and
reserves the right to dispose of the Debentures at any time in
accordance with or pursuant to a registration statement or an
exemption under the 1933 Act. Purchaser is neither an underwriter of,
nor a dealer in, the Debentures or the Common Stock issuable upon
conversion thereof or upon the payment of dividends thereon and is not
participating in the distribution or resale of the Debentures or the
Common Stock issuable upon conversion or exercise thereof.
k. The Purchaser or the Purchaser's representatives, as the
case may be, has such knowledge and experience in financial, tax and
business matters so as to enable the Purchaser to utilize the
information made available to the Purchaser in connection with the
Offering to evaluate the merits and risks of an investment in the
Debentures and to make an informed investment decision with respect
thereto. Mark Tow, Esq. has acted as attorney for the Company and
Joseph B. LaRocco has acted as attorney for May Davis Group, Inc. and
neither has acted as counsel to the Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Purchaser that:
a. Organization and Qualification. The Company and its
"SUBSIDIARIES" (which for purposes of this Subscription Agreement
means any entity in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest) (a complete list
of which is set forth in Schedule 3(a)) are corporations duly
organized and validly existing in good standing under the laws of the
respective jurisdictions of their incorporation, and have the
requisite corporate power and authorization to own their properties
and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Subscription
Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect
on the business, properties, assets, operations, results of
operations, financial condition or prospects of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered
into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as
defined in Section 3(b)below).
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and
authority to enter into and perform this Subscription Agreement, the
Registration Rights Agreement and the Escrow Agreement, and each of
the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Subscription Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the
Debentures in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the reservation for issuance and
the issuance of the Debentures pursuant to this Subscription
Agreement, have been duly and validly authorized by the Company's
Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors, or its shareholders, (iii) the
Transaction Documents have been duly and validly executed and
delivered by the Company, and (iv) the Transaction Documents
constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 150,000,000 shares of
Common Stock, of which as of the date hereof approximately 22,128,284
shares are issued and outstanding, 10,000,000 shares of Preferred
Stock, of which as of the date hereof -0- shares are issued and
outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in Schedule 3(c) which is attached hereto and made
a part hereof, (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company, (ii) there are
no outstanding debt securities, (iii) there are no outstanding shares
of capital stock, options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of
the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement), (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to redeem a security of
the Company or any of its Subsidiaries, (vi) there are no securities
or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in
this Subscription Agreement, (vii) the Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement and (viii) there is no dispute as to the
class of any shares of the Company's capital stock. The Company has
furnished to the Purchaser, or the Purchaser has had access through
EDGAR to, true and correct copies of the Company's Articles of
Incorporation, as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's By-laws, as in effect on the date
hereof (the "BY-LAWS '), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Debentures. A sufficient number of Debentures
issuable pursuant to this Subscription Agreement, but not more than
19.99% of the shares of Common Stock outstanding as of the date hereof
(if the Company becomes listed on Nasdaq or the American Stock
Exchange), has been duly authorized and reserved for issuance pursuant
to this Subscription Agreement. Upon issuance in accordance with this
Subscription Agreement, the Debentures will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. In the event the Company cannot register
a sufficient number of shares of Common Stock, due to the remaining
number of authorized shares of Common Stock being insufficient, the
Company will use its best efforts to register the maximum number of
shares it can based on the remaining balance of authorized shares and
will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
e. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby will not
(i) result in a violation of the Articles of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding
series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a material default (or an event which
with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, contract,
indenture mortgage, indebtedness or instrument to which the Company or
any of its Subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree, including United
States federal and state securities laws and regulations and the rules
and regulations of the principal securities exchange or trading market
on which the Common Stock is traded or listed (the "Principal
Market"), applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries
is bound or affected. Except as disclosed in Schedule 3(e), neither
the Company nor its Subsidiaries is in violation of any term of, or in
default under, the Articles of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the By-laws or their organizational
charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
that would not individually or in the aggregate have a Material
Adverse Effect. The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any
law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court,
except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Subscription
Agreement and as required under the 1933 Act, the Company is not
required to obtain any consent, authorization, permit or order of, or
make any filing or registration (except the filing of a registration
statement) with, any court, governmental authority or agency,
regulatory or self-regulatory agency or other third party in order for
it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the
terms hereof or thereof. All consents, authorizations, permits,
orders, filings and registrations which the Company is required to
obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof and are in full force and
effect as of the date hereof. Except as disclosed in Schedule 3(e),
the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The
Company is not, and will not be, in violation of the listing
requirements of the Principal Market as in effect on the date hereof
and on each of the Closing Dates and is not aware of any facts which
would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since January 1, 2001,
the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the Securities and
Exchange Commission ("SEC") pursuant to the reporting requirements of
the Securities and Exchange Act of 1934 ("1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to the Purchaser or its
representatives, or they have had access through EDGAR, to true and
complete copies of the SEC Documents. As of their respective dates,
the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, 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 to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes
or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No other written information
provided by or on behalf of the Company to the Purchaser which is not
included in the SEC Documents, including, without limitation,
information referred to in Section 3(d) of this Subscription
Agreement, contains any untrue statement of a material fact or omits
to state any material fact necessary to make the statements therein,
in the light of the circumstance under which they are or were made,
not misleading. Neither the Company nor any of its Subsidiaries or any
of their officers, directors, employees or agents have provided the
Purchaser with any material, nonpublic information which was not
publicly disclosed prior to the date hereof and any material,
nonpublic information provided to the Purchaser by the Company or its
Subsidiaries or any of their officers, directors, employees or agents
prior to any Closing Date shall be publicly disclosed by the Company
prior to such Closing Date.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) or the SEC Documents filed at least five (5) days prior to the
date hereof, since May 15, 2001, there has been no change or
development in the business, properties, assets, operations, financial
condition, results of operations or prospects of the Company or its
Subsidiaries which has had or reasonably could have a Material Adverse
Effect. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in Schedule
3(h), there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the
executive officers of Company or any of its Subsidiaries, threatened
against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding the Purchase of Debentures. The
Company acknowledges and agrees that the Purchaser is acting solely in
the capacity of arm's length investor with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The
Company further acknowledges that the Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by
the Purchaser or any of its respective representatives or agents in
connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to the
Purchaser's purchase of the Debentures. The Company further represents
to the Purchaser that the Company's decision to enter into the
Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has
occurred or exists, or to its knowledge is contemplated to occur, with
respect to the Company or its Subsidiaries or their respective
business, properties, assets, prospects, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the
SEC relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly announced.
k. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such
dispute threatened. Neither the Company nor any of its Subsidiaries is
a party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that relations with their employees are good. No
executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company's
employ or otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all
trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now
conducted. Except as set forth on Schedule 3(l), none of the Company's
trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights necessary to conduct its business as now
or as proposed to be conducted have expired or terminated, or are
expected to expire or terminate within two years from the date of this
Subscription Agreement. The Company and its Subsidiaries do not have
any knowledge of any infringement by the Company or its Subsidiaries
of trademark, trade name rights, patents, patent rights, copyrights,
inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of
any such development of similar or identical trade secrets or
technical information by others and, except as set forth on Schedule
3(l), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding trademark, trade name, patents,
patent rights, invention, copyright, license, service names, service
marks, service mark registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their
intellectual properties.
m. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state
and local laws and regulations relating to the protection of human
health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have
received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or
in the aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in Schedule 3(n) or such as do not materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
o. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the
Company and its Subsidiaries are engaged. Neither the Company nor any
such Subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have
in full force and effect all certificates, approvals, authorizations
and permits from the appropriate federal, state, local or foreign
regulatory authorities and comparable foreign regulatory agencies,
necessary to own, lease or operate their respective properties and
assets and conduct their respective businesses, and neither the
Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates,
approvals, authorizations or permits which if not obtained, or such
revocations or modifications which, would not have a Material Adverse
Effect.
q. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
r. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company's officers has or is
expected in the future to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
s. Tax Status. The Company and each of its Subsidiaries has
made or filed all United States federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company
and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested
in good faith and has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.
t. Certain Transactions. Except as set forth on Schedule 3(t)
and in the SEC Documents filed at least ten days prior to the date
hereof and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms
no less favorable than the Company could obtain from third parties and
other than the grant of stock options disclosed on Schedule 3(c), none
of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of
the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
u. Dilutive Effect. The Company understands and acknowledges
that the number of shares of Common Stock issuable upon purchases
pursuant to this Subscription Agreement will increase in certain
circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines
following the effective date of the registration statement covering
the Common Stock underlying the Debentures (the "Effective Date").
The Company's executive officers and directors have studied and fully
understand the nature of the transactions contemplated by this
Subscription Agreement and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best
interests of the Company. The Company specifically acknowledges that,
subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock
upon purchases pursuant to this Subscription Agreement is absolute and
unconditional regardless of the dilutive effect that such issuance may
have on the ownership interests of other shareholders of the Company.
v. Right of First Refusal. The Company shall not, directly or
indirectly, without the prior written consent of May Davis Group,
Inc., offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or
other disposition) any of its Common Stock or securities convertible
into Common Stock at a price that is less than the market price of the
Common Stock at the time of issuance of such security or investment (a
"SUBSEQUENT FINANCING") for a period of one year after the Effective
Date, except (i) the granting of options or warrants to employees,
officers, directors and consultants, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon
exercise of any currently outstanding warrants or options and upon
conversion of any currently outstanding convertible debenture or
convertible preferred stock, in each case disclosed pursuant to
Section 3(c), (iii) securities issued in connection with the
capitalization or creation of a joint venture with a strategic
partner, (iv) shares issued to pay part or all of the purchase price
for the acquisition by the Company of another entity (which, for
purposes of this clause (iv), shall not include an individual or group
of individuals), and (v) shares issued in a bona fide public offering
by the Company of its securities, and (vi) shares that may be issued
as a result of any outstanding rights offering between the Company and
its current stockholder, unless (A) the Company delivers to May Davis
Group, Inc. a written notice (the "SUBSEQUENT FINANCING NOTICE") of
its intention to effect such Subsequent Financing, which Subsequent
Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to
be raised thereunder, the person with whom such Subsequent Financing
shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) May Davis Group, Inc. shall
not have notified the Company by 5:00 p.m. (New York time) on the
fifth (5th) business day after its receipt of the Subsequent Financing
Notice of its willingness to provide, subject to completion of
mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Financing Notice.
If May Davis Group, Inc. shall fail to notify the Company of its
intention to enter into such negotiations within such time period,
then the Company may effect the Subsequent Financing substantially
upon the terms set forth in the Subsequent Financing Notice; PROVIDED
THAT the Company shall provide May Davis Group, Inc. with a second
Subsequent Financing Notice, and May Davis Group, Inc. shall again
have the right of first refusal set forth above in this Section, if
the Subsequent Financing subject to the initial Subsequent Financing
Notice shall not have been consummated for any reason on the terms set
forth in such Subsequent Financing Notice within thirty (30) business
days after the date of the initial Subsequent Financing Notice. The
rights granted to May Davis Group, Inc. in this Section are not
subject to any prior right of first refusal given to any other person
except as disclosed on Schedule 3(c).
(w) The Company understands that the Purchasers are relying on
the Security Agreement and the 16,000,000 shares being pledged in the
event the Company defaults in the terms of the Security Agreement,
Subscription Agreement, Registration Rights Agreement or Debentures
being entered into between the Company and Purchasers. Furthermore, the
Company understands that were it not for this pledge being made by
certain shareholders, the Purchasers would not be subscribing for the
Debentures. Therefore, the Company represents and warrants that in the
event it defaults by failing to have the registration statement covering
this Offering declared effective that it will cooperate with the
Purchasers and do everything necessary to have the legend removed from
the pledged shares to facilitate their sale pursuant to the terms of the
Security Agreement. The Company also represents and acknowledges that
the Debenture is a full recourse loan being made by the Purchasers to
the Company and that in the event the 16,000,000 shares are not
sufficient to cover 125% of Principal plus liquidated damages that the
Company shall be completely liable and responsible to pay any deficiency
to the Purchasers including liquidated damages and reasonable attorney's
fees and costs as stated in this Subscription Agreement, the Security
Agreement and the Debentures,.
4. COVENANTS OF THE COMPANY
a. Best Efforts. The Company shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in
this Subscription Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense
take such action as the Company shall reasonably determine is
necessary to qualify the Common Stock underlying the shares for, or
obtain exemption for the same for, sale to the Purchaser under
applicable securities or "Blue Sky" laws of such states of the United
States, as specified by Purchaser. The Company shall, at its sole cost
and expense, make all filings and reports relating to the offer and
sale of the Common Stock underlying the Debentures as required under
the applicable securities or "Blue Sky" laws of such states of the
United States as specified by the Purchaser.
c. Reporting Status. Until the earlier of (i) the date that
the Purchaser may sell all of the Common Stock underlying the shares
acquired pursuant to this Subscription Agreement without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which the Purchaser shall have sold all
the Common Stock underlying the Debentures, the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status as a reporting company
under the 1934 Act.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Debentures (excluding amounts paid by the Company for fees
as set forth in the Transaction Documents) for general corporate and
working capital purposes.
e. Financial Information. The Company agrees to make available
to the Purchaser via EDGAR or other electronic means the following:
(i) within five (5) business days after the filing thereof with the
SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly
Reports on Form 10-QSB, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act;
(ii) on the same day as the release thereof, facsimile copies of all
press releases issued by the Company or any of its Subsidiaries, (iii)
copies of any notices and other information made available or given to
the shareholders of the Company generally, contemporaneously with the
making available or giving thereof to the shareholders and (iv) within
two (2) calendar days of filing or delivery thereof, copies of all
documents filed with, and all correspondence sent to, the Principal
Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc.
f. Reservation of Common Stock. Subject to the following
sentence, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the
issuance of the Common Stock underlying the Debentures. In the event
that the Company determines that it does not have a sufficient number
of authorized shares of Common Stock to reserve and keep available for
issuance, the Company shall use its best efforts to increase the
number of authorized shares of Common Stock by seeking shareholder
approval by calling a shareholder's meeting within thirty (30) days of
their being such deficiency for the authorization of such additional shares.
g. Listing. The Company shall promptly secure the listing of
all of the Common Stock underlying the Debentures upon the Principal
Market and each other national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain,
such listing. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market, unless the
Purchaser and the Company agree otherwise. Neither the Company nor any
of its Subsidiaries shall take any action which would be reasonably
expected to result in the delisting or suspension of the Common Stock
on the Principal Market (excluding suspensions of not more than one
trading day resulting from business announcements by the Company). The
Company shall promptly provide to the Purchaser copies of any notices
it receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all
fees and expenses in connection with satisfying its obligations under
this Section.
h. Transactions With Affiliates. The Company shall not, and
shall cause each of its Subsidiaries not to, enter into, amend, modify
or supplement, or permit any Subsidiary to enter into, amend, modify
or supplement, any agreement, transaction, commitment or arrangement
with any of its or any Subsidiary's officers, directors, persons who
were officers or directors at any time during the previous two years,
shareholders who beneficially own 5% or more of the Common Stock, or
affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each a
"RELATED PARTY"), except for (i) customary employment arrangements and
benefit programs on reasonable terms, (ii) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person
other than such Related Party, or (iii) any agreement, transaction,
commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any
director who is also an officer of the Company or any Subsidiary of
the Company shall not be a disinterested director with respect to any
such agreement, transaction, commitment or arrangement. "AFFILIATE"
for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a 5% or
more equity interest in that person or entity, (ii) has 5% or more
common ownership with that person or entity, (iii) Controls that
person or entity, or (iv) shares common control with that person or
entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or
govern the policies of another person or entity.
i. Intentionally deleted.
j. Corporate Existence. The Company shall use its best efforts
to preserve and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration. The
Company shall promptly notify Purchaser upon the occurrence of any of
the following events in respect of a registration statement or related
prospectus covering the Common Stock underlying the Debentures: (i)
receipt of any request for additional information by the SEC or any
other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or
supplements to the registration statement or related prospectus; (ii)
the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of any
registration statement or the initiation of any proceedings for that
purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any
of the Common Stock underlying the Debentures for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; (iv) the happening of any event that makes any statement
made in such registration statement or related prospectus or any
document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making
of any changes in the registration statement, related prospectus or
documents so that, in the case of a registration statement, it will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the
related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and (v)
the Company's reasonable determination that a post-effective amendment
to the registration statement would be appropriate, and the Company
shall promptly make available to Purchaser any such supplement or
amendment to the related prospectus.
l. Indemnification. In consideration of the Purchaser's
execution and delivery of the this Agreement and the Registration
Rights Agreement and acquiring the Debentures hereunder and in
addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify
and hold harmless the Purchaser and all of their shareholders,
officers, directors, employees and direct or indirect investors and
any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether
any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and
disbursements (the "Indemnified Liabilities"), incurred by any
Indemnitee as a result of, or arising out of, or relating to (i) any
misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (ii) any breach
of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action,
suit or claim brought or made against such Indemnitee by a third party
and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby,
(iv) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the
Debentures or (v) the status of the Purchaser as an investor in the
Company, except insofar as any such untrue statement, alleged untrue
statement, omission or alleged omission is made in reliance upon and
in conformity with written information furnished to the Company by the
Purchaser which is specifically intended by the Purchaser for use in
the preparation of any such Registration Statement, preliminary
prospectus or prospectus. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall
make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to
any cause of action or similar rights the Purchaser may have, and any
liabilities to which the Purchaser may be subject.
m. Reimbursement. If (i) Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any
capacity in any action, proceeding or investigation brought by any
shareholder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by the Transaction
Documents, or if Purchaser is impleaded in any such action, proceeding
or investigation by any person, or (ii) Purchaser, other than by
reason of its gross negligence or willful misconduct or by reason of
its trading of the Common Stock in a manner that is illegal under the
federal securities laws, becomes involved in any capacity in any
action, proceeding or investigation brought by the SEC against or
involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction
Documents, or if Purchaser is impleaded in any such action, proceeding
or investigation by any person, then in any such case, the Company
will reimburse Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which Purchaser is a named
party, the Company will pay to Purchaser the charges, as reasonably
determined by Purchaser, for the time of any officers or employees of
Purchaser devoted to appearing and preparing to appear as witnesses,
assisting in preparation for hearings, trials or pretrial matters, or
otherwise with respect to inquiries, hearing, trials, and other
proceedings relating to the subject matter of this Subscription
Agreement. The reimbursement obligations of the Company under this
section shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
affiliates of Purchaser that are actually named in such action,
proceeding or investigation, and partners, directors, agents,
employees, attorneys, accountants, auditors and controlling persons
(if any), as the case may be, of Purchaser and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of
the Company, Purchaser and any such affiliate and any such person.
5. LIMITATION ON AMOUNT OF CONVERSION AND OWNERSHIP.
Notwithstanding anything to the contrary in this Agreement,
in no event shall the Purchaser be entitled to convert any of the
Debentures to the extent that, after such conversion, that number of
shares of Common Stock, which when added to the sum of the number of
Debentures beneficially owned, (as such term is defined under Section
13(d) and Rule 13d-3 of the Securities Exchange Act of 1934 (the
"1934 ACT")), by the Purchaser, would exceed 4.99% of the number of
shares of Common Stock outstanding on the Conversion Date (as that
term is defined in the Debenture), as determined in accordance with
Rule 13d-1(j) of the 1934 Act. In no event shall the Purchaser
purchase shares of the Common Stock other than pursuant to this
Subscription Agreement and the Debenture until such date as the
Purchaser has fully converted the Debentures into Common Stock.
6. OPINION LETTER/BOARD RESOLUTION
Prior to or on the Closing Date the Company shall deliver to the
Escrow Agent an opinion letter signed by counsel for the Company in the
form attached hereto as Exhibit D. Also, prior to or on the Closing
Date the Company shall deliver to the Escrow Agent a signed Board
Resolution authorizing this Offering, which shall be attached hereto as
Exhibit E.
7. DELIVERY INSTRUCTIONS; FEES
The Debentures being purchased hereunder shall be delivered to
First Union National Bank as Escrow Agent, who will hold them in escrow
until the Closing Date at which time funds (less escrow fees, attorneys
fees and placement fees) will be wired to the Company and the Debentures
will be delivered to the Purchaser, per the Purchaser's instructions.
May Davis Group, Inc. shall receive a cash placement fee equal to
ten percent (10%) of the gross proceeds on each Closing Date and
unallocated expenses, which amount shall be paid upon closing directly
from escrow. Upon closing of the offering the Company shall also issue
to May Davis Group a Warrant to purchase 200,000 shares of the
Company's Common Stock. At 101% of the closing bid price on the
Closing Date. The Warrant shall survive for a period of (5) five
years from the date of issuance and will be exercisable at the
holder's discretion. The Warrant will also have "piggy-back"
registration rights and be exercisable on a "cashless" basis. On the
Closing Date Joseph B. LaRocco, Esq. shall receive $5,000 in cash and
850,000 shares of the common stock of the Company for his services
related to document preparation and escrow related to this Offering,
which shares shall be registered in the registration statement covering
this Offering.
8. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the
Company as follows:
FOR ALL SUBSCRIBERS:
a. This Subscription may be rejected, in whole or in part, by
the Company in its sole and absolute discretion at any time before the
date set for closing unless the Company has given notice of acceptance
of the undersigned's subscription by signing this Subscription
Agreement and delivering it to Purchaser or May Davis Group, Inc.
b. No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness
of the terms of the Offering for investment nor any recommendation or
endorsement of the Debentures or the Company.
c. The representations, warranties and agreements of the
undersigned and the Company contained herein shall be true and correct
in all material respects on and as of the date of the sale of the
Debentures as if made on and as of such date and shall survive the
execution and delivery of this Subscription Agreement and the purchase
of the Debentures.
d. In making an investment decision, purchasers must rely on
their own examination of the company and the terms of the offering,
including the merits and risks involved. The shares have not been
recommended by any federal or state securities commission or
regulatory authority. Furthermore, the foregoing authorities have not
confirmed the accuracy or determined the adequacy of this document.
Any representation to the contrary is a criminal offense.
e. The Offering is intended to be exempt from registration by
virtue of Section 4(2) of the 1933 Act and the provisions of
Regulation D thereunder, which is in part dependent upon the truth,
completeness and accuracy of the statements made by the undersigned
herein and in the Questionnaire.
f. It is understood that in order not to jeopardize the
Offering's exempt status under Section 4(2) of the 1933 Act and
Regulation D, any purchaser may, at a minimum, be required to fulfill
the investor suitability requirements thereunder.
g. The shares may not be resold except as permitted under the
securities act and applicable state securities laws, pursuant to
registration or exemption therefrom. Purchasers should be aware that
they will be required to bear the financial risks of this investment
for an indefinite period of time.
9. SUBMISSION TO JURISDICTION
a. Forum Selection and Consent to Jurisdiction. Any litigation
based thereon, or arising out of, under, or in connection with, this
Agreement or any course of conduct, course of dealing, statements
(whether oral or written) or actions of the Company or Purchaser shall
be brought and maintained exclusively in the courts of the state of
New York. The Company hereby expressly and irrevocably submits to the
jurisdiction of the state and federal Courts of the state of New York
for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby
in connection with such litigation. The Company further irrevocably
consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New
York. The Company hereby expressly and irrevocably waives, to the
fullest extent permitted by law, any objection which it may have or
hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any
such litigation has been brought in any inconvenient forum. To the
extent that the Company has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property. The
Company hereby irrevocably waives such immunity in respect of its
obligations under this agreement and the other loan documents.
b. Waiver of Jury Trial. The Purchaser and the Company
hereby knowingly, voluntarily and intentionally waive any rights they
may have to a trial by jury in respect of any litigation based hereon,
or arising out of, under, or in connection with, this agreement, or
any course of conduct, course of dealing, statements (whether oral or
written) or actions of the Purchaser or the Company. The Company
acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Purchaser entering into this agreement.
c. Submission To Jurisdiction. Any legal action or proceeding
in connection with this Agreement or the performance hereof may be
brought in the state and federal courts located in New York, and the
parties hereby irrevocably submit to the non-exclusive jurisdiction of
such courts for the purpose of any such action or proceeding.
10. MISCELLANEOUS.
a. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Subscription
Agreement must be in writing and will be deemed to have been delivered
(i) upon receipt, when delivered personally; (ii) upon receipt, when
sent by facsimile (provided a confirmation of transmission is
mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed
to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
5G Wireless Communications, Inc.
2921 N. Tenaya Way, Suite 216
Las Vegas, NV 89128
Attention: Jerry Dix, CEO
Telephone: 702-647-4877
Facsimile: 702-
With a copy to:
Mark Tow, Esq.
3900 Birch Street, Suite 113
Newport Beach, CA 92660
Telephone: 949-975-0544
Facsimile: 949-975-0547
If to the Investor:
At the address listed in the Questionnaire.
If to May Davis Group, Inc.:
c/o Joseph B. LaRocco, Esq.
49 Locust Avenue, Suite 107
New Canaan, CT 06840
Tel.: 203-966-0566
Fax: 203-966-0363
Each party shall provide five (5) business days prior notice to
the other party of any change in address, phone number or facsimile
number.
b. All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, impersonal, singular or
plural, as the identity of the person or persons may require.
c. Neither this Subscription Agreement nor any provision hereof
shall be waived, modified, changed, discharged, terminated, revoked or
canceled, except by an instrument in writing signed by the party
effecting the same against whom any change, discharge or termination
is sought.
d. Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when
personally delivered or sent by facsimile transmission: (i) if to the
Company, at it's executive offices or (ii) if to the Purchaser, at the
address for correspondence set forth in the Questionnaire, or at such
other address as may have been specified by written notice given in
accordance with this paragraph.
e. This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of
Utah, as such laws are applied by Nevada courts to agreements entered
into, and to be performed in, Nevada by and between residents of Utah,
and shall be binding upon the undersigned, the undersigned's heirs,
estate and legal representatives and shall inure to the benefit of the
Company and its successors. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or
rule of law, then such provisions shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
f. This Agreement shall not be assignable.
g. This Subscription Agreement, together with Exhibits A, B, C,
D and E attached hereto and made a part hereof, constitute the entire
agreement between the parties hereto with respect to the subject
matter hereof and may be amended only by a writing executed by both
parties hereto.
h. This Subscription Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one
instrument. Execution and delivery of this Subscription Agreement by
exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of
this Subscription Agreement by such party. Such facsimile copies
shall constitute enforceable original documents.
(BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
INVESTOR SIGNATURE PAGE
Your signature on this Signature Page evidences your agreement to
be bound by the Questionnaire, Subscription Agreement and Registration
Rights Agreement.
1. The undersigned hereby represents that (a) the information
contained in the Questionnaire is complete and accurate and (b) the
undersigned will notify 5G WIRELESS COMMUNICATIONS, INC. immediately
if any material change in any of the information occurs prior to the
acceptance of the undersigned's subscription and will promptly send 5G
WIRELESS COMMUNICATIONS, INC. written confirmation of such change.
2. The undersigned signatory hereby certifies that he/she has
read and understands the Subscription Agreement and Questionnaire, and
the representations made by the undersigned in the Subscription
Agreement and Questionnaire are true and accurate.
3. Upon closing please deliver the Debentures to May Davis
Group, Inc.
______________________________ ________________________
Amount of Debentures being purchased Date
By: _____________________
(Signature)
Name: __________________
(Please Type or Print)
Title: ____________________
(Please Type or Print)
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted and agreed
to this 12th day of February, 2002.
5G WIRELESS COMMUNICATIONS, INC.
By: /s/ Jerry Dix
Jerry Dix, CEO
EXHIBIT A
FORM OF NOTICE OF CONVERSION
(To be Executed by the Registered Owner in order to Convert Debenture)
The undersigned hereby irrevocably elects, as of
________________, to convert $________________ of its convertible
debenture (the "Debenture") into Common Stock of 5G WIRELESS
COMMUNICATIONS, INC. (the "Company") according to the conditions set
forth in the Debenture issued by the Company. This conversion is being
made for an immediate sale.
Date of Conversion________________________________________________
Applicable Conversion Price________________________________________
Number of Debentures Issuable upon this
Conversion_______________________
Name(Print)_____________________________________________________
Address________________________________________________________
Phone_________________________ Fax______________________________
By:_______________________________________
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
February 12, 2002, by and between 5G Wireless Communications, Inc., a
company organized under the laws of state of Nevada, with its
principal executive office at 2921 N. Tenaya Way, Suite 216, Las
Vegas, NV 89128 (the "Company"), and the undersigned investor (the
"Investor").
WHEREAS, upon the terms and subject to the conditions of the
Subscription Agreement between the Investor and the Company (the
"Subscription Agreement"), the Company has agreed to issue and sell to
the Investor convertible debentures of the Company (the "Debentures"),
which will be convertible into shares of the common stock, $.001 par
value per share (the "Common Stock"), of the Company upon the terms
and subject to the conditions of such Debentures; and
WHEREAS, to induce the Investor to execute and deliver the
Subscription 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 "1933 Act"), and applicable state securities laws,
with respect to the shares of Common Stock issuable pursuant to the
Subscription Agreement and Debentures.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants contained hereinafter and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Investor hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Closing Date" means the date funds are received by the
Company pursuant to the Subscription Agreement.
b. "Holder" means the Investor.
c. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
d. "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for
disclosure in a Registration Statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company
that disclosure of such information in the Registration Statement
would be detrimental to the business and affairs of the Company, or
(ii) any material engagement or activity by the Company which would,
in the good faith determination of the Board of Directors of the
Company, be adversely affected by disclosure in a Registration
Statement at such time, which determination shall be accompanied by a
good faith determination by the Board of Directors of the Company that
the Registration Statement would be materially misleading absent the
inclusion of such information.
e. "Principal Market" means either The American Stock Exchange,
Inc., The New York Stock Exchange, Inc., the Nasdaq National Market,
The Nasdaq Small Cap Market or the National Association of Securities
Dealer's, Inc. OTC electronic bulletin board, whichever is the
principal market on which the Common Stock is listed.
f. "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 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(s) by the
United States Securities and Exchange Commission (the "SEC").
g. "Registrable Securities" means the shares of Common Stock
issued or issuable (i) upon conversion of the Debentures, (ii) upon
exercise of the Warrants issuable to May Davis Group, Inc. and (iii)
any shares of capital stock issued or issuable with respect to the
such Debentures and Warrants as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise,
which have not been (x) included in a Registration Statement that has
been declared effective by the SEC or (y) sold under circumstances
meeting all of the applicable conditions of Rule 144 (or any similar
provision then in force) under the 1933 Act.
h. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act.
i. "Warrants" means those Warrants being issued to May Davis
Group, Inc. pursuant to the Subscription Agreement.
All capitalized terms used in this Agreement and not otherwise
defined herein shall have the same meaning ascribed to them as in the
Subscription Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form SB-2 (or, if such
form is unavailable for such a registration, on such other form as is
available for such a registration), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state
that, in accordance with Rule 416 promulgated under the 1933 Act, such
Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon stock
splits, stock dividends or similar transactions The Company shall
prepare and file with the SEC, as soon as possible after the Closing
Date and no later than thirty (30) days following the Closing Date,
either a Registration Statement or an amendment to an existing
Registration Statement, in either event registering for resale by the
Investors a sufficient number of shares of Common Stock for the
Investors to sell the Registrable Securities (or such lesser number as
may be required by the SEC) but in no event less than 400% of that
number of shares of the Company's Common Stock into which the relevant
Debentures and all interest thereon through their respective Maturity
Dates would be convertible at the time of filing of such Registration
Statement (assuming for such purposes that all such Debentures had
been eligible to be converted, and had been converted, into Common
Stock in accordance with their terms, whether or not such accrual of
interest, eligibility or conversion had in fact occurred as of such
date). In the event the Company cannot register sufficient shares of
Common Stock, due to the remaining number of authorized shares of
Common Stock being insufficient, the Company will use its best efforts
to register the maximum number of shares it can based on the remaining
balance of authorized shares and will use its best efforts to increase
the number of its authorized shares as soon as reasonably practicable.
b. The Company shall use its best efforts to have the Registration
Statement filed with the SEC within thirty (30) calendar days after
the Closing Date. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to
Section 2(a) hereof is not filed within thirty (30) calendar days
following the Closing Date, then the Company shall pay the Investor
the sum of two percent (2%) of the face amount of the Debentures
outstanding as liquidated damages, and not as a penalty, for the first
thirty (30) calendar day period, pro rata, following the thirty (30)
calendar day period until the Registration Statement is filed, and two
percent (2%) for each successive thirty (30) calendar day period thereafter.
Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this Section shall not be payable to the extent any delay
in the filing of the Registration Statement occurs because of an act
of, or a failure to act or to act timely by the Investor. The damages
set forth in this Section shall continue until the obligation is
fulfilled and shall be paid within three (3) business days after each
thirty (30) day period, or portion thereof, until the Registration
Statement is filed. Failure of the Company to make payment within
said three (3) business days shall be considered a default.
The Company acknowledges that its failure to have the
Registration Statement filed within said thirty (30) calendar day
period will cause the Investor to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for
liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such,
agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations
to register the Common Stock and deliver the Common Stock pursuant to
the terms of this Agreement, the Subscription Agreement and the Debenture.
c. The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC within ninety
(90) calendar days after the Closing Date. If the Registration
Statement covering the Registrable Securities required to be filed by
the Company pursuant to Section 2(a) hereof is not declared effective
within ninety (90) calendar days following the Closing Date, then the
Company shall pay the Investor the sum of two percent (2%) of the face
amount of the Debentures outstanding as liquidated damages and not as
a penalty for the first thirty (30) calendar day period, pro rata,
following the ninety (90) calendar day period until the Registration
Statement is declared effective, and two percent (2%) for each
successive thirty (30) calendar day period thereafter.
If the Registration Statement covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is
declared effective, but after the effective date the Investor's right
to sell is suspended, then the Company shall pay the Investor the sum
of 2% of the purchase price paid by the Investor for the Registrable
Securities pursuant to the Subscription Agreement for each thirty (30)
calendar day period, pro rata, following the suspension until such
suspension ceases.
Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this Section shall not be payable to the extent any delay
in the effectiveness of the Registration Statement occurs because of
an act of, or a failure to act or to act timely by the Investor. The
damages set forth in this Section shall continue until the obligation
is fulfilled and shall be paid within three (3) business days after
each thirty (30) day period, or portion thereof, until the
Registration Statement is declared effective or such suspension is
released. Failure of the Company to make payment within said three
(3) business days shall be considered a default.
The Company acknowledges that its failure to have the
Registration Statement declared effective within said ninety (90)
calendar day period or to permit the suspension of the effectiveness
of the Registration Statement, will cause the Investor to suffer
damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in
this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth
in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not constitute a penalty.
The payment of liquidated damages shall not relieve the Company from
its obligations to register the Common Stock and deliver the Common
Stock pursuant to the terms of this Agreement, the Subscription
Agreement and the Debenture.
d. The Company agrees not to include any other securities,
other than those for the equity credit line financing, in this
Registration Statement without Investor prior written consent.
Furthermore, the Company agrees that it will not file any other
Registration Statement for other securities (other than those for the
equity credit line financing, existing option holders, strategic
partners or in connection with a merger or acquisition), until ninety
(90) days after the Registration Statement for the Registrable
Securities is declared effective.
e. Counsel. In connection with any offering pursuant to this
Section 2, the Investor shall have the right to select one legal
counsel to administer its interests in the Offering; provided,
however, that the expenses and fees of such legal counsel shall be
borne by the Investor. The Company shall reasonably cooperate with
any such counsel.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to prepare and file a
Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of
disposition thereof and, with respect thereto, the Company shall have
the following obligations:
a. The Company shall use its best efforts to cause such
Registration Statement relating to the Registrable Securities to
become effective within ninety (90) days after the Closing Date and
shall keep such Registration Statement effective pursuant to Rule 415
until the earlier of (i) the date as of which the Holders may sell all
of the Registrable Securities without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) or (ii)
the date on which (A) the Holders shall have sold all the Registrable
Securities and (B) the Investor has no right to convert the Debentures
it owns into Common Stock under the Subscription Agreement
respectively (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The Company
shall respond to all SEC comments within seven (7) business days of
receipt by the Company. If the Company fails to respond within seven
(7) business days of receipt of SEC comments, the Company shall pay to
the Investor a cash amount within three (3) business days of the end
of the month equal to 2% per month, on a pro rata basis, of the amount
paid to purchase the Debentures then outstanding, as liquidated
damages and not as a penalty; provided that the seven (7) business day
period provided herein shall be extended as may be required by delays
caused by Holders' counsel pursuant to paragraph 3g below, and,
provided further, that such seven (7) business day period shall be
extended five (5) business days for responses to SEC staff accounting
comments. The Company shall cause the Registration Statement relating
to the Registrable Securities to become effective no later than three
(3) business days after notice from the SEC that the Registration
Statement may be declared effective.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the 1933 Act, as may be necessary to keep
such Registration Statement effective during the Registration Period,
and, during such period, comply with the provisions of the 1933 Act
with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all
of such Registrable Securities shall have been disposed of in
accordance with the intended methods of disposition by the Investor
thereof as set forth in such Registration Statement. In the event the
number of shares of Common Stock available under a Registration
Statement filed pursuant to this Agreement is at any time insufficient
to cover all of the Registrable Securities, the Company shall amend
such Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to
cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within thirty (30) calendar days after
the necessity therefor arises (based on the then Purchase Price of the
Common Stock and other relevant factors on which the Company
reasonably elects to rely), assuming the Company has sufficient
authorized shares at that time, and if it does not, within thirty (30)
calendar days after such shares are authorized. The Company shall use
it best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the
filing thereof.
Prior to conversion of all the Shares, if at anytime the
conversion of all the Shares outstanding would result in an
insufficient number of authorized shares of Common Stock being
available to cover all the conversions, then in such event, the
Company will move to call and hold a shareholder's meeting within
thirty (30) days of such event for the sole purpose of authorizing
additional shares of Common Stock to facilitate the conversions. In
such an event the Company shall recommend to all shareholders and
management of the Company to vote their shares in favor of increasing
the authorized number of shares of Common Stock. The Company
represents and warrants that under no circumstances will it deny or
prevent Purchaser's right to convert the Shares as permitted under the
terms of this Subscription Agreement or this Registration Rights Agreement.
c. The Company shall furnish to the Investor whose Registrable
Securities are included in any Registration Statement and its legal
counsel without charge (i) promptly after the same is prepared and
filed with the SEC at least one copy of such Registration Statement
and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference and all
exhibits, the prospectus included in such Registration Statement
(including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the
Company to the SEC or the staff of the SEC and any correspondence from
the SEC or the staff of the SEC to the Company or its representatives,
(ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and
all amendments and supplements thereto (or such other number of copies
as the Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as
the Investor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of such states in the
United States as any Holder reasonably requests, (ii) prepare and file
in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary
to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in
any such jurisdiction. The Company shall promptly notify each Holder
who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the
securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of
any proceeding for such purpose.
e. As promptly as practicable after becoming aware of such
event, the Company shall notify each Holder in writing of the
happening of any event as a result of which the prospectus included in
a 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, in light of the circumstances under which they were made, not
misleading, ("Registration Default") and use all diligent efforts to
promptly prepare a supplement or amendment to such Registration
Statement and take any other necessary steps to cure the Registration
Default, (which, if such Registration Statement is on Form S-3, may
consist of a document to be filed by the Company with the SEC pursuant
to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined
below) and to be incorporated by reference in the prospectus) to
correct such untrue statement or omission, and deliver ten (10) copies
of such supplement or amendment to each Holder (or such other number
of copies as such Holder may reasonably request). Failure to cure the
Registration Default within ten (10) business days shall result in the
Company paying liquidated damages of 2.0% of the price paid to
purchase the Shares then held by the Holders for each thirty (30)
calendar day period or portion thereof, beginning on the date of
suspension. The Company shall also promptly notify each Holder in
writing (i) when a prospectus or any prospectus supplement or post-
effective amendment has been filed, and when a Registration Statement
or any post-effective amendment has become effective (notification of
such effectiveness shall be delivered to each Holder by facsimile or
e-mail on the same day of such effectiveness and by overnight mail),
(ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information,
(iii) of the Company's reasonable determination that a post-effective
amendment to a Registration Statement would be appropriate, (iv) in
the event the Registration Statement is no longer effective or, (v)
the Registration Statement is stale for a period of more than five (5)
Trading Days as a result of the Company's failure to timely file its
financials.
The Company acknowledges that its failure to cure the
Registration Default within ten (10) business days will cause the
Investor to suffer damages in an amount that will be difficult to
ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to
quantify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty.
It is the intention of the parties that interest payable under
any of the terms of this Agreement shall not exceed the maximum amount
permitted under any applicable law. If a law, which applies to this
Agreement which sets the maximum interest amount, is finally
interpreted so that the interest in connection with this Agreement
exceeds the permitted limits, then: (1) any such interest shall be
reduced by the amount necessary to reduce the interest to the
permitted limit; and (2) any sums already collected (if any) from the
Company which exceed the permitted limits will be refunded to the
Company. The Investor may choose to make this refund by reducing the
amount that the Company owes under this Agreement or by making a
direct payment to the Company. If a refund reduces the amount that
the Company owes the Investor, the reduction will be treated as a
partial payment. In case any provision of this Agreement is held by a
court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining
provisions of this Agreement will not in any way be affected or
impaired thereby.
f. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any
of the Registrable Securities for sale in any jurisdiction and, if
such an order or suspension is issued, to obtain the withdrawal of
such order or suspension at the earliest possible moment and to notify
each Holder who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of
actual notice of the initiation or threat of any proceeding for such purpose.
g. The Company shall permit each Holder and a single firm of
counsel, designated as selling shareholders' counsel by the Holders
who hold a majority of the Registrable Securities being sold, to
review and comment upon a Registration Statement and all amendments
and supplements thereto at least three (3) business days prior to
their filing with the SEC, and not file any document in a form to
which such counsel reasonably objects. The Company shall not submit
to the SEC a request for acceleration of the effectiveness of a
Registration Statement or file with the SEC a Registration Statement
or any amendment or supplement thereto without the prior approval of
such counsel, which approval shall not be unreasonably withheld.
h. At the request of any Holder, the Company shall cause to be
furnished to such Holder, on the date of the effectiveness of a
Registration Statement, an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement,
in the form of Exhibit D attached to the Subscription Agreement.
i. The Company shall make available for inspection by (i) any
Holder and (ii) one firm of attorneys and one firm of accountants or
other agents retained by the Holders (collectively, the "Inspectors")
all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"),
as shall be reasonably deemed necessary by each Inspector, and cause
the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request; provided,
however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to a Holder) or use of any Record or
other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release
of such Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in
violation of this or any other agreement of which the Inspector has
knowledge. Each Holder agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any
disclosure of information concerning a Holder provided to the Company
unless (i) disclosure of such information is necessary to comply with
federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final, non-
appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this
Agreement or any other agreement. The Company agrees that it shall,
upon learning that disclosure of such information concerning a Holder
is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to
such Holder and allow such Holder, at the Holder's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, such information.
k. The Company shall use its best efforts to secure designation
and quotation of all the Registrable Securities covered by any
Registration Statement on the Principal Market. If, despite the
Company's best efforts, the Company is unsuccessful in satisfying the
preceding sentence, it shall use its best efforts to cause all the
Registrable Securities covered by any Registration Statement to be
listed on each other national securities exchange and automated
quotation system, if any, on which securities of the same class or
series issued by the Company are then listed, if any, if the listing
of such Registrable Securities is then permitted under the rules of
such exchange or system. If, despite the Company's best efforts, the
Company is unsuccessful in satisfying the two preceding sentences, it
will use its best efforts to secure the inclusion for quotation on the
Nasdaq Small Cap Market for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities
Dealers, Inc. as such with respect to such Registrable Securities.
The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investor to facilitate
the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may
be, as the Holders may reasonably request and registered in such names
of the Persons who shall acquire such Registrable Securities from the
Holders, as the Holders may request.
m. The Company shall provide a transfer agent for all the
Registrable Securities not later than the effective date of the first
Registration Statement filed pursuant hereto.
n. If requested by the Holders holding a majority of the
Registrable Securities, the Company shall (i) as soon as reasonably
practical incorporate in a prospectus supplement or post-effective
amendment such information as such Holders reasonably determine should
be included therein relating to the sale and distribution of
Registrable Securities, including, without limitation, information
with respect to the offering of the Registrable Securities to be sold
in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-
effective amendment; and (iii) supplement or make amendments to any
Registration Statement if reasonably requested by such Holders.
o. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.
p. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection
with any registration hereunder.
q. Within one (1) business day after the Registration Statement
which includes Registrable Securities is declared effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable
Securities, with copies to the Investor, confirmation that such
Registration Statement has been declared effective by the SEC in the
form attached hereto as Exhibit A.
r. At such times as the Holders may reasonably request, the
Company shall cause to be delivered, letters from the Company's
independent certified public accountants (i) addressed to the Holders
that such accountants are independent public accountants within the
meaning of the 1933 Act and the applicable published rules and
regulations thereunder, and (ii) in customary form and covering such
financial and accounting matters as are customarily covered by letters
of independent certified public accountants delivered to underwriters
in connection with public offerings.
s. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Holders of
Registrable Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE HOLDERS.
a. At least five (5) calendar days prior to the first
anticipated filing date of a Registration Statement the Company shall
notify each Holder in writing of the information the Company requires
from each such Holder if such Holder elects to have any of such
Holder's Registrable Securities included in such Registration
Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement
with respect to the Registrable Securities of a particular Holder that
such Holder shall furnish in writing 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 reasonably be required to effect the registration of such
Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. Each
Holder covenants and agrees that, in connection with any sale of
Registrable Securities by it pursuant to a Registration Statement, it
shall comply with the "Plan of Distribution" section of the current
prospectus relating to such Registration Statement.
b. Each Holder, by such Holder'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 any Registration Statement hereunder, unless such Holder has
notified the Company in writing of such Holder's election to exclude
all of such Holder's Registrable Securities from such Registration
Statement.
c. Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
3(f) or the first sentence of 3(e), such Holder will immediately
discontinue disposition of Registrable Securities pursuant to any
Registration Statement(s) covering such Registrable Securities until
such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or the first sentence of 3(e).
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees,
printing and accounting fees, and fees and disbursements of counsel
for the Company shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Holder who
holds such Registrable Securities, the directors, officers, partners,
employees, agents, representatives of, and each Person, if any, who
controls, any Holder within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), (each,
an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, attorneys'
fees, amounts paid in settlement or expenses, joint or several
(collectively, "Claims"), incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation
or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which
any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection
with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities
are offered ("Blue Sky Filing"), or the omission or alleged omission
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
the statements therein were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact 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 1933 Act, the 1934 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
pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the Holders and
each such controlling person, promptly as such expenses are incurred
and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating
or defending any such Claim. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based
upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified
Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus were timely made available by the Company
pursuant to Section 3(c); (ii) shall not be available to the extent
such Claim is based on (a) a failure of the Holder to deliver or to
cause to be delivered the prospectus made available by the Company or
(b) the Indemnified Person's use of an incorrect prospectus despite
being promptly advised in advance by the Company in writing not to use
such incorrect prospectus; and (iii) 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. 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 sale of the Registrable
Securities by the Holders pursuant to the Registration Statement.
b. In connection with any Registration Statement in which a
Holder is participating, each such Holder agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and
in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration
Statement, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act (collectively and together
with an Indemnified Person, an "Indemnified Party"), against any Claim
or Indemnified Damages to which any of them may become subject, under
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are 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 Holder expressly for use in
connection with such Registration Statement; and, subject to Section
6(c), such Holder will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Holder, which consent shall
not be unreasonably withheld; provided, further, however, that the
Holder shall be liable under this Section 6(b) for only that amount of
a Claim or Indemnified Damages as does not exceed the net proceeds to
such Holder 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 sale of the
Registrable Securities by the Holders pursuant to the Registration
Statement. Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit
of any Indemnified Party if the untrue statement or omission of
material fact contained in the preliminary prospectus were corrected
on a timely basis in the prospectus, as then amended or supplemented.
This indemnification provision shall apply separately to each Investor
and liability hereunder shall be several and not joint.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement
of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and
such counsel shall be selected by Holders holding a majority-in-
interest of the Registrable Securities included in the Registration
Statement to which the Claim relates, if the Holders are entitled to
indemnification hereunder, or the Company, if the Company is entitled
to indemnification hereunder, as applicable. The Indemnified Party or
Indemnified Person shall cooperate fully with the indemnifying party
in connection with any negotiation or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or Indemnified
Person fully appraised at all times as to the status of the defense or
any settlement negotiations with respect thereto. No indemnifying
party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided, however,
that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the
consent of the Indemnified Party or Indemnified Person, consent to
entry of any judgment or enter into any settlement or other compromise
which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified
Person of a release from all liability in respect to such Claim.
Following indemnification as provided for hereunder, the indemnifying
party shall be surrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or
corporations relating to the matter for which indemnification has been
made. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall
not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except
to the extent that the indemnifying party is prejudiced in its ability
to defend such action.
d. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or
Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the
Indemnified Party or Indemnified Person against the indemnifying party
or others, and (ii) any liabilities the indemnifying party may be
subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent
permitted by law; provided, however, that: (i) no contribution shall
be made under circumstances where the maker would not have been liable
for indemnification under the fault standards set forth in Section 6;
(ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of fraudulent misrepresentation; and
(iii) contribution by any seller of Registrable Securities shall be
limited in amount to the net amount of proceeds received by such
seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Holders the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Holders to sell
securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Subscription Agreement) and the filing of
such reports and other documents is required for the applicable
provisions of Rule 144; and
c. furnish to the Investor, promptly upon request, (i) a
written statement by the Company that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 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 Investor to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall not be assignable.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written
consent of the Company and Holders who hold two-thirds (2/3) of the
Registrable Securities. Any amendment or waiver effected in accordance
with this Section 10 shall be binding upon each Holder and the
Company. No such amendment shall be effective to the extent that it
applies to less than all of the Holders of the Registrable Securities.
No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the
parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a Holder of Registrable
Securities whenever such Person owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices
or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of
such Registrable Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement
must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided a confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or
(iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
5G Wireless Communications, Inc.
2921 N. Tenaya Way, Suite 216
Las Vegas, NV 89128
Attention: Jerry Dix, CEO
Telephone: 702-647-4877
Facsimile: 702-
With a copy to:
Mark Tow, Esq.
3900 Birch Street, Suite 113
Newport Beach, CA 92660
Telephone: 949-975-0544
Facsimile: 949-975-0547
If to the Investor:
At the address listed in the Questionnaire.
If to May Davis Group, Inc.:
c/o Joseph B. LaRocco, Esq.
49 Locust Avenue, Suite 107
New Canaan, CT 06840
Telephone: 203-966-0566
Facsimile: 203-966-0363
Each party shall provide five (5) business days prior notice to
the other party of any change in address, phone number or facsimile
number.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
d. The laws of the State of New York shall govern all issues
concerning the relative rights of the Company and its stockholders.
All other questions shall be governed by and interpreted in accordance
with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits
to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other
jurisdiction.
e. This Agreement and the Transaction Documents 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.
f. This Agreement and the Transaction Documents supersede all
prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement,
once executed by a party, may be delivered to the other party hereto
by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
j. All consents and other determinations to be made by the
Holders pursuant to this Agreement shall be made, unless otherwise
specified in this Agreement, by Holders holding a majority of the
Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no
rules of strict construction will be applied against any party.
IN WITNESS WHEREOF, the parties have caused this Registration
Rights Agreement to be duly executed as of the day and year first
above written.
5G WIRELESS COMMUNICATIONS, INC.
By: /s/ Jerry Dix
Name: Jerry Dix
Title: CEO
INVESTOR
_____________________________
Name: _______________________
INVESTOR
_____________________________
Name: _______________________
EXHIBIT C
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT TO
RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO REGISTRATION
OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
AMOUNT $
DEBENTURE NUMBER FEBRUARY-2002-101
ISSUANCE DATE FEBRUARY 12, 2002
MATURITY DATE FEBRUARY 12, 2005
FOR VALUE RECEIVED, 5G Wireless Communications, Inc., a Nevada
corporation (the "Company"), hereby promises to pay
_________________________ (the "Holder") on February 12, 2005, (the
"Maturity Date"), the principal amount of ___________________________
Dollars ($_______) U.S., and to pay interest on the principal amount
hereof, in such amounts, at such times and on such terms and
conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of
this Debenture (the "Debenture") at the time of each conversion until
the principal amount hereof is paid in full or has been converted. The
Debentures shall pay five percent (5%) cumulative interest, in cash or
in shares of common stock, par value $.001 per share, of the Company
("Common Stock"), at the Company's option, at the time of each
conversion. The closing shall be deemed to have occurred on the date
the funds (less placement fees, escrow fees and attorney fees) are
received by the Company (the "Closing Date"). If the interest is to
be paid in cash, the Company shall make such payment within five (5)
business days of the date of conversion. If the interest is to be
paid in Common Stock, said Common Stock shall be delivered to the
Holder, or per Holder's instructions, within five (5) business days of
the date of conversion. The Debentures are subject to automatic
conversion at the end of three (3) years from the date of issuance at
which time all Debentures outstanding will be automatically converted
based upon the formula set forth in Section 3.2.
Article 2. Method of Payment; Secured Debenture
The principal amount of this Debenture is secured by shares
pledged as collateral pursuant to the terms of a Security Agreement.
This Debenture is a full recourse loan being made by the Holder and
the Company is liable for any deficiency.
This Debenture must be surrendered to the Company in order for
the Holder to receive payment of the principal amount hereof. The
Company shall have the option of paying the interest on this Debenture
in United States dollars or in Common Stock upon conversion pursuant
to Article 1 hereof. The Company may draw a check for the payment of
interest to the order of the Holder of this Debenture and mail it to
the Holder's address as shown on the Register (as defined in Section
7.2 below). Interest and principal payments shall be subject to
withholding under applicable United States Federal Internal Revenue
Service Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right to convert
it into shares of Common Stock at any time and from time to time at
the earlier of (i) ninety (90) calendar days after the Closing Date or
after the effective date of the registration statement. The number of
shares of Common Stock issuable upon the conversion of this Debenture
is determined pursuant to Section 3.2 and rounding the result to the
nearest whole share.
(b) Less than all of the principal amount of this Debenture may
be converted into Common Stock if the portion converted is $5,000 or a
whole multiple of $5,000 and the provisions of this Article 3 that
apply to the conversion of all of the Debenture shall also apply to
the conversion of a portion of it. This Debenture may not be
converted, whether in whole or in part, except in accordance with
Article 3.
(c) In the event all or any portion of this Debenture remains
outstanding on the Maturity Date, the unconverted portion of such
Debenture will automatically be converted into shares of Common Stock
on such date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon receipt by the Company or its designated
attorney of a facsimile or original of Holder's signed Notice of
Conversion (See Exhibit A attached hereto) preceded by, together with or
followed by receipt of the original Debenture to be converted in whole
or in part in the manner set forth in 3.2(b) below, the Company shall
instruct its transfer agent to issue one or more Certificates
representing that number of shares of Common Stock into which the
Debenture is convertible. The Company shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with
respect to each Debenture.
(b) Conversion Procedures. The face amount of this Debenture may
be converted, in whole or in part. Such conversion shall be effectuated
by surrendering to the Company, or its attorney, this Debenture to be
converted together with a facsimile or original of the signed Notice of
Conversion which evidences Holder's intention to convert the Debenture
indicated. The date on which the Notice of Conversion is effective
("Conversion Date") shall be deemed to be the date on which the Holder
has delivered to the Company a facsimile or original of the signed
Notice of Conversion, as long as the original Debenture(s) to be
converted are received by the Company within three (3) business days
thereafter. Notwithstanding the above, any Notice of Conversion not
received by 5:00 P.M. EST, shall be deemed to have been received the
next business day.
(c) Common Stock to be Issued. Upon the conversion of any
Debentures and upon receipt by the Company or its attorney of a
facsimile or original of Holder's signed Notice of Conversion the
Company shall instruct its transfer agent to issue stock certificates
without restrictive legend or stop transfer instructions, if at that
time the Registration Statement has been deemed effective (or with
proper restrictive legend if the Registration Statement has not as yet
been declared effective), in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable
upon such conversion, as applicable. The Company warrants that no
instructions, other than these instructions, have been given or will be
given to the transfer agent and that the Common Stock shall otherwise be
freely resold, except as may be set forth herein.
(d) Conversion Rate. Holder is entitled to convert the face
amount of this Debenture, plus accrued interest, anytime following the
Closing Date but in accordance with paragraph 3.1 (a) above, at the
lesser of (i) 120% of the closing bid price (as reported by Bloomberg)
on the Closing Date or (ii) 75% of the average of the three (3) lowest
closing bid prices (as reported by Bloomberg) during the ten (10)
trading days immediately prior to the Conversion Date, each being
referred to as the "Conversion Price". No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded up or down, as the case may
be, to the nearest whole share.
(e) Nothing contained in this Debenture shall be deemed to
establish or require the payment of interest to the Holder at a rate in
excess of the maximum rate permitted by governing law. In the event
that the rate of interest required to be paid exceeds the maximum rate
permitted by governing law, the rate of interest required to be paid
thereunder shall be automatically reduced to the maximum rate permitted
under the governing law and such excess shall be returned with
reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock
as provided herein, including the responsibility and cost for delivery
of an opinion letter to the transfer agent, if so required. The
person in whose name the certificate of Common Stock is to be
registered shall be treated as a shareholder of record on and after
the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Holder a new
Debenture equal to the unconverted amount, if so requested in writing
by Holder.
(g) Within five (5) business days after receipt of the
documentation referred to above in Section 3.2(b), the Company shall
deliver a certificate, in accordance with Section 3.2(c) for the
number of shares of Common Stock issuable upon the conversion. In the
event the Company does not make delivery of the Common Stock, as
instructed by Holder, within five (5) business days after the
Conversion Date, then in such event the Company shall pay to Holder
one percent (1%) in cash, of the dollar value of the Debentures being
converted per each day after the fifth (5th) business day following
the Conversion Date that the Common Stock is not delivered to the
Purchaser.
The Company acknowledges that its failure to deliver the Common
Stock within five (5) business days after the Conversion Date will
cause the Holder to suffer damages in an amount that will be difficult
to ascertain. Accordingly, the parties agree that it is appropriate
to include in this Debenture a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to
quantify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the
Company from its obligations to deliver the Common Stock pursuant to
the terms of this Debenture.
Failure to issue unrestricted, freely tradable Common Stock to
the Holder(s) upon conversion shall be considered an Event of Default,
which if not cured within 10 days, shall entitle the Holder(s) to
accelerate full repayment of the Debentures then outstanding. The
Company acknowledges that the failure to honor a Notice of Conversion,
shall cause definable financial hardship on the Holder (s).
To the extent that the failure of the Company to issue the Common
Stock pursuant to this Section 3.2(g) is due to the unavailability of
authorized but unissued shares of Common Stock, the provisions of this
Section 3.2(g) shall not apply but instead the provisions of Section
3.2(h) shall apply.
The Company shall make any payments incurred under this Section
3.2(g) in immediately available funds within five (5) business days
from the date the Common Stock is fully delivered. Nothing herein
shall limit a Holder's right to pursue actual damages or cancel the
conversion for the Company's failure to issue and deliver Common Stock
to the Holder within five (5) business days after the Conversion Date.
(h) The Company shall at all times reserve (or make alternative
written arrangements for reservation or contribution of shares) and
have available all Common Stock necessary to meet conversion of the
Debentures by all Holders of the entire amount of Debentures then
outstanding. If, at any time Holder submits a Notice of Conversion and
the Company does not have sufficient authorized but unissued shares of
Common Stock (or alternative shares of Common Stock as may be
contributed by Stockholders) available to effect, in full, a
conversion of the Debentures (a "Conversion Default", the date of such
default being referred to herein as the "Conversion Default Date"),
the Company shall issue to the Holder all of the shares of Common
Stock which are available, and the Notice of Conversion as to any
Debentures requested to be converted but not converted (the
"Unconverted Debentures"), may be deemed null and void upon written
notice sent by the Holder to the Company. The Company shall provide
notice of such Conversion Default ("Notice of Conversion Default") to
all existing Holders of outstanding Debentures, by facsimile, within
three (3) business day of such default (with the original delivered
by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the
original Notice of Conversion Default (with the original delivered by
overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding
Debentures payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial issuance
price of the outstanding and/or tendered but not converted Debentures
held by each Holder where N = the number of days from the Conversion
Default Date to the date (the "Authorization Date") that the Company
authorizes a sufficient number of shares of Common Stock to effect
conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the
Authorization Date and the amount of Holder's accrued Conversion
Default Payments. The accrued Conversion Default shall be paid in
cash or shall be convertible into Common Stock at the Conversion Rate,
upon written notice sent by the Holder to the Company, which
Conversion Default shall be payable as follows: (i) in the event
Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Debentures by the fifth day of the
following calendar month, or (ii) in the event Holder elects to take
such payment in stock, the Holder may convert such payment amount into
Common Stock at the conversion rate set forth in section 3.2(d) at
anytime after the 5th day of the calendar month following the month in
which the Authorization Notice was received, until the expiration of
the mandatory three (3) year conversion period.
The Company acknowledges that its failure to maintain a
sufficient number of authorized but unissued shares of Common Stock to
effect in full a conversion of the Debentures will cause the Holder to
suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in
this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth
in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not constitute a penalty.
The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of
this Debenture. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
(i) If, by the fifth (5th) business day after the Conversion
Date of any portion of the Debentures to be converted (the "Delivery
Date"), the transfer agent fails for any reason to deliver the Common
Stock upon conversion by the Holder and after such Delivery Date, the
Holder purchases, in an open market transaction or otherwise, shares
of Common Stock (the "Covering Shares") solely in order to make
delivery in satisfaction of a sale of Common Stock by the Holder (the
"Sold Shares"), which delivery such Holder anticipated to make using
the Common Stock issuable upon conversion (a "Buy-In"), the Company
shall pay to the Holder, in addition to any other amounts due to
Holder pursuant to this Debenture, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy In Adjustment Amount"
is the amount equal to the excess, if any, of (x) the Holder's total
purchase price (including brokerage commissions, if any) for the
Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the
Holder in immediately available funds within five (5) business days of
written demand by the Holder. By way of illustration and not in
limitation of the foregoing, if the Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions)
of $11,000 to cover a Buy-In with respect to shares of Common Stock it
sold for net proceeds of $10,000, the Buy-In Adjustment Amount which
the Company will be required to pay to the Holder will be $1,000.
(j) The Company shall furnish to Holder such number of
prospectuses and other documents incidental to the registration of the
shares of Common Stock underlying the Debentures, including any
amendment of or supplements thereto.
(k) Limitation on Issuance of Shares. If the Company's Common
Stock becomes listed on the Nasdaq Small Cap Market after the
issuance of the Debentures, the Company may be limited in the number
of shares of Common Stock it may issue by virtue of (X) the number of
authorized shares or (Y) the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or
traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable
(collectively, the "Cap Regulations"). Without limiting the other
provisions thereof, the Debentures shall provide that (i) the Company
will take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without
violating the Cap Regulations and (ii) if, despite taking such steps,
the Company still cannot issue such shares of Common Stock without
violating the Cap Regulations, the holder of a Debenture which cannot
be converted as result of the Cap Regulations (each such Debenture,
an "Unconverted Debenture") shall have the right to elect either of
the following remedies:
(x) if permitted by the Cap Regulations, require the
Company to issue shares of Common Stock in accordance with such
holder's Notice of Conversion at a conversion purchase price
equal to the average of the closing bid price per share of Common
Stock for any five (5) consecutive trading days (subject to
certain equitable adjustments for certain events occurring during
such period) during the sixty (60) trading days immediately
preceding the Conversion Date; or
(y) require the Company to redeem each Unconverted
Debenture for an amount (the "Redemption Amount"), payable in
cash, equal to the sum of (i) one hundred thirty-three percent
(133%) of the principal of an Unconverted Debenture, plus (ii)
any accrued but unpaid interest thereon through and including the
date (the "Redemption Date") on which the Redemption Amount is
paid to the holder.
A holder of an Unconverted Debenture may elect one of the above
remedies with respect to a portion of such Unconverted Debenture and
the other remedy with respect to other portions of the Unconverted
Debenture. The Debentures shall contain provisions substantially
consistent with the above terms, with such additional provisions as
may be consented to by the Holder. The provisions of this section are
not intended to limit the scope of the provisions otherwise included
in the Debentures.
(l) Limitation on Amount of Conversion and Ownership.
Notwithstanding anything to the contrary in this Debenture, in no
event shall the Holder be entitled to convert that amount of
Debenture, and in no event shall the Company permit that amount of
conversion, into that number of shares, which when added to the sum of
the number of shares of Common Stock beneficially owned, (as such term
is defined under Section 13(d) and Rule 13d-3 of the Securities
Exchange Act of 1934, as may be amended, (the "1934 Act")), by the
Holder, would exceed 4.99% of the number of shares of Common Stock
outstanding on the Conversion Date, as determined in accordance with
Rule 13d-1(j) of the 1934 Act. In the event that the number of shares
of Common Stock outstanding as determined in accordance with Section
13(d) of the 1934 Act is different on any Conversion Date than it was
on the Closing Date, then the number of shares of Common Stock
outstanding on such Conversion Date shall govern for purposes of
determining whether the Holder would be acquiring beneficial ownership
of more than 4.99% of the number of shares of Common Stock outstanding
on such Conversion Date.
(m) Legend. The Holder acknowledges that each certificate
representing the Debentures, and the Common Stock unless registered
pursuant to the Registration Rights Agreement, shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE
ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) IF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(n) Prior to conversion of all the Debentures and exercise of
all the Warrants, if at anytime the conversion of all the Debentures
and exercise of all the Warrants outstanding would result in an
insufficient number of authorized shares of Common Stock being
available to cover all the conversions, then in such event, the
Company will move to call and hold a shareholder's meeting or have
shareholder action with written consent of the proper number of
shareholders within thirty (30) days of such event, or such greater
period of time if statutorily required or reasonably necessary as
regards standard brokerage house and/or SEC requirements and/or
procedures, for the purpose of authorizing additional shares of Common
Stock to facilitate the conversions. In such an event management of
the Company shall recommend to all shareholders to vote their shares
in favor of increasing the authorized number of shares of Common
Stock. Management of the Company shall vote all of its shares of
Common Stock in favor of increasing the number of shares of authorized
Common Stock. Company represents and warrants that under no
circumstances will it deny or prevent Holder's right to convert the
Debentures as permitted under the terms of this Subscription Agreement
or the Registration Rights Agreement. Nothing in this Section shall
limit the obligation of the Company to make the payments set forth in
Section 3.2(g). In the event the Company's shareholder's meeting does
not result in the necessary authorization, the Company shall redeem
the outstanding Debentures for an amount equal to (x) the sum of the
principal of the outstanding Debentures plus accrued interest thereon
multiplied by (y) 133%.
(o) Redemption. The Company shall be entitled to redeem the
unconverted portion of the Debentures by giving the Holder at least
ten (10) calendar day written notice. The Holder shall be entitled to
convert the balance of the Debentures not being converted at anytime
prior to the date of redemption. The redemption amount shall be 125%
of the principal amount being redeemed, plus and additional 1% for
each 30 day period after the 90th calendar day following the Closing Date.
Section 3.3. Fractional Shares. The Company shall not issue
fractional shares of Common Stock, or scrip representing fractions of
such shares, upon the conversion of this Debenture. Instead, the
Company shall round up or down, as the case may be, to the nearest
whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue
of shares of Common Stock upon the conversion of this Debenture.
However, the Holder shall pay any such tax which is due because the
shares are issued in a name other than its name.
Section 3.5. Company to Reserve Stock. The Company shall
reserve the number of shares of Common Stock required pursuant to and
upon the terms set forth in the Subscription Agreement to permit the
conversion of this Debenture. All shares of Common Stock which may be
issued upon the conversion hereof shall upon issuance be validly
issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issuance thereof.
Section 3.6. Restrictions on Sale. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act")
and is being issued under Section 4(2) of the Act and Rule 506 of
Regulation D promulgated under the Act. This Debenture and the Common
Stock issuable upon the conversion thereof may only be sold pursuant
to registration under or an exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or
consolidates with another corporation or sells or transfers all or
substantially all of its assets to another person and the holders of
the Common Stock are entitled to receive stock, securities or property
in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject
to the conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger, consolidation,
sale or transfer by a holder of the number of shares of Common Stock
into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable to
adjustments provided for in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer all
or substantially all of its assets to, any person, unless such person
assumes in writing the obligations of the Company under this Debenture
and immediately after such transaction no Event of Default exists.
Any reference herein to the Company shall refer to such surviving or
transferee corporation and the obligations of the Company shall
terminate upon such written assumption.
Article 5. Reports
The Company will mail to the Holder hereof at its address as
shown on the Register a copy of any annual, quarterly or current
report that it files with the Securities and Exchange Commission
promptly after the filing thereof and a copy of any annual, quarterly
or other report or proxy statement that it gives to its shareholders
generally at the time such report or statement is sent to
shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if
(a) the Company does not pay 125% of the principal amount of this
Debenture, plus accrued but unpaid interest and liquidated damages, if
any, in full on or before the one year anniversary following the
Closing Date and the registration statement covering the Common Stock
underlying this offering is not declared effective on or before the
one year anniversary following the Closing Date calendar day following
the Closing Date), (b) any of the Company's representations or
warranties contained in the Subscription Agreement or this Debenture
were false when made or the Company fails to comply with any of its
other agreements in the Subscription Agreement or this Debenture and
such failure continues for the period and after the notice specified
below, (c) the Company pursuant to or within the meaning of any
Bankruptcy Law (as hereinafter defined): (i) commences a voluntary
case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian
(as hereinafter defined) of it or for all or substantially all of its
property or (iv) makes a general assignment for the benefit of its
creditors or (v) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (A) is for relief against the
Company in an involuntary case; (B) appoints a Custodian of the
Company or for all or substantially all of its property or (C) orders
the liquidation of the Company, and the order or decree remains
unstayed and in effect for sixty (60) calendar days, (e) the Company's
Common Stock is suspended or no longer listed on any recognized
exchange including electronic over-the-counter bulletin board for in
excess of five (5) consecutive trading days. As used in this Section
6.1, the term "Bankruptcy Law" means Title 11 of the United States
Code or any similar federal or state law for the relief of debtors.
The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. A default under clause
(c) above is not an Event of Default until the holders of at least 25%
of the aggregate principal amount of the Debentures outstanding notify
the Company of such default and the Company does not cure it within
thirty (30) business days after the receipt of such notice, unless the
Company commences to cure such default within such period, which must
specify the default, demand that it be remedied and state that it is a
"Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare
the remaining principal amount of this Debenture, together with all
accrued interest and any liquidated damages, to be due and payable.
Upon such declaration, the remaining principal amount shall be due and
payable immediately.
Section 6.3 Concerning Seniority. Except as disclosed in the
Company's SEC filings, no indebtedness of the Company is senior to
this Debenture in right of payment, whether with respect to interest,
damages or upon liquidation or dissolution or otherwise.
Section 6.4 Liquidation Value. The liquidation value of this
Debenture shall be equal to 125% of the outstanding balance remaining
on this Debenture plus accrued but unpaid interest and liquidated
damages.
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series
of Debentures which are identical except as to the principal amount
and date of issuance thereof. Such Debentures are referred to herein
collectively as the "Debentures". The Debentures shall be issued in
whole multiples of $5,000.
Section 7.2. Record Ownership. The Company, or its attorney,
shall maintain a register of the holders of the Debentures (the
"Register") showing their names and addresses and the serial numbers
and principal amounts of Debentures issued to them. The Register may
be maintained in electronic, magnetic or other computerized form. The
Company may treat the person named as the Holder of this Debenture in
the Register as the sole owner of this Debenture. The Holder of this
Debenture is the person exclusively entitled to receive payments of
interest on this Debenture, receive notifications with respect to this
Debenture, convert it into Common Stock and otherwise exercise all of
the rights and powers as the absolute owner hereof.
Section 7.3. Worn or Lost Debentures. If this Debenture
becomes worn, defaced or mutilated but is still substantially intact
and recognizable, the Company or its agent may issue a new Debenture
in lieu hereof upon its surrender. Where the Holder of this Debenture
claims that the Debenture has been lost, destroyed or wrongfully
taken, the Company shall issue a new Debenture in place of the
original Debenture if the Holder so requests by written notice to the
Company actually received by the Company before it is notified that
the Debenture has been acquired by a bona fide purchaser and the
Holder has delivered to the Company an indemnity bond in such amount
and issued by such surety as the Company deems satisfactory together
with an affidavit of the Holder setting forth the facts concerning
such loss, destruction or wrongful taking and such other information
in such form with such proof or verification as the Company may
request.
Article 8. Notice.
Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Debenture must be in
writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile
(provided a confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or
(iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
5G Wireless Communications, Inc.
2921 N. Tenaya Way, Suite 216
Las Vegas, NV 89128
Attention: Jerry Dix, CEO
Telephone: 702-647-4877
Facsimile: 702-
With a copy to:
Mark Tow, Esq.
3900 Birch Street, Suite 113
Newport Beach, CA 92660
Telephone: 949-975-0544
Facsimile: 949-975-0547
If to the Investor:
At the address listed in the Questionnaire.
If to May Davis Group, Inc.:
c/o Joseph B. LaRocco, Esq.
49 Locust Avenue, Suite 107
New Canaan, CT 06840
Telephone: 203-966-0566
Facsimile: 203-966-0363
Each party shall provide five (5) business days prior notice to
the other party of any change in address, phone number or facsimile
number.
Article 9. Time
Where this Debenture authorizes or requires the payment of money
or the performance of a condition or obligation on a Saturday or
Sunday or a public holiday, or authorizes or requires the payment of
money or the performance of a condition or obligation within, before
or after a period of time computed from a certain date, and such
period of time ends on a Saturday or a Sunday or a public holiday,
such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified
hour, such payment may be made or condition performed, at or before
the same hour of such next succeeding business day, with the same
force and effect as if made or performed in accordance with the terms
of this Debenture. A "business day" shall mean a day on which the
banks in New York are not required or allowed to be closed.
Article 10. No Assignment
This Debenture shall not be assignable.
Article 11. Rules of Construction.
In this Debenture, unless the context otherwise requires, words
in the singular number include the plural, and in the plural include
the singular, and words of the masculine gender include the feminine
and the neuter, and when the sense so indicates, words of the neuter
gender may refer to any gender. The numbers and titles of sections
contained in the Debenture are inserted for convenience of reference
only, and they neither form a part of this Debenture nor are they to
be used in the construction or interpretation hereof. Wherever, in
this Debenture, a determination of the Company is required or allowed,
such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it shall be
conclusive and binding upon the Company and the Holder of this
Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this
Debenture shall be governed and construed by the provisions hereof and
in accordance with the laws of the State of Nevada applicable to
agreements that are negotiated, executed, delivered and performed
solely in the State of Nevada.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation
arising out of, under, or in connection with, this Debenture or any
course of conduct, course of dealing, statements (whether oral or
written) or actions of the Company or Holder shall be brought and
maintained exclusively in the courts of the State of New York. The
Company hereby expressly and irrevocably submits to the jurisdiction
of the state and federal courts of the State of New York for the
purpose of any such litigation as set forth above and irrevocably
agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably
consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New
York. The Company hereby expressly and irrevocably waives, to the
fullest extent permitted by law, any objection which it may have or
hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any
such litigation has been brought in any inconvenient forum. To the
extent that the Company has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, the
Company hereby irrevocably waives such immunity in respect of its
obligations under this Debenture.
(b) Waiver of Jury Trial. The Holder and the Company hereby
knowingly, voluntarily and intentionally waive any rights they may
have to a trial by jury in respect of any litigation based hereon, or
arising out of, under, or in connection with, this Debenture, or any
course of conduct, course of dealing, statements (whether oral or
written) or actions of the Holder or the Company. The Company
acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder purchasing this Debenture.
(c) Governing Law. The terms of this Debenture shall be
governed by and construed and enforced in accordance with the laws of
the State of Nevada without regard to the conflicts of laws principles
thereof.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as
of the date first written above.
5G WIRELESS COMMUNICATIONS, INC.
By: /s/ Jerry Dix
Name: Jerry Dix
Title: CEO
EXHIBIT D
FORM OF OPINION
Purchasers of [Company] [Describe Securities]
_______________, 2001
Re: [Company]
Ladies and Gentlemen:
We have acted as counsel to [Company], a corporation incorporated
under the laws of the State of _________ (the "Company"), in
connection with the proposed issuance and sale of convertible
debentures (the "Securities") pursuant to the related Subscription
Agreement (including all Exhibits and Appendices thereto)
(collectively the "Agreements").
In connection with rendering the opinions set forth herein, we
have examined drafts of the Agreement, the Company's Certificate of
Incorporation, and its Bylaws, as amended to date [other documents -
describe], the proceedings of the Company's Board of Directors taken
in connection with entering into the Agreements, and such other
documents, agreements and records as we deemed necessary to render the
opinions set forth below.
In conducting our examination, we have assumed the following:
(i) that each of the Agreements has been executed by each of the
parties thereto in the same form as the forms which we have examined,
(ii) the genuineness of all signatures, the legal capacity of natural
persons, the authenticity and accuracy of all documents submitted to
us as originals, and the conformity to originals of all documents
submitted to us as copies, (iii) that each of the Agreements has been
duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the
Agreements constitutes the valid and binding agreement of the party or
parties thereto other than the Company, enforceable against such party
or parties in accordance with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion
that:
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of __________, is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where the
Company owns or leases properties, maintains employees or conducts
business, except for jurisdictions in which the failure to so qualify
would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and
conduct its business.
2. The authorized capital stock of the Company consists of -
_______ shares of Common Stock, ________ par value per share, ("Common
Stock") and ______________ Preferred Stock, par value $________ per
share; [describe classes if applicable]
3. The Common Stock is registered pursuant to Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended and
the Company has timely filed all the material required to be filed
pursuant to Sections 13(a) or 15(d) of such Act for a period of at
least twelve months preceding the date hereof;
4. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of
the agreed consideration therefor in accordance with the provisions of
the Agreements, the Securities [and any Common Stock to be issued upon
the conversion of the Securities] as described in the Agreements
represented thereby will be duly authorized and validly issued, fully
paid and nonassessable;
5. The Company has the requisite corporate power and authority
to enter into the Subscription Agreement and to sell and deliver the
Securities and the Common Stock to be issued upon the conversion of
the Securities as described in the Agreements; each of the Agreements
has been duly and validly authorized by all necessary corporate action
by the Company to our knowledge, no approval of any governmental or
other body is required for the execution and delivery of each of the
Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly
executed and delivered by and on behalf of the Company, and is a valid
and binding agreement of the Company, enforceable in accordance with
its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws affecting creditors rights
generally, and except as to compliance with federal, state, and
foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the
execution, delivery and performance of the Subscription Agreement and
Securities by the Company and the performance of its obligations
thereunder do not and will not constitute a breach or violation of any
of the terms and provisions of, or constitute a default under or
conflict with or violate any provision of (i) the Company's
Certificate of Incorporation or By-Laws, (ii) any indenture, mortgage,
deed of trust, agreement or other instrument to which the Company is
party or by which it or any of its property is bound, (iii) any
applicable statute or regulation or as other, (iv) or any judgment,
decree or order of any court or governmental body having jurisdiction
over the Company or any of its property.
7. The issuance of Common Stock upon conversion of the
Securities in accordance with the terms and conditions of the
Securities and the Subscription Agreement, will not violate the
applicable listing agreement between the Company and any securities
exchange or market on which the Company's securities are listed.
8. To the best of our knowledge, after due inquiry, there is no
pending or threatened litigation, investigation or other proceedings
against the Company [except as described in Exhibit A hereto].
9. The Company complies with the eligibility requirements for
the use of [Form SB-3] [Form SB-2], under the Securities Act of 1933,
as amended.
This opinion is rendered only with regard to the matters set out
in the numbered paragraphs above. No other opinions are intended nor
should they be inferred. This opinion is based solely upon the laws
of the United States and the State of _____________ and does not
include an interpretation or statement concerning the laws of any
other state or jurisdiction. Insofar as the enforceability of the
Subscription Agreement and Securities may be governed by the laws of
other states, we have assumed that such laws are identical in all
respects to the laws of the State of ___________.
The opinions expressed herein are given to you solely for your
use in connection with the transaction contemplated by the
Subscription Agreement and Securities and may not be relied upon by
any other person or entity or for any other purpose without our prior
consent.
Very truly yours,
By:_____________________
EX-4.5
ESCROW AGREEMENT
With
FIRST UNION NATIONAL BANK
This Agreement is made and entered into as of February 12, 2002
by and among 5G Wireless Communications, Inc. (the "Company"), May
Davis Group, Inc. (the "Placement Agent"), and FIRST UNION NATIONAL
BANK, a national banking association with a principal New York
corporate trust office at First Union National Bank, Corporate Trust
Group, 12 East 49th Street, 37th Floor, New York, NY 10017 (the "Escrow
Agent").
WHEREAS, the Company proposes to offer for sale to investors
through the Placement Agent up to $350,000 of the Company's
convertible debentures (the "Debentures"). The Debentures are being
offered through the Placement Agent at various face amounts. The
Debentures are being offered through the Placement Agent pursuant to
the terms of a Subscription Agreement (the "Subscription Agreement")
being entered into between the Company and the buyers named therein,
and the Common Stock is being offered through the Placement Agent
pursuant to the terms of an Investment Agreement (the "Investment
Agreement") being entered into between the Company and one or more
investors.
WHEREAS, the Debentures are being offered and sold through the
Placement Agent only to persons who have advised the Company that they
are "accredited investors" as defined under Regulation D promulgated
under the Securities Act of 1933, as amended.
WHEREAS, the offering of Debentures will terminate at the close
of business on February 28, 2002, (the "Termination Date"), unless
otherwise terminated or extended by mutual agreement of the Company
and the Placement Agent, and if acceptable subscriptions have not been
received by the Company on or before such date, no Debentures will be
sold and all payments made by subscribers of the Debentures
("Subscribers") will be refunded by the Escrow Agent, without
interest, upon written authorization of fund destination by the
Subscribers. The Placement Agent reserves the right, in its sole
discretion, to reject any subscription, in whole or in part, for the
purchase of the Debentures offered hereby. In the case of orders
which are rejected or partially rejected, the Escrow Agent will
promptly refund, without interest, the amount of the subscription
price representing the entire rejected order or that portion thereof
which has not been accepted.
WHEREAS, with respect to (a) all subscription payments for
Debentures received from Subscribers and (b) all payments for the
Common Stock received from investors pursuant to the Investment
Agreement, the Company proposes to establish an escrow account with
the Escrow Agent at the office of its Corporate Trust Group, 12 East
49th Street, 37th Floor, New York, NY 10017.
WHEREAS, the Placement Agent intends to sell the Debentures as
the Company's placement agent on a "best efforts" basis up to
$350,000, (the "Maximum Offering").
WHEREAS, the Company and the Placement Agent desire to establish
an escrow account ("Escrow Fund Account") in which funds received from
Subscribers of Debentures will be deposited pending completion of the
escrow period. The Escrow Agent agrees to serve as escrow agent in
accordance with the terms and conditions set forth herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The Escrow Agent shall hold the Escrow Fund Account subject
to the terms of this Escrow Agreement and shall act in accordance with
the instructions contained in this Escrow Agreement.
2. Upon the written instructions of the Placement Agent and the
Company, the Escrow Agent shall deliver all or a part of the funds in
the Escrow Fund Account, at such times and in such manner as shall be
set forth in such instructions.
3. Unless otherwise instructed by the Placement Agent, any cash
balances held under this Escrow Agreement shall be invested in the
Evergreen Cash Management Treasury Money Market Fund # 765. All
income earned from the Escrow Fund Account shall be retained by the
Escrow Agent and disbursed for any fees, expenses or other amounts due
to the Escrow Agent.
4. This Escrow Agreement shall terminate upon the final
distribution of all amounts in the Escrow Account and any income
earned thereon.
5. (a) The Escrow Agent shall not in any way be bound or
affected by any notice of modification or cancellation of this Escrow
Agreement unless in writing signed by the Company and the Placement
Agent, nor shall the Escrow Agent be bound by any modification hereof
unless the same shall be satisfactory to it. The Escrow Agent shall
be entitled to rely upon any notice, certification, demand or other
writing delivered to it hereunder by the Company and/or the Placement
Agent without being required to determine the authenticity or the
correctness of any facts stated therein, the propriety or validity of
the service thereof, or the jurisdiction of the court issuing any
judgment.
(b) The Escrow Agent may act in reliance upon any signature
believed by it to be genuine, and may assume that any person
purporting to give any notice or receipt, or make any statements in
connection with the provisions hereof has been duly authorized to do
so.
(c) The Escrow Agent may act relative hereto in reliance
upon advice of counsel in reference to any matter connected herewith,
and shall not be liable for any mistake of fact or error or judgment,
or for any acts or omissions of any kind, unless caused by its willful
misconduct or gross negligence.
(d) The Escrow Agent may resign and be discharged of its
duties as Escrow Agent hereunder by giving ten (10) days written
notice to the Company and the Placement Agent. Such resignation shall
take effect ten (10) days after the giving of such notice, or upon
receipt by the Escrow Agent of an instrument of acceptance executed by
a successor escrow agent and upon delivery by the Escrow Agent to such
successor of all of the escrowed documents and funds or securities
then held by it. If no successor escrow agent is appointed in writing
ten (10) days after giving such notice, the Escrow Agent shall deliver
all funds in the Escrow Account to the Company.
(e) The Company and the Placement Agent hereby agree to
jointly and severally, indemnify and hold the Escrow Agent harmless
from any loss, liability or expense, arising out of or related to this
Escrow Agreement, and for all costs and expenses, including the fees
and expenses of counsel, incurred in connection with this Escrow
Agreement. The provisions of this paragraph shall survive the
termination of this Agreement.
(f) The duties and obligations of the Escrow Agent shall be
determined solely by the express provisions of this Agreement and the
Escrow Agent shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Escrow
Agreement. The Escrow Agent shall have no liability or duty to
inquire into the terms and conditions of any agreement to which it is
not a party.
(g) If a controversy arises between one or more of the
parties hereto, or between any of the parties hereto and any person
not a party hereto, as to whether or not or to whom the Agent shall
deliver the Escrow Account or any portion thereof or as to any other
matter arising out of or relating to this Agreement or the Escrow
Account deposited hereunder, the Escrow Agent shall not be required to
determine same and need not make any delivery of the funds in the
Escrow Account or any portion thereof but may retain such funds until
the rights of the parties to the dispute shall have finally been
determined by agreement or by final order of court of competent
jurisdiction, provided, however, that the time of appeal of any such
final order has expired without an appeal having been made. The Escrow
Agent shall deliver the Escrow Account or any portion thereof within
15 days after the Escrow Agent has received written notice of any such
agreement or final order (accompanied by an affidavit that the time
for appeal has expired without an appeal having been made). The
Escrow Agent shall be entitled to assume that no such controversy has
arisen unless it has received a written notice that such a controversy
has arisen which refers specifically to this Agreement and identifies
by name and address the adverse claimants to the controversy. If a
controversy of the type referred to in this paragraph arises, the
Escrow Agent may, in its sole discretion but shall not be obligated
to, commence interpleader or similar actions or proceedings for
determination of the controversy.
(h) The Escrow Agent shall not be required to institute or
defend any action (including interpleader) or legal process involving
any matter referred to herein which in any manner affects it or its
duties or liabilities hereunder. In the event the Escrow Agent shall
institute or defend any such action or legal process, it shall do so
only upon receiving full indemnity in an amount and of such character
as it shall require, against any and all claims liabilities,
judgments, attorney's fees and other expenses of every kind in
relation thereto, except in the case of its own willful misconduct or
gross negligence.
(i) In the event that the Escrow Agent receives or becomes
aware of conflicting demands or claims with respect to any funds,
securities, property or documents deposited or delivered in connection
herewith, or the parties disagree about the interpretation of this
Agreement, or about the rights and obligations, or the propriety, of
any action contemplated by the Escrow Agent hereunder, or if the
Escrow Agent otherwise has any doubts as to the proper disposition of
funds or the execution of any of its duties hereunder, the Escrow
Agent shall have the right to discontinue any or all further acts on
its part until such conflict, disagreement or doubt is resolved to its
satisfaction. In addition, the Escrow Agent may, in its sole
discretion, file an action in interpleader in any court of competent
jurisdiction to resolve the dispute or uncertainty. The Placement
Agent and the Company agree, jointly and severally, to indemnify the
Escrow Agent and hold it harmless from and against all costs,
including reasonable attorney's fees and expenses incurred by it in
connection with such action. In the event that the Escrow Agent files
an action in interpleader, it shall thereupon be fully released and
discharged from all further obligations to perform any and all duties
or obligations imposed upon it by this Agreement, other than
safekeeping of the assets in the Escrow Account, if not paid into
Court.
6. Any notice, direction, request, instruction, legal process,
or other instrument to be given or served hereunder by any party to
another shall be in writing, shall be delivered personally or sent by
certified mail, return receipt requested, to the respective party or
parties at the following addresses, and shall be deemed to have been
given when received.
If to the Company:
5G Wireless Communications, Inc.
2921 N. Tenaya Way, Suite 216
Las Vegas, NV 89128
Attention: Jerry Dix, CEO
Telephone: 702-647-4877
Facsimile: 702-
Tax ID#
IF TO THE PLACEMENT AGENT,
Hunter Singer
May Davis Group, Inc.
c/o National Securities
120 Broadway, 28th Floor
New York, New York 10271
Tel.: 212-417-8118
Fax: 212-417-3627
Tax ID#
If to the Escrow Agent:
First Union National Bank
Corporate Trust Group
12 East 49th Street, 37th Floor
New York, NY 10017
Tel: 212-451-2531
Fax: 212-451-2537
Any party may change its or his address by written notice to
each of the other parties.
7. The Escrow Agent's fee for acting under this Escrow
Agreement shall be set forth in a separate letter and agreed to by the
party or parties responsible for payment. The Escrow Agent's fees and
expenses, including counsel fees, shall be paid by the Company. The
Escrow Agent is hereby given a first priority lien on the Escrow Fund
to protect, indemnify and reimburse itself for all fees, costs,
expenses and liabilities arising out of this Escrow Agreement and the
performance of its duties hereunder.
8. This Escrow Agreement shall be binding upon the parties
hereto and the Escrow Agent, and their respective successors, legal
representatives and assigns.
5G WIRELESS COMMUNICATIONS, INC. MAY DAVIS GROUP, INC.
By: /s/ Jerry Dix By: /s/ Michael Jacobs
Jerry Dix, CEO Senior Partner
FIRST UNION NATIONAL BANK
Escrow Agent
By: /s/ Michelle Mena
Michelle Mena, CCTS
EX-4.6
ESCROW AGREEMENT
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made as of February 12,
2002, by and between 5G Wireless Communications, Inc. ("Pledgor"), 5G
Wireless Communications, Inc. ("Borrower"), the undersigned secured
parties ("Secured Party") and Joseph B. LaRocco, Esq., ("Escrow
Agent") (singly a "Party" and cumulatively the "Parties").
W I T N E S S E T H:
WHEREAS, Secured Parties are making a loan of up to $350,000 to 5G
Wireless Communications, Inc. pursuant to the terms of convertible
debentures ("Debentures") and a Security Agreement dated February of
2002, whereby 16,000,000 shares of 5G Wireless Communications, Inc.
common stock (the "Shares") owned by Pledgor are being pledged to
secure said loan; and
WHEREAS, Pledgor, Borrower and Secured Party have requested that
the Escrow Agent hold the Shares in escrow pursuant to the terms of
this Agreement until either payment in full of the Debentures
according to their terms or a default under the Promissory Note or
Security Agreement.
NOW, THEREFORE, in consideration of the covenants and mutual
promises contained herein and other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged and
intending to be legally bound hereby, the Parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1 The Parties hereby agree to have Joseph B. LaRocco,
Esq. act as Escrow Agent whereby the Escrow Agent shall hold the
Shares as security.
1.2 Upon Escrow Agent's receipt of funds from Secured Party
into the attorney escrow account the Escrow Agent shall notify
Pledgor, of the amount received. Pledgor, Borrower and Secured Party,
prior to or upon receipt of said notice from the Escrow Agent, shall
deliver to the Escrow Agent the following:
(a) original stock certificate(s) representing the Shares, with
original stock powers signed with Medallion Guarantee, in an amount
not less than 16,0000,000 shares;
(b) the original signed Debentures;
(c) the original signed Security Agreement whereby Pledgor is
pledging said Shares as security for the loan;
(d) the original signed opinion letter from Borrower's counsel
acceptable to Secured Party concerning this transaction;
(e) copy of an unsigned opinion letter from Borrower's counsel that
would be sent to the transfer agent to remove the legend from the
Shares in the event of a default under the Debentures or Security
Agreement;
(f) copies of signed representation letters from Secured Party and
Pledgor;
(g) copy of this Escrow Agreement fully executed by all Parties; and
(h) collectively the "Escrow Securities and Documents").
1.3 Upon Escrow Agent's receipt of the Escrow Securities and
Documents the Escrow Agent shall notify Secured Party, Pledgor and 5G
Wireless Communications, Inc. in detail as to the securities and
documents received.
1.4 Upon Secured Party's review, via facsimile, and acceptance
of the Escrow Securities and Documents, Escrow Agent shall immediately
wire transfer the net loan funds per the written instructions of
Borrower. Once the funds have been wire transferred per Borrower's
written instructions, the Escrow Agent shall then hold the Escrow
Securities and Documents at his office. In the alternative to holding
the Shares at his office, the Escrow Agent may open an escrow account
at a brokerage firm and have the Shares deposited into that escrow
account.
1.5 Upon a default, as defined anywhere in the Subscription
Agreement, Debentures or Security Agreement, Secured Party shall send
a written notice of default to Pledgor with a copy to the Escrow Agent
via facsimile. In the event Pledgor is unable to cure any default
within five (5) business days, then Escrow Agent shall release to each
Secured Party, that number of the Shares being held in escrow, equal
to 125% of the principal amount of Debentures not yet converted, net
of customary brokerage commissions and expenses, plus any accrued but
unpaid interest and liquidated damages (the "Amount Due"), based on
the closing bid price of 5G Wireless Communications, Inc.'s common
stock on the trading day immediately preceding the default. The Shares
shall not be used unless the registration statement covering the
common stock underlying the Debentures has not been declared effective
on or before the one year anniversary following the first funding, in
which event, on the one year anniversary following the first funding,
if the registration statement has yet not been declared effective (a
"Default"), that number of Shares equal to the Amount Due shall be
released by the escrow agent to the Secured Parties. Once the Secured
Parties have recovered the full Amount Due, the balance of the
remaining common stock they received shall be returned to the escrow
agent, who shall then return such Shares to the Pledgor. In the event
that the Secured Parties do not recover the full Amount Due, the
escrow agent shall release additional Shares to make up the shortfall,
based on the closing bid price for the trading day immediately
preceding the date the escrow agent receives trade confirmations from
the Secured Parties' broker showing the amount received from the sale
of the Shares. The process shall be repeated until the Secured
Parties have recovered the full Amount Due. Each of the Secured
Parties may elect at their sole option to decline to use the Shares
and instead use the conversion feature of the Debentures. Secured
Parties shall provide a weekly accounting to Escrow Agent and Pledgor
of the sales. In the event that the Shares are not sufficient to pay
the full Amount Due, the Pledgor agrees to forward additional shares
of common stock to the Secured Parties each calendar week until the
Secured Parties are able to recover the full Amount Due.
1.6 This Agreement may be altered or amended only with the
consent of all of the Parties hereto. Should any of the Parties
attempt to change this Agreement in a manner which, in the Escrow
Agent's discretion, shall be undesirable, the Escrow Agent may resign
as Escrow Agent by notifying the Parties in writing. In the case of
the Escrow Agent's resignation or removal pursuant to the foregoing,
his only duty, until receipt of notice from the Parties that a
successor escrow agent has been appointed, shall be to hold and
preserve the Escrow Securities and Documents and funds that are in his
possession. Upon receipt by the Escrow Agent of said notice from the
Parties of the appointment of a successor escrow agent, the name of a
successor escrow account and a direction to transfer the Escrow
Securities and Documents and funds, the Escrow Agent shall promptly
thereafter transfer all of the Escrow Securities and Documents and
funds held in escrow to said successor escrow agent. Immediately
after said transfer of Escrow Securities and Documents and funds, the
Escrow Agent shall furnish the Parties with proof of such transfer.
The Escrow Agent is authorized to disregard any notices, requests,
instructions or demands received by it from the Parties after notice
of resignation or removal shall have been given, unless the same shall
be the aforementioned notice from the Parties to transfer the Escrow
Securities and Documents and funds to a successor escrow agent or to
return same to the respective Parties.
1.7 The Escrow Agent shall be reimbursed by the Parties for any
reasonable expenses incurred in the event there is a conflict between
the Parties and the Escrow Agent shall deem it necessary to retain
counsel. The Escrow Agent shall not be liable for any action taken or
omitted by him in good faith in accordance with the advice of the
Escrow Agent's counsel; and in no event shall the Escrow Agent be
liable or responsible except for the Escrow Agent's own gross
negligence or willful misconduct. The Escrow Agent shall be obligated
only for the performance of such duties as are specifically set forth
herein and may rely and shall be protected in relying or refraining
from acting on any instrument reasonably believed by the Escrow Agent
to be genuine and to have been signed or presented by the proper Party
or Parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow
Agent while acting in good faith, and any act done or omitted by the
Escrow Agent pursuant to the advice of the Escrow Agent's attorney-at-
law shall be conclusive evidence of such good faith.
1.8 The Escrow Agent has made no representations or warranties to
the Borrower in connection with this transaction. The Escrow Agent has
no liability hereunder to any Party other than to hold the Shares and
funds received by the Secured Party and to deliver them under the
terms hereof. The Escrow Agent shall have no responsibility at any
time to ascertain whether or not any security interest exists in the
Shares or any part thereof or to file any financing statement under
the Uniform Commercial Code with respect to the Shares or any part
thereof. Each Party hereto agrees to indemnify and hold harmless the
Escrow Agent from and with respect to any suits, claims, actions or
liabilities arising in any way out of this transaction including the
obligation to defend any legal action brought which in any way arises
out of or is related to this Agreement or the investment being made by
Secured Party. The Borrower acknowledges and represents that it is not
being represented in a legal capacity by Joseph B. LaRocco, and has
had the opportunity to consult with its own legal advisors prior to
the signing of this Agreement. The Borrower acknowledges that the
Escrow Agent is not rendering securities advice to the Borrower with
respect to this proposed transaction. The Escrow Agent has acted as
legal counsel for May Davis Group, Inc. and may continue to act as
legal counsel for May Davis Group, Inc., from time to time,
notwithstanding its duties as the Escrow Agent hereunder. The Borrower
consents to the Escrow Agent acting in such capacity as legal counsel
for May Davis Group, Inc. and waives any claim that such
representation involves a conflict of interest on the part of the
Escrow Agent. The Borrower understands that the Secured Party and
Escrow Agent are relying explicitly on the foregoing provisions
contained in this Section in entering into this Agreement.
1.9 The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the Parties hereto or by any
other person or corporation, excepting only orders or process of
courts of law and is hereby expressly authorized to comply with and
obey orders, judgments or decrees of any court. In case the Escrow
Agent obeys or complies with any such order, judgment or decree, the
Escrow Agent shall not be liable to any of the Parties hereto or to
any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found
to have been entered without jurisdiction.
1.10 The Escrow Agent shall not be liable in any respect on
account of the identity, authorities or rights of the Parties
executing or delivering or purporting to execute or deliver the
Agreement or any documents or papers deposited or called for hereunder.
1.11 If the Escrow Agent reasonably requires other or further
documents in connection with this Agreement, the necessary Parties
hereto shall join in furnishing such documents.
1.12 It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of possession
of the documents or the funds held by the Escrow Agent hereunder, the
Escrow Agent is authorized and directed in the Escrow Agent's sole
discretion (a) to retain in the Escrow Agent's possession without
liability to anyone all or any part of said documents or the funds
until such disputes shall have been settled either by mutual written
agreement of the Parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow
Agent shall be under no duty whatsoever to institute or defend any
such proceedings or (b) to deliver the funds and any other property
and documents held by the Escrow Agent hereunder to a state or federal
court having competent subject matter jurisdiction and located in the
State of Connecticut in accordance with the applicable procedure therefor.
ARTICLE 2
MISCELLANEOUS
2.1 No waiver of any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding
breach thereof, or of any other covenant or provision herein
contained. No extension of time for performance of any obligation or
act shall be deemed any extension of the time for performance of any
other obligation or act.
2.2 Notices. Any notices or other communications required or
permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending Party); or
(iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the Party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to Borrower, Dennis Engh, Daniel Engh or Thomas Harrison, to:
5G Wireless Communications, Inc.
2921 N. Tenaya Way, Suite 216
Las Vegas, NV 89128
Attention: Jerry Dix, CEO
Telephone: 702-647-4877
Facsimile: 702-
With a copy to:
Mark Tow, Esq.
3900 Birch Street, Suite 113
Newport Beach, CA 92660
Telephone: 949-975-0544
Facsimile: 949-975-0547
If to Secured Party to:
At the Address listed in the Questionnaire to the Subscription Agreement.
With a copy to:
Joseph B. LaRocco, Esq.
49 Locust Avenue - Suite 107
New Canaan, CT 06840
Phone: 203-966-0566
Fax 203-966-0363
2.3 This Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and assigns of the Parties hereto.
2.4 This Escrow Agreement is the final expression of, and
contains the entire agreement between, the Parties with respect to the
subject matter hereof and supersedes all prior understandings with
respect thereto. This Escrow Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be
waived, except by written instrument signed by the Parties to be
charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein.
2.5. Whenever required by the context of this Escrow Agreement,
the singular shall include the plural and masculine shall include the
feminine. This Escrow Agreement shall not be construed as if it had
been prepared by one of the Parties, but rather as if all the Parties
had prepared the same. Unless otherwise indicated, all references to
Articles are to this Escrow Agreement.
2.6 Pledgor, Borrower and Secured Party acknowledge and confirm
that they are not being represented in a legal capacity by Joseph B.
LaRocco, and they have had the opportunity to consult with their own
legal advisors prior to the signing of this agreement.
2.7 The Parties hereto expressly agree that this Escrow
Agreement shall be governed by, interpreted under, and construed and
enforced in accordance of the laws of the State of Connecticut. Any
action to enforce, arising out of, or relating in any way to, any
provisions of this Escrow Agreement shall be brought through the
American Arbitration Association at the designated locale of Stamford,
Connecticut.
2.8 This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Escrow
Agreement, once executed by a Party, may be delivered to the other
Parties hereto by telephone line facsimile transmission bearing the
signature of the Party so delivering this Escrow Agreement and such
copy shall be deemed and original.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
PLEDGOR/BORROWER: 5G WIRELESS COMMUNICATIONS, INC.
By: /s/ Jerry Dix
Jerry Dix, CEO
SECURED PARTY
_________________________________
Name: ___________________________
SECURED PARTY
_________________________________
Name: ___________________________
JOSEPH B. LAROCCO, ESCROW AGENT
By: /s/ Joseph B. LaRocco
Joseph B. LaRocco, Esq.
EX-4.7
SECURITY AGREEMENT (STOCK PLEDGE)
SECURITY AGREEMENT
(STOCK PLEDGE)
This Security Agreement (the "Agreement") is made as of February
12, 2002, between 5G Wireless Communications, Inc. ("Pledgor"), and
the undersigned secured parties ("Secured Parties") (singly a "Party"
and cumulatively the "Parties").
For good and valuable consideration, receipt of which is hereby
acknowledged, Pledgor and Secured Parties hereby agree as follows:
1. Grant of Security Interest. Pledgor hereby grants to
Secured Parties a security interest in 16,000,000 shares of 5G
Wireless Communications, Inc. common stock (the "Shares" also referred
to as the "Collateral"), which shares shall be issued from the
treasury, and in all proceeds thereof, including, without limitation:
(a) any and all shares issued in replacement thereof; (b) any and all
shares issued as a stock dividend or issued in connection with any
increase or decrease of capital, reclassification, reorganization,
merger, consolidation, sale of assets, combination of shares, stock
split, spin-off or split-off; (c) any and all options, warrants or
rights, whether as an addition to, or in substitution or exchange for
any of said stock or otherwise; and (d) any and all dividends or
distributions, whether payable in cash or in property.
Pledgor and Secured Parties acknowledge their mutual intent that
all security interests contemplated herein are given as a
contemporaneous exchange for new value to Pledgor.
2. Debts Secured. The security interest granted by this
Agreement shall secure the following obligations, which are full
recourse obligations of 5G Wireless Communications, Inc.: convertible
debentures ("Debentures") issued in favor of Secured Parties dated
February of 2002, in the aggregate principal amount of up to Three
Hundred Fifty Thousand Dollars ($350,000), any and all renewals,
extensions, replacements, modifications and amendments thereof
(including any which increase the original principal amount).
3. Perfection Security Interest. Pledgor agrees to deliver any
and all stock certificates, or similar instruments evidencing the
Collateral, to Secured Parties or an escrow agent to be designated by
Pledgor and Secured Parties, at the time of execution of this
Agreement. Pledgor agree to give good faith, diligent cooperation to
Secured Parties and to perform such other acts as reasonably requested
by Secured Parties for perfection and enforcement of said security
interest. Pledgor will promptly deliver to Secured Parties all
written notices, dividends, stock certificates, or other documents
constituting or relating to the Collateral, which are received in the
future and will promptly give Secured Parties written notice of any
other notices which are received in the future by Pledgor with respect
to the Collateral.
4. No Transfer of Ownership Prior to Default. Pledgor do
hereby make, constitute and appoint Secured Parties and their
designees, as Pledgor' true and lawful attorney in fact, with full
power of substitution, to transfer the Collateral on the books of the
issuing corporation, or any transfer agent, to the name of Secured
Parties or such other name as designated by Secured Parties. Such
power may be exercised in the sole discretion of Secured Parties, but
only upon a default under the terms of this Agreement.
Pledgor agree to give full cooperation and to use their best
efforts to cause any issuer, transfer agent, or registrar of the
Collateral to take all such actions and to execute all such documents
as may be necessary or appropriate to effect any sale, transfer or
other disposition of the Collateral, upon a default pursuant to the
terms of the Debenture.
Pledgor agree to pay any and all expenses and out of pocket
costs, including, reasonably attorney's fees and legal expenses,
incurred by Secured Parties in connection with this Section and the
payment thereof shall be secured by the Collateral.
5. Voting Rights. The voting rights with regard to the
Collateral shall be with the record owner.
6. Exercise of Options. In the event that during the term
of this Agreement subscription warrants or any other rights or options
shall be issued in connection with the Collateral, such warrants,
rights and options shall constitute part of the Collateral, Secured
Parties may elect (without any duty to do so) to exercise such
warrants, rights and options on behalf of Pledgor. Payment of all
costs and expenses incurred by Secured Parties in such exercise,
including sums paid to exercise such options or warrants and
reasonable attorneys fees and legal expenses, shall be payable by
Pledgor and the payment thereof shall be secured by the Collateral.
If Secured Parties elect not to exercise such warrants, rights and
options on behalf of Pledgor. Pledgor may elect to exercise such
warrants, rights and options at their cost and expense. All new
shares of stock or other interests so acquired shall be subject to and
held under the terms hereof as Collateral.
7. Duty of Secured Parties. Beyond the exercise of reasonable
care to assure safe custody of the certificates evidencing the
collateral while held hereunder, Secured Parties shall have no duty or
liability to preserve rights pertaining to the Collateral and shall be
relieved of all responsibility for the Collateral upon surrendering
the certificates or tendering surrender of the certificates to Pledgor
or the agreed upon escrow agent, as the case may be.
8. Representations and Warranties Concerning Collateral.
Pledgor represents and warrants that:
a. Pledgor is issuing the Collateral from its treasury
(that is, authorized but unissued common stock of 5G Wireless
Communications.
b. The Collateral is not subject to any security interest,
lien, prior assignment, or other encumbrance of any nature whatsoever
except for current taxes and assessments which are not delinquent and
the security interest created by this Agreement.
9. Covenants Concerning Collateral. Pledgor covenants that:
a. Pledgor will keep the Collateral free and clear of any
and all security interests, liens, assignments or other encumbrances,
except those for current taxes and assessments which are not
delinquent and those arising from this Agreement.
b. Pledgor agree to promptly execute and deliver any other
documents reasonably requested by Secured Parties for perfection or
enforcement of this Agreement and the security interests created
hereby, and to give good faith, diligent cooperation to Secured
Parties and to perform such other acts reasonably requested by Secured
Parties for perfection and enforcement of said security interests.
10. Right to Perform for Pledgor. Secured Parties may, in their
sole discretion and without any duty to do so, elect to discharge
taxes, tax liens, security interests, or any other encumbrance upon
the Collateral, perform any duty or obligation of Pledgor, pay filing,
recording, insurance and other charges payable by Pledgor, or provide
insurance as provided herein if Pledgor fail to do so. Any such
payments advanced by Secured Parties shall be repaid by Pledgor upon
demand, together with interest thereon from the date of advance until
repaid at the rate of ten percent (10%) per annum.
11. Possession of Collateral. All Collateral shall be held by
an escrow agent to be agreed upon by Pledgor and Secured Parties, who
shall act as Secured Parties agent for the purpose of perfecting their
security interest in the Collateral.
12. Default. Time is of the essence of this Agreement. The
occurrence of any of the following events shall constitute a default
under this Agreement:
a. Any representation or warranty made by or on behalf of
Pledgor in this Agreement is materially false or materially misleading
when made;
b. Pledgor fails in the payment or performance of any
obligation, covenant, agreement or liability created by or
contemplated by this Agreement or secured by this Agreement;
c. Any default in the payment or performance of any
amounts, obligation, covenant, agreement or liability under the terms
of the Debentures or this Agreement; or
No course of dealing or any delay or failure to assert any
default shall constitute a waiver of that default or of any prior or
subsequent default.
13. Remedies. Upon the occurrence of any default under this
Agreement, Secured Parties shall have the following rights and
remedies, in addition to all other rights and remedies existing at
law, in equity, or by statute or provided in the Debentures;
a. If Pledgor fails to cure any default within five (5)
business days after Pledgor's receipt of written notice of default
from Secured Parties, Secured Parties may sell, assign, deliver or
otherwise dispose of any or all of the Collateral for cash and/or
credit and upon such terms and at such place or places, and at such
time or times, and to such person, firms, companies or corporation as
Secured Parties reasonably believes expedient, without any
advertisement whatsoever, and, after deducting the reasonable costs
and out-of-pocket expenses incurred by Secured Parties, including,
without limitation, (i) reasonable attorneys fees and legal expenses,
(ii) advertising of sale of the Collateral, (iii) sale commissions,
(iv) sales tax, and (v) costs for preservation and protection of the
Collateral, apply the remainder to pay, or to hold as a reserve
against, the obligations secured by this Agreement.
b. Secured Parties and Pledgor agree to enter into an
escrow agreement with Secured Parties' counsel as escrow agent that
shall provide in the event Pledgor is unable to cure any default
within five (5) business days, then escrow agent shall release to each
Secured Party, that number of the Shares being held in escrow, equal
to 125% of the principal amount of Debentures not yet converted, net
of customary brokerage commissions and expenses, plus any accrued but
unpaid interest and liquidated damages (the "Amount Due"), based on
the closing bid price of 5G Wireless Communications, Inc.'s common
stock on the trading day immediately preceding the default. The
collateral shall not be used unless the registration statement
covering the common stock underlying the Debentures has not been
declared effective on or before the one year anniversary following the
first funding, in which event, on the one year anniversary following
the first funding, if the registration statement has yet not been
declared effective (a "Default"), that number of shares equal to the
Amount Due shall be released by the escrow agent to the Secured
Parties. Once the Secured Parties have recovered the full Amount Due,
the balance of the remaining common stock they received shall be
returned to the escrow agent, who shall then return such shares to the
Pledgor. In the event that the Secured Parties do not recover the
full Amount Due, the escrow agent shall release additional shares to
make up the shortfall, based on the closing bid price for the trading
day immediately preceding the date the escrow agent receives trade
confirmations from the Secured Parties' broker showing the amount
received from the sale of the shares. The process shall be repeated
until the Secured Parties have recovered the full Amount Due. Each of
the Secured Parties may elect at their sole option to decline to use
the collateral and instead use the conversion feature of the
Debentures. Secured Parties shall provide a weekly accounting to
Escrow Agent and Pledgor of the sales. In the event that the Common
Stock is not sufficient to pay the full Amount Due, the Pledgor agrees
to forward additional shares of common stock to the Secured Parties
each calendar week until the Secured Parties are able to recover the
full Amount Due.
c. The rights and remedies herein conferred are cumulative
and not exclusive of any other rights and remedies and shall be in
addition to every other right, power and remedy herein specifically
granted or hereafter existing at law, in equity, or by statute which
Secured Parties might otherwise have, and any and all such rights and
remedies may be exercised from time to time and as often and in such
order as Secured Parties may deem expedient. No delay or omission in
the exercise of any such right, power or remedy or in the pursuance of
any remedy shall impair any such right, power or remedy or be
construed to be a waiver thereof or of any default or to be an
acquiescence therein.
d. In the event of breach or default under the terms of
this Agreement by Pledgor, Pledgor agree to pay all reasonable
attorneys fees and legal expenses incurred by or on behalf of Secured
Parties in enforcement of this Agreement, in exercising any remedy
arising from such breach or default, or otherwise related to such
breach or default. Pledgor additionally agree to pay all reasonable
costs and out-of-pocket expenses, including, without limitation, (i)
reasonable attorneys fees and legal expenses, (ii) advertising of sale
of the Collateral, (iii) sale commissions, (iv) sales tax, and (v)
costs for preservation and protection of the Collateral, incurred by
Secured Parties in obtaining possession of Collateral, preparation for
sale, sale or other disposition, and otherwise incurred in foreclosing
upon the Collateral. Any and all such costs and out-of-pocket
expenses shall be payable by Pledgor upon demand, together with
interest thereon at ten percent (10.0%) per annum.
e. Regardless of any breach or default, Pledgor agree to
pay all expenses, including reasonable attorneys fees and legal
expenses, incurred by Secured Parties in any bankruptcy proceeding of
any type involving Pledgor, the Collateral, or this Agreement,
including, without limitation, expenses incurred in modifying or
lifting the automatic stay, determining adequate protection, use of
cash collateral, or relating to any plan of reorganization.
f. If Pledgor shall be in default under the terms of the
Debentures or this Agreement, Secured Parties, immediately and at any
time thereafter, may declare all of the indebtedness secured pursuant
to this Agreement immediately due and payable, shall have all rights
available in law or at equity, including, without limitation, specific
performance of this Agreement or for an injunction against violations
of any of the terms hereof, and the rights and all the remedies of a
secured party under applicable law.
14. Notices. Any notices or other communications required or
permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been received (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending Party); or
(iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the Party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to Pledgor to:
If to Pledgor:
5G Wireless Communications, Inc.
2921 N. Tenaya Way, Suite 216
Las Vegas, NV 89128
Attention: Jerry Dix, CEO
Telephone: 702-647-4877
Facsimile: 702-
With a copy to:
Mark Tow, Esq.
3900 Birch Street, Suite 113
Newport Beach, CA 92660
Telephone: 949-975-0544
Facsimile: 949-975-0547
If to Secured Parties:
c/o Joseph B. LaRocco, Esq.
49 Locust Avenue - Suite 107
New Canaan, CT 06840
Phone: 203-966-0566
Fax 203-966-0363
15. Indemnification. Pledgor agree to indemnify Secured
Parties for any and all claims and liabilities, and for damages which
may be awarded against Secured Parties and for all reasonable
attorneys fees, legal expenses, and other out-of-pocket expenses
incurred in defending such claims, arising from or related in any
manner to the negotiation, execution, or performance of this
Agreement, excluding any claims and liabilities based upon breach or
default by Secured Parties under this Agreement or upon the negligence
or misconduct of Secured Parties. Secured Parties shall have sole and
complete control of the defense of any such claims, and are hereby
given the authority to settle or otherwise compromise any such claims
as they in good faith determine shall be in their best interests.
16. General. This Agreement is made for the sole and exclusive
benefit of Pledgor and Secured Parties and is not intended to benefit
any third party. No such third party may claim any right or benefit
or seek to enforce any term or provision of this Agreement.
In recognition of Secured Parties' right to have all its
attorneys fees and expenses incurred in connection with this Agreement
secured by the Collateral, notwithstanding payment in full of the
obligations secured by the Collateral, Secured Parties shall not be
required to release, reconvey, or terminate any security interest in
the Collateral unless and until Pledgor has executed and delivered to
Secured Parties a general release in form and substance satisfactory
to Secured Parties.
Secured Parties and its officers, directors, employees,
representatives, agents, attorneys, shall not be liable to Pledgor for
consequential damages arising from or relating to any breach of
contract, tort, or other wrong in connection with or relating to this
Agreement or the Collateral.
If the incurring of any debt by Pledgor or the payment of any
money or transfer of property to Secured Parties by or on behalf of
Pledgor should for any reason subsequently be determined to be
"voidable" or avoidable" in whole or in part within the meaning of any
state or federal law (collectively "voidable transfers"), including,
without limitation, fraudulent conveyances or preferential transfers
under the United States Bankruptcy Code or any other federal or state
law, and Secured Parties are required to repay or restore any voidable
transfers or the amount or any portion thereof, or upon the advice of
Secured Parties' counsel are advised to do so, then, as to any such
amount or property repaid or restored, including all reasonable costs,
expenses, and attorneys fees of Secured Parties related thereto, the
liability of Pledgor, and each of them, and this Agreement, shall
automatically be revived, reinstated and restored and shall exist as
though the voidable transfers had never been made.
Pledgor represent that there are no actions, suits,
investigations or proceedings pending or threatened against or
affecting the validity or enforceability of the Debentures or this
Agreement, any guaranty or any instrument, document or agreement
concerning the Collateral or of which, if adversely determined, would
have a material adverse effect on the financial condition, operations,
business or properties of the Pledgor, and there are no outstanding
orders or judgments of any court or governmental authority or awards
of any arbitrator or arbitration board against the Pledgor.
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction only,
be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
All references in this Agreement to the singular shall be deemed
to include the plural if the context so requires and vice versa.
Reference in the collective or conjunctive shall also include the
disjunctive unless the context otherwise clearly requires a different
interpretation.
All agreements, representations, warranties and covenants made by
Pledgor shall survive the execution and delivery of this Agreement,
the filing and consummation of any bankruptcy proceedings, and shall
continue in effect so long as any obligation to Secured Parties
contemplated by this Agreement is outstanding and unpaid,
notwithstanding any termination of this Agreement. All agreements,
representations, warranties and covenants in this Agreement shall bind
the Party making the same and its heirs and successors, and shall be
to the benefit of and be enforceable by each Party for whom made their
respective heirs, successors and assigns.
Pledgor waive presentment, demand for payment, notice of
dishonor, protest and any other notices or demands in connections with
the delivery, acceptance, performance, default and enforcement of any
promissory note or instrument representing all or any part of the
indebtedness
Pledgor will pay to Secured Parties on demand any costs,
expenses, reasonable attorneys' fees and their reasonable
disbursements incurred or paid by Secured Parties in protecting or
enforcing its rights in the Collateral and in collecting any part of
the indebtedness and such amounts extended pursuant to this section
shall be added to the indebtedness.
Any delay, failure or waiver by Secured Parties to exercise any
right it may have under this Agreement is not a waiver of Secured
Parties' right to exercise the same or any other right at any other time.
If any provision of this Agreement or the application of any
provision to any person or circumstance shall be invalid or
unenforceable, neither the balance of this Agreement nor the
application of the provision to other persons or circumstances shall
be affected. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction only,
be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
In the interest of a speedy resolution of any lawsuit which may
arise hereunder, Pledgor waives a trial by jury in any action with
respect to this Agreement and as to any issues arising relating to
this Agreement.
If the incurring of any debt by Pledgor or the payment of any
money or transfer of property to Secured Parties by or on behalf of
Pledgor should for any reason subsequently be determined to be
"voidable" or avoidable" in whole or in part within the meaning of any
state or federal law of the United States, (collectively "voidable
transfers"), including, without limitation, fraudulent conveyances or
preferential transfers under the United States Bankruptcy Code or any
other federal or state law, and Secured Parties are required to repay
or restore any voidable transfers or the amount or any portion
thereof, or upon the advice of Secured Parties' counsel is advised to
do so, then, as to any such amount or property repaid or restored,
including all reasonable costs, expenses, and attorneys fees of
Secured Parties related thereto, the liability of Pledgor, shall
automatically be revived, reinstated and restored and shall exist as
though the voidable transfers had never been made.
The Parties hereto expressly agree that this Agreement shall be
governed by, interpreted under, and construed and enforced in
accordance of the laws of the State of Nevada. Any action to enforce,
arising out of, or relating in any way to, any provisions of this
Agreement shall be brought in the federal courts for the State of Nevada.
All references in this Agreement to the singular shall be deemed
to include the plural if the context so requires and vice versa.
Reference in the collective or conjunctive shall also include the
disjunctive unless the context otherwise clearly requires a different
interpretation. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same Agreement.
This Agreement constitutes the entire agreement between Pledgor
and Secured Parties as to the subject matter hereof and may not be
altered or amended except by written agreement signed by Pledgor and
Secured Parties. All other prior and contemporaneous understandings
between the Parties hereto as to the subject matter hereof are
rescinded.
Dated: February 12, 2002
PLEDGOR: 5G WIRELESS COMMUNICATIONS, INC.
By: /s/ Jerry Dix
Jerry Dix, CEO
SECURED PARTIES:
________________________________
Name: __________________________
_________________________________
Name: ___________________________