SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated
as of August 31, 1998, by and among SOFTNET SYSTEMS, INC., a New York
corporation, with headquarters located at 000 Xxxxx Xxxxxx, Xxxxxxxx Xxxx,
Xxxxxxxxxx 00000 (the "Company"), and the Buyers set forth on the signature page
hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act of 1933, as amended, (the "1933
Act"), and Rule 506 under Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the 1933 Act;
B. The Company has authorized two new series of preferred
stock, designated as its Series E Convertible Preferred Stock (the "Series E
Preferred Stock") and its Series D Convertible Preferred Stock (the "Series D
Preferred Stock", collectively with the Series E Preferred Stock, the "Preferred
Stock"). The Series E Preferred Stock has the voting powers, preferences and
rights set forth in Article Third, Section 3, and the Series D Preferred Stock
has the voting powers, preferences and rights set forth in Article Third,
Section 4, of the Company's Amended and Restated Certificate of Incorporation,
filed August 31, 1998, attached hereto as Exhibit "A" (the "Certificate of
Designations");
C. The Preferred Stock is convertible into shares of Common
Stock, par value $0.01 per share, of the Company (the "Common Stock"), upon the
terms and subject to the limitations and conditions set forth in the Certificate
of Designations;
D. The Company has authorized the issuance to the Buyers of
warrants to purchase in the aggregate up to 187,500 shares of Common Stock, in
the form attached hereto as Exhibit "B" (the "Warrants");
E. The Buyers desire to purchase from the Company and the
Company desires to issue and sell to the Buyers, upon the terms and conditions
and in reliance on the representations and warranties set forth in this
Agreement, (i) Fifteen Thousand (15,000) shares of Preferred Stock, and (ii) the
Warrants, for an aggregate purchase price of Fifteen Million Dollars
($15,000,000); and
F. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit "C" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide to the Buyers
certain registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Series E Preferred Shares and Warrants. The Company shall issue
and sell to the Buyers and each Buyer agrees, on a several and not a joint
basis, to purchase from the Company such number of shares of Series E Preferred
Stock (together with any Series E Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the "Series E Preferred Shares") and Warrants to be issued in
connection therewith set forth under such Buyer's name on the signature page
hereto executed by each Buyer, for an aggregate purchase price of Seven Million
Five Hundred Thousand U.S. Dollars (the "Series E Purchase Price") and a per
share of Series E Preferred Stock purchase price of One Thousand Dollars
($1,000). The issuance, sale and purchase of the Series E Preferred Shares and
Warrants issued in connection therewith shall take place at the closing (the
"First Closing"), subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 below. At the First Closing, the Company shall
issue and sell to each Buyer and each Buyer shall purchase from the Company
Twelve Thousand Five Hundred (12,500) Warrants for each $1,000,000 of Series E
Preferred Shares purchased.
b. Purchase of Series D Preferred Shares and Warrants. The Company shall issue
and sell to the Buyers and each Buyer agrees, on a several and not a joint
basis, to purchase from the Company such number of shares of Series D Preferred
Stock (together with any Series D Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the "Series D Preferred Shares") and Warrants to be issued in
connection therewith set forth under such Buyer's name on the signature page
hereto executed by each Buyer, for an aggregate purchase price of Seven Million
Five Hundred Thousand U.S. Dollars (the "Series D Purchase Price") and a per
share of Series D Preferred Stock purchase price of One Thousand Dollars
($1,000). The issuance, sale and purchase of the Series D Preferred Shares and
Warrants issued in connection therewith shall take place at the closing (the
"Second Closing"), subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 7 below. At the Second Closing, the Company shall
issue and sell to each Buyer and each Buyer shall purchase from the Company
Twelve Thousand Five Hundred (12,500) Warrants for each $1,000,000 of Series D
Preferred Shares purchased.
c. Form of Payment. The Purchasers shall pay their Series E Purchase Price for
the Series E Preferred Shares and their Series D Purchase Price for the Series D
Preferred Shares by wire transfer to the account designated pursuant to the
Escrow Agreement by and among the Company, each Purchaser and the escrow agent
("Escrow Agent") designated therein in the form attached hereto as Exhibit "D"
("Escrow Agreement"), all in accordance with the terms of the Escrow Agreement.
Upon satisfaction of the other conditions to the First Closing specified herein,
the escrowed Series E Purchase Price shall be released to the Company against
delivery of duly executed certificates representing the number of Series E
Preferred Shares and Warrants which the Buyers are purchasing. Upon satisfaction
of the other conditions to the Second Closing specified herein, the escrowed
Series D Purchase Price shall be released to the Company against delivery of
duly executed certificates representing the number of Series D Preferred Shares
and Warrants which the Buyers are purchasing.
d. Closing Date. Subject to the satisfaction or waiver of the conditions thereto
set forth in Article 6 below, and further subject to the terms and conditions of
the Escrow Agreement, the date and time of the First Closing shall be 10:00 a.m.
Pacific Standard Time on August 31, 1998 or such other mutually agreed upon date
or time. Subject to the satisfaction or waiver of the conditions thereto set
forth in Article 7 below, and further subject to the terms and conditions of the
Escrow Agreement, the Second Closing shall occur on the day that is no less than
ten and no greater than twenty business days following receipt by the investors
of notice that the conditions to the Second Closing set forth in Article 7(b)
have been satisfied; provided that the Second Closing shall occur no later than
120 days following the date of the First Closing. The date of each Closing shall
be referred to as a "Closing Date". In the event the Second Closing does not
occur within 120 days of the First Closing, the Company's and the Buyer's
obligations with respect to the Second Closing and the Series D Preferred Stock
contained herein and in the agreements and instruments to be entered into and
filed herewith shall expire.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants to the Company as of the
date hereof and as of each Closing, severally and solely with respect to itself
and its purchase hereunder and not with respect to any other Buyer, as set forth
in this Section 2. Each Buyer makes no other representations or warranties,
express or implied, to the Company in connection with the transactions
contemplated hereby and any and all prior representations and warranties, if
any, which may have been made by the Buyers to the Company in connection with
the transactions contemplated hereby shall be deemed to have been merged into
this Agreement and any such prior representations and warranties, if any, shall
not survive the execution and delivery of this Agreement.
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the
Preferred Shares and the shares of Common Stock issuable upon conversion thereof
or otherwise with respect thereto including, but not limited to, shares issuable
as a result of Conversion Default Payments or any payments pursuant to the
Registration Rights Agreement (the "Conversion Shares") and the Warrants and the
shares of Common Stock issuable upon exercise thereof (the "Warrants Shares",
and collectively with the Preferred Shares, Conversion Shares and Warrants, the
"Securities") for its own account and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; provided, however, that by making the
representation herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1993 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D. Buyer has delivered an Investor
Questionnaire in the form of Exhibit "E" to the Company and Shoreline Pacific
(as defined below).
c. Reliance on Exemptions. The Buyer understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. The Buyer acknowledges and understands that its investment in the
Securities involves a significant degree of risk, including the risks reflected
in the SEC Documents (as defined below).
e. Governmental Review. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Buyer understands that (i) except as provided in the
Registration Rights Agreement, the Securities have not been and are not being
registered under the 1933 Act or any applicable state securities laws, and the
Securities may not be transferred unless (a) the Securities are sold pursuant to
an effective registration statement under the 1933 Act; (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; (c) the
Securities are sold or transferred pursuant to Rule 144 promulgated under the
1933 Act (or a successor rule) ("Rule 144") or (d) sold or transferred to an
affiliate (as defined in Rule 144) of the Buyer; (ii) any sale of such
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case, other
than pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.
g. Legends. The Buyer understands that the certificates representing the
Preferred Shares, Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act, as contemplated by the
Registration Rights Agreement, or otherwise may be sold by the Buyer without
restriction as to the number of securities as of a particular date that can then
be immediately sold under Rule 144, the Conversion Shares and Warrant Shares,
shall bear a restrictive legend in substantially the following form (and a
stoptransfer order may be placed against transfer of the certificates for such
Securities):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state of the United States. The securities have been acquired for
investment and may not be sold, transferred or assigned in the absence
of an effective registration statement for the securities under
applicable securities laws, or unless offered, sold or transferred
pursuant to an available exemption from the registration requirements
of those laws.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any certificate
upon which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) the Securities represented by such certificate are
registered for sale under an effective registration statement filed under the
1933 Act, or (b) such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale either has
occurred or may occur without restriction on the manner of such sale or transfer
or (c) such holder provides the Company with reasonable assurances that such
Security can be sold under Rule 144 under the 1933 Act (or a successor rule
thereto).
h. Authorization; Enforcement. This Agreement, the Registration Rights Agreement
and the Escrow Agreement have been duly and validly authorized, executed and
delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and the application of general
principles of equity.
i. Residency. The Buyer is a resident of the jurisdiction set forth immediately
below such Buyer's name on the signature pages hereto.
j. Sale of Assets. The Buyer acknowledges that, as previously publicly
announced, the Company is implementing a strategic refocus to concentrate on its
Internet services business. In connection with such refocus, the Company is
considering offers to purchase its telecommunications unit, Kansas
Communications, Inc. The Buyer acknowledges that nothing in this Agreement or
the agreements or instruments to be entered into or filed in connection herewith
shall affect the ability of the Company to sell any or all of its non-Internet
business units.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyers as of the
date hereof and as of the Closing, as set forth in this Section 3. The Company
makes no other warranties, express or implied, to the Buyers in connection with
the transactions contemplated hereby and any and all prior representations and
warranties, if any, which may have been made by the Company to the Buyers in
connection with the transactions contemplated hereby shall be deemed to have
been merged into this Agreement and any such prior representation and
warranties, if any, shall not survive the execution and delivery of this
Agreement.
a. Organization and Qualification. The Company and each of its Subsidiaries (as
defined below), if any, is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated, with
full power and authority (corporate and other) to own, lease, use and operate
its properties and to carry on its business as and where now owned, leased,
used, operated and conducted. Schedule 3(a) sets forth a list of all of the
Subsidiaries of the Company and the jurisdiction in which each is incorporated.
The Company and each of its Subsidiaries is duly qualified to do business and is
in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on (i) the business,
operations, assets or financial condition of the Company or its Subsidiaries, if
any, taken as a whole, or (ii) on the ability of the Company to perform its
obligations pursuant to the transactions contemplated hereby or under the
agreements or instruments to be entered into or filed in connection herewith, or
(iii) the ability of the Company to perform its obligations with respect to the
Securities, as set forth in the Certificate of Designations. "Subsidiaries"
means any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, 50% or more
of the equity or other ownership interests.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power
and authority to file and perform its obligations under the Certificate of
Designations and to enter into and to perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Warrants and to consummate the transactions contemplated hereby and thereby and
to issue the Securities, in accordance with the terms hereof and thereof, (ii)
the execution, delivery and performance of this Agreement, the Registration
Rights Agreement and the Warrants by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including without limitation
the filing of the Certificate of Designations, the issuance of the Preferred
Shares and the Warrants and the issuance and reservation for issuance of the
Conversion Shares in accordance with the Certificate of Designations and Warrant
Shares issuable in accordance with the terms of the Warrants have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board or Directors, or its shareholders is
required, (iii) this Agreement, the Registration Rights Agreement, the Escrow
Agreement and the Warrants have been duly executed and delivered and the
Certificate of Designations has been duly filed by the Company, and (iv) each of
this Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Warrants and the Certificate of Designations constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or moratorium or similar laws affecting the rights of creditors
generally and the application of general principles of equity.
c. Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 25,000,000 shares of Common Stock of which 8,190,338
shares are issued and outstanding, 1,370,865 shares are reserved for issuance
pursuant to the Company's employee and director stock option plans, 1,217,322
shares are reserved for issuance pursuant to securities (other than securities
issued under the foregoing plans, the Preferred Shares and the Warrants)
exercisable for, or convertible into or exchangeable for shares of Common Stock,
2,474,226 shares are reserved for issuance upon conversion of the Preferred
Shares and exercise of the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below) and 1,513,885 shares are
reserved for issuance under the company's cable affiliates incentive program;
(ii) 4,000,000 shares of preferred stock, par value $.10 per share, of which
3,062.5 shares of Series A Convertible Preferred Stock and of which 10,000
shares of Series B Convertible Preferred Stock are issued and outstanding. All
of such outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. Except as disclosed in
Schedule 3(c), no shares of capital stock of the Company, including the
Securities, are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Except as disclosed in Schedule 3(c)
and except for the transactions contemplated hereby, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into, exercisable for, or exchangeable for
any shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act (except pursuant to the Registration
Rights Agreements dated December 31, 1997, and May 28, 1998 between the Company
and the investors party thereto and except the Registration Rights Agreement)
and (iii) there are no anti-dilution or price adjustment provisions contained in
any security issued by the Company (or in any agreement providing rights to
security holders) that will be triggered by the issuance of the Preferred
Shares, Conversion Shares, Warrants or Warrant Shares. The Company has furnished
to the Buyers true and correct copies of the Company's Certificate of
Incorporation, as amended, as in effect on the date hereof ("Certificate of
Incorporation"), the Company's By-laws as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto.
d. Issuance of Shares. The Preferred Shares, Conversion Shares and Warrant
Shares are duly authorized and, upon issuance in accordance with the terms of
this Agreement (including the issuance of the Conversion Shares upon conversion
of the Preferred Shares in accordance with the Certificate of Designations and
the issuance of the Warrant Shares upon exercise of the Warrants in accordance
with the terms thereof) will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims, encumbrances, and charges with respect
to the issue thereof and, except as disclosed in Schedule 3(c), shall not be
subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability on the holders thereof. The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of the Conversion Shares and Warrant Shares upon
conversion or exercise of the Preferred Shares or Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement, the Certificate of Designations and the Warrants
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company. Taking the foregoing into account, the Company's Board of Directors has
determined that the issuance of the Securities and the consummation of the other
transactions contemplated hereby are in the best interests of the Company and
its stockholders.
e. Series of Preferred Stock. Other than the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock, the Series E Preferred Stock
and the Series D Preferred Stock, the Company has not designated or established
any other preferred stock of the Company. The terms, designations, powers,
preferences and relative, participating, and optional or special rights, and the
qualifications, limitations, and restrictions of the Preferred Stock are as
stated in the Certificate of Designations.
f. No Conflicts. The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the filing of the Certificate of Designations
and the issuance and reservation for issuance of the Preferred Shares, Warrants,
Conversion Shares and Warrant Shares) will not (i) conflict with or result in a
violation of any provision of the Certificate of Incorporation or By-laws or
(ii) except as described in Schedule 3(f), violate or conflict with, or result
in a breach of any provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or give to others
any rights of termination, amendment (including without limitation, the
triggering of any antidilution provision), acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, breaches, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries
is in violation of its Certificate of Incorporation, By-laws or other
organizational documents and neither the Company nor any of its Subsidiaries is
in default (and no event has occurred which with notice or lapse of time or both
could put the Company or any of its Subsidiaries in default) under, and neither
the Company nor any of its Subsidiaries has taken any action or failed to take
any action that (and no event has occurred which, without notice or lapse of
time or both) would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party or by which any property or
assets of the Company or any of its Subsidiaries is bound or affected, except
for possible defaults as would not, individually or in the aggregate, have a
Material Adverse Effect. The businesses of the Company and its Subsidiaries, if
any, are not being conducted in violation of any law, ordinance or regulation of
any governmental entity, the failure to comply with which would, individually or
in the aggregate, have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws or any listing agreement with any securities
exchange or automated quotation system, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Warrants or to perform its
obligations under the Certificate of Designations in each case in accordance
with the terms hereof or thereof or to issue and sell the Preferred Shares and
Warrant in accordance with the terms hereof and to issue the Conversion Shares
upon conversion of the Preferred Shares and the Warrant Shares upon exercise of
the Warrants. Except as discussed in Schedule 3(f), all consents,
authorizations, 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. The Company is not in violation of the listing
requirements of the American Stock Exchange and does not reasonably anticipate
that the Common Stock will be delisted by the American Stock Exchange in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
g. SEC Documents, Financial Statements. Since September 30, 1996, the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "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 (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered to each Buyer true and complete
copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act or the 1933 Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in subsequent
filings prior to the date hereof). As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements included in the SEC Documents,
the Company has no liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business subsequent to September 30, 1996,
and liabilities of the type not required under generally accepted accounting
principles to be reflected in such financial statements. Such liabilities
incurred subsequent to September 30, 1996 are not, in the aggregate, material to
the financial condition or operating results of the Company.
h. Absence of Certain Changes. Except as disclosed in the SEC Documents, since
September 30, 1996, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, prospects or results of operations of the
Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company or any
of its Subsidiaries or any of its officers or directors acting as such that
could, individually or in the aggregate, have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries are aware of any facts or circumstances
which would reasonably be expected to give rise to any action or proceeding
described in the foregoing sentence. Schedule 3(i) contains a complete list and
summary description of any pending or, to the knowledge of the Company,
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it could have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
would reasonably be expected to give rise to the foregoing.
j. Patents, Copyrights, etc. The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("Intellectual Property") to its knowledge necessary to enable it to conduct its
business as now operated; there is no claim or action by any person pertaining
to, or proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated; to the Company's knowledge, the Company's or its Subsidiaries' current
and intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
k. 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 reasonable judgment
of the Company's officers has or is expected in the future, individually or in
the aggregate, 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 reasonable
judgment of the Company's officers has or is expected to have a Material Adverse
Effect.
l. Tax Status. Except as set forth on Schedule 3(l), the Company and each of its
Subsidiaries has made or filed all federal, state and foreign 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 provisions
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. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on Schedule 3(l), none of the Company's
tax returns is presently being audited by any taxing authority.
m. Certain Transactions. Except as disclosed in the SEC Documents or as set
forth on Schedule 3(m) and except for arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options or the ownership of other securities and rights 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 employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the Company or any of
its Subsidiaries set forth in this Agreement and provided to the Buyers pursuant
to Section 2(d) hereof in connection with the transactions contemplated hereby,
when taken as a whole, is true and correct in all material respects and the
Company has not omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).
o. Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm's length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is acting as
a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the Buyer's purchase
of the Securities and has not been relied on by the Company in any way. The
Company further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on an independent evaluation by the
Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act of the
issuance of the Securities to the Buyers. The issuance of the Securities to the
Buyers will not be integrated with any other issuance of the Company's
securities (past, current or future) except for the issuance of the Series A
Preferred Stock and Series B Preferred Stock, for purposes of the 1933 Act or
any applicable rules of the American Stock Exchange.
q. No Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
relating to this Agreement or the transactions contemplated hereby, except for
dealings with Shoreline Pacific Institutional Financial, the Institutional
Division of Financial West Group ('Shoreline Pacific"), whose commissions and
fees will be paid for by the Company.
r. Permits; Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted except those the failure of which to possess would
not, individually or in the aggregate, have a Material Adverse Effect
(collectively, the "Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since December 31, 1997, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws that would have a Material Adverse Effect.
s.Environmental Matters.
(i) Except as set forth in Schedule 3(s), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of Environmental Laws
(as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about
any real property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries.
(iii) Except as set forth in Schedule 3(s), to the best knowledge of
the Company, there are no underground storage tanks on or under any real
property owned, leased or used by the Company or any of its Subsidiaries that
are not in compliance with applicable law.
t. Title to Property. 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(t) or such as would not have
a Material Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
u. 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 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.
v. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company's board of directors, 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.
w. Employment Matters. The Company and its Subsidiaries are in compliance with
all federal, state, local and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. There are no pending investigations involving the Company or any of its
Subsidiaries by the U.S. Department of Labor or any other governmental agency
responsible for the enforcement of such federal, state, local or foreign laws
and regulations. There is no unfair labor practice charge or complaint against
the Company or any of its Subsidiaries pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any of its
Subsidiaries. Except as set forth in Schedule 3(w), no representation question
exists respecting the employees of the Company or any of its Subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of its subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or any of its Subsidiaries. No material
labor dispute with the employees of the Company or any of its Subsidiaries
exists or, to the knowledge of the Company, is imminent.
x. ERISA Matters. Except as set forth on Schedule 3(x), the Company has no
"employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, or intended to be qualified
under Section 401(a) of the Internal Revenue Code.
y. Investment Company Status. The Company is not and upon consummation of the
sale of the Securities will not be an "investment company," a company controlled
by an "investment company" or an "affiliated person" of, or promoter" or
"principal underwriter" for, an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended.
z. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
aa. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other person acting on behalf of
the Company or any Subsidiary has, in the course of his actions for, or on
behalf of, the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely each
of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyers pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyers on or prior to the
Closing Date. The Company agrees to file a Form 8-K disclosing this Agreement
and the transactions contemplated hereby with the SEC within ten (10) business
days following the Closing Date and afford the Buyers the opportunity to review
and comment on such filing prior to its filing.
c. Reporting Status; Eligibility to Use Form S-3. The Company's Common Stock is
registered under Section 12(b) of the 1934 Act. Throughout the Registration
Period (as defined in the Registration Rights Agreement), the Company shall
timely file all reports, schedules, forms, statements and other documents
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination. The Company currently meets, and will take all
reasonably necessary action to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from the sale of the
Preferred Shares and Warrants in the manner set forth in Schedule 4(d) attached
hereto and made a part hereof and shall not otherwise, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its direct or
indirect Subsidiaries).
e. Expenses. The Company and the Buyers shall each be liable for their own
expenses incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement and the other agreements to be executed in connection
herewith, including, without limitation, attorneys' and consultants' fees and
expenses.
f. Financial Information. The financial statements of the Company will be
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, and will fairly present in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
and results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The Company agrees to send the following reports to each Buyer
during the Registration Period (as defined in the Registration Rights
Agreement): (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.
g. Reservation of Shares. Subject to the Maximum Share Amount (as defined in the
Certificate of Designations), the Company shall at all times have authorized,
and reserved for the purpose of issuance, a sufficient number of shares of
Common Stock to provide for the full conversion of the outstanding Preferred
Shares and issuance of the Conversion Shares in connection therewith (based on
the Conversion Price of the Preferred Shares in effect from time to time) and
the full exercise of the Warrants and the issuance of the Warrant Shares in
connection therewith (based upon the Exercise Price of the Warrants in effect
from time to time). The Company shall not reduce the number of shares of Common
Stock reserved for issuance upon conversion of the Preferred Shares or exercise
of the Warrants without the consent of all the Buyers. The Company shall use its
best efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than 2,662,000 shares of Common Stock. If at
any time the number of shares of Common Stock authorized and reserved for
issuance is below the number of Conversion Shares and Warrant Shares issued and
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(based on the Conversion Price of the Preferred Shares and Exercise Price of the
Warrants then in effect), the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company's obligations under this Section 4(g), in
the case of an insufficient number of authorized shares, and using its best
efforts to obtain shareholder approval of an increase in such authorized number
of shares.
h. Listing. The Company shall, on or before 10 business days following the date
hereof, secure the listing of the Conversion Shares and Warrant Shares upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and, so long as any Buyer owns any of the Securities, shall maintain such
listing of all Conversion Shares and Warrant Shares from time to time issuable
(subject to the Maximum Share Limit (as defined in the Certificate of
Designations)) upon conversion or exercise of the Preferred Shares and the
Warrants. The Company will use its best efforts to obtain and, so long as any
Buyer owns any of the Securities, maintain the listing and trading of its Common
Stock on the Nasdaq National Market System ("Nasdaq"), the American Stock
Exchange ("AMEX") or the New York Stock Exchange ("NYSE"), and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Nasdaq or other exchanges, as applicable. The Company
shall promptly provide to each Buyer copies of any notices it receives regarding
the continued eligibility of the Common Stock for listing on AMEX or other
principal exchange or quotation system on which the Common Stock is listed or
traded.
i. Corporate Existence. So long as any Preferred Stock is outstanding, the
Company shall maintain its corporate existence in good standing under the laws
of the jurisdiction in which it is incorporated and shall not sell all or
substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the Company complies with Article X.B in the Certificate of Designations.
j. Solvency; Compliance with Law. The Company (both before and after giving
effect to the transactions contemplated by this Agreement) is solvent (i.e., its
assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not have, nor does it intend to take any action
that would impair, its ability to pay its debts from time to time incurred in
connection therewith as such debts mature. The Company will conduct its business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable local, state and federal environmental laws and regulations the
failure to comply with which would have a Material Adverse Effect.
k. Insurance. The Company shall maintain liability, casualty and other insurance
(subject to customary deductions and retentions) with responsible insurance
companies against such risk of the types and in the amounts customarily
maintained by companies of comparable size to the Company.
l. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of Securities to be integrated with any other offering
of securities by the Company for the purpose of any stockholder approval
provision applicable to the Company or its securities.
m. No Qualified Opinion. The Company did not receive a qualified opinion from
its auditors with respect to its most recent fiscal year end and does not
anticipate or know of any basis upon which its auditors might issue a qualified
opinion in respect of its current fiscal year.
n. Selling Restrictions. Each Buyer, on behalf of itself and any affiliates,
agrees that, in connection with the securities purchased hereunder:
(i) during any period of determination of any Market Price (as defined
in the Certificate of Designations), if Buyer (or others acting under its
direction or control) engages in short sale transactions or other hedging
activities which involve, among other things, sales of common shares, Buyer will
place its sale orders for such shares of Common Stock in the course of such
activities so as not to complete or effect any such sale on any trading day
during such period at a price which is lower than the lowest sale effected for
shares of Common Stock on such day by persons other than Buyer (or others acting
under its direction or control).
(ii) Buyer will not create new trading lows through sales of common
shares in order to create a lower Market Price applicable to conversions of
Preferred Stock; and
(iii) Buyer will not on any day sell a number of shares of Common Stock
issued or issuable in conversion of the Preferred Shares purchased hereunder
greater than 10% of the previous day's trading volume or, if greater, the
current day's trading volume on AMEX (or, if the Company's common shares are in
the future traded on the Nasdaq, 20% of the previous day's (or, if greater,
current day's), trading volume on Nasdaq), unless otherwise authorized by the
Company, such authorization not to be unreasonably withheld or delayed; provided
that the prohibition contained in this Section 4(n)(iii) shall not apply to (a)
block trades of at least 50,000 shares of Common Stock, and (b) block trades of
at least 10,000 shares of Common Stock at a per share price of not less than
$8.61.
o. Sales by Buyer. Each Buyer agrees to sell all Securities, including those
represented by a certificates) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any, or
otherwise in compliance with the requirements for an exemption from registration
under the 1933 Act and the rules and regulations promulgated thereunder.
p. Additional Equity Capital. The Company agrees that during the period
beginning on the Closing Date with respect to the First Closing and ending 180
days from the date the Registration Statement (as defined in the Registration
Rights Agreement) is declared effective (plus any days in which sales cannot be
made thereunder), if the Company intends to complete a private convertible
preferred equity offering, or other similar non-public offering of a convertible
equity security that includes a floating conversion mechanism, then the Company
will use reasonable efforts to give Buyers an opportunity to participate in such
offering.
5. TRANSFER AGENT INSTRUCTIONS.
For each Closing, the Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by such Buyer to the Company upon
conversion or exercise of the Preferred Shares and the Warrants in accordance
with the terms thereof (the "Irrevocable Transfer Agent Instructions") and shall
exercise best efforts following each Closing Date to obtain the written
acknowledgement of such transfer agent of receipt of such instructions. Prior to
registration of the conversion Shares and Warrant Shares under the 1933 Act, all
such certificates shall bear the restrictive legend as and when specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(f) hereof (in the
case of the Conversion Shares or Warrant Shares, prior to registration of the
Conversion Shares or Warrant Shares under the 1933 Act), will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement set
forth in Section 2(g) hereof to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with (i) an opinion of counsel in form, substance and scope customary
for opinions of counsel in comparable transactions, that registration of a
resale by such Buyer of any of the Securities is not required under the 1933 Act
or (ii) the Buyer provides the Company with reasonable assurances that such
Securities may be sold under Rule 144, the Company shall permit the transfer,
and, in the case of the Conversion Shares or Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates, free from any restrictive
legend, in such name and in such denominations as specified by such Buyer. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyer shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE FIRST CLOSING.
a. Conditions to the Company's Obligation to Sell the Series E Preferred Shares.
The obligation of the Company hereunder to issue and sell the Series E Preferred
Shares and the Warrants to be issued in connection therewith to each Buyer at
the First Closing is subject to the satisfaction, at or before the Closing Date
of each of the following conditions thereto, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
(i) The applicable Buyer shall have executed this Agreement, the
Registration Rights Agreement and the Escrow Agreement, and delivered the same
to the Company and the Escrow Agent.
(ii) The applicable Buyer shall have delivered the Series E Purchase
Price to the Escrow Agent in accordance with Section l(c) above, and an
aggregate Purchase Price of at least $7,500,000 shall have been received by the
Escrow Agent.
(iii) The Certificate of Designations shall have been accepted for
filing with the Secretary of State of the State of New York.
(iv) The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the date of the First Closing as though made at that time (except for
representations and warranties that speak as of a specific date which
representations and warranties shall be correct as of such date), and the
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the date of the First Closing.
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
b. Conditions to Buyers' Obligation to Purchase the Series E Preferred Shares.
The obligation of each Buyer hereunder to purchase the Series E Preferred Shares
and the Warrants to be issued in connection therewith at the First Closing is
subject to the satisfaction, at or before the date of the First Closing of each
of the following conditions, provided that these conditions are for each such
Buyer's respective benefit and may be waived by each such Buyer at any time in
its sole discretion:
(i) The Company shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, and delivered the same to the Buyer.
(ii) The Certificate of Designations shall have been accepted for
filing with the Secretary of State of the State of New York, and evidence
thereof reasonably satisfactory to the applicable Buyer shall have been
delivered to such Buyer.
(iii) The Company shall have delivered to the Escrow Agent duly
executed certificates (in such denominations as the applicable Buyer shall
reasonably request) representing the Series E Preferred Shares and the Warrants
being so purchased in accordance with Section l(a) above.
(iv) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the date
of the First Closing as though made at such time (except for representations and
warranties that speak as of a specific date which representations and warranties
shall be true and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the date of the First Closing. The Buyers
shall have received a certificate or certificates, executed by the Chief
Executive Officer or the Treasurer of the Company, dated as of the date of the
First Closing, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, but not limited to certificates
with respect to the Company's Certificate of Incorporation, By-laws, Board of
Directors' resolutions relating to the transactions contemplated hereby and the
incumbency and signatures of each of the officers of the Company who shall
execute on behalf of the Company any document delivered on the date of the First
Closing.
(v) No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
(vi) Trading and listing of the Common Stock on the AMEX (or Nasdaq, in
the event the Company has secured listing of the Common Stock or Nasdaq prior to
the First Closing) shall not have been suspended by the SEC or the AMEX (or
Nasdaq).
(vii) The Buyers shall have received an opinion of the Company's
counsel, dated as of the date of the First Closing, in form, scope and substance
reasonably satisfactory to the Buyers and in substantially the same form as
Exhibit "F" attached hereto.
(viii) The Common Stock required to be authorized and reserved pursuant
to Section V(A) of the Certificate of Designations shall have been duly
authorized and reserved by the Company.
(ix) An aggregate Series E Purchase Price of at least $7,500,000 shall
have been received by the Escrow Agent.
(x) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority in interest of the Buyers, shall have been delivered
to the transfer agent with respect to the Series E Preferred Shares.
7. CONDITIONS TO THE SECOND CLOSING.
a. Conditions to the Company's Obligation to Sell the Series D Preferred Shares.
The obligation of the Company hereunder to issue and sell the Series D Preferred
Shares and the Warrants to be issued in connection therewith to each Buyer at
the Second Closing is subject to the satisfaction, at or before the date of the
Second Closing of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(i) The applicable Buyer shall have delivered the Series D Purchase
Price to the Escrow Agent in accordance with Section l(c) above, and an
aggregate Series D Purchase Price of at least $7,500,000 shall have been
received by the Escrow Agent.
(ii) The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the date of the Second Closing as though made at that time (except for
representations and warranties that speak as of a specific date which
representations and warranties shall be correct as of such date), and the
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the date of the Second Closing. (iii) No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
b. Conditions to Buyers' Obligation to Purchase the Series D Preferred Shares.
The obligation of each Buyer hereunder to purchase the Series D Preferred Shares
and the Warrants to be issued in connection therewith at the Second Closing is
subject to the satisfaction, at or before the first Closing Date of each of the
following conditions, provided that these conditions are for each such Buyer's
respective benefit and may be waived by each such Buyer at any time in its sole
discretion:
(i) The Company shall have delivered to the Escrow Agent duly executed
certificates (in such denominations as the applicable Buyer shall reasonably
request) representing the Series D Preferred Shares and the Warrants being so
purchased in accordance with Section l(b) above.
(ii) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the date
of the Second Closing as though made at such time (except for representations
and warranties that speak as of a specific date which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the date of the Second Closing.
The Buyers shall have received a certificate or certificates, executed by the
Chief Executive Officer or the Treasurer of the Company, dated as of the date of
the Second Closing, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer including, but not limited to certificates
with respect to the Company's Certificate of Incorporation, By-laws, Board of
Directors' resolutions relating to the transactions contemplated hereby and the
incumbency and signatures of each of the officers of the Company who shall
execute on behalf of the Company any document delivered on the date of the
Second Closing.
(iii) No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement (or Nasdaq, in the event the Company has secured
listing of the Common Stock on Nasdaq prior to the First Closing).
(iv) Trading and listing of the Common Stock on the AMEX (or Nasdaq, in
event the Company has secured listing of the Common Stock on Nasdaq prior to the
Second Closing) shall not have been suspended by the SEC or the AMEX (or
Nasdaq).
(v) The Buyers shall have received an opinion of the Company's counsel,
dated as of the date of the Second Closing, in form, scope and substance
reasonably satisfactory to the Buyers and in substantially the same form as
Exhibit "F" attached hereto, with appropriate modification to reflect the
issuance of the Series D Preferred Shares.
(vi) The Common Stock required to be authorized and reserved pursuant
to Section V(A) of the Certificate of Designations shall have been duly
authorized and reserved by the Company.
(vii) An aggregate Series D Purchase Price of at
least $7,500,000 shall have been received by the Escrow Agent.
(viii) The Shareholder Approval (as defined in the Certificate of
Designations) shall have been obtained, and shall not have been revoked,
modified or otherwise subject to challenge.
(ix) The Registration Statement required to be filed pursuant to the
Registration Rights Agreement shall be effective so as to permit the resale of
the shares of Common Stock issuable upon conversion of the Series E Preferred
Shares and the Series D Preferred Shares and upon exercise of the Warrants.
(x) The Irrevocable Transfer Agent instruments in form and substance
satisfactory to a majority in interest of the Buyers, shall have been delivered
to the transfer agent with respect to the Series D Preferred Shares.
(xi) The Company shall, on or simultaneously with the Second Closing,
have raised aggregate gross proceeds of $20,000,000 in debt or non-floating-rate
or non-reset equity other than in connection with the issuance of the Preferred
Shares and the Warrants.
(xii) The five trading day average closing bid price of the Common
Stock shall be greater than 150% of the Closing Price (as defined in the
Certificate of Designations).
(xiii) No event or circumstance having a Material Adverse Effect shall
have occurred and be continuing since the First Closing.
8.GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
interpreted in accordance with the laws of New York State without regard to the
principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal and state courts located in
New York, New York with respect to any dispute arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. 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.
c. Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
SoftNet Systems, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Attn: Chief Executive Officer
Phone: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Xxxxxxx, Phleger & Xxxxxxxx
0000 Xxxx Xxxx
Xxx Xxxxxxxxxxx Xxxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any
change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns. Except as provided
herein or therein, neither the Company nor any Buyer shall assign this
Agreement, the Registration Rights Agreement or the Warrants or any rights or
obligations hereunder or thereunder without the prior written consent of the
other. Notwithstanding the foregoing, any Buyer may assign its rights hereunder
to any person that purchases Securities in a private transaction from a Buyer or
to any of its "affiliates," as that term is defined under the 1934 Act, without
the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Buyer. The Company agrees to indemnify and hold harmless
each Buyer and all such Buyer's respective officers, directors, employees,
partners, members, affiliates, and agents for loss or damage arising as a result
of or related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4 hereof
or any of its covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company and each Buyer shall have the right to review, a
reasonable period of time before issuance thereof, any press releases, or
relevant portions of any SEC, AMEX or Nasdaq filings, or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyers, to make any press release or SEC, AMEX or Nasdaq filings with respect to
such transactions as are required by applicable law and regulations (although
the Company shall make reasonable efforts to consult with the Buyers in
connection with any such press release prior to its release and filing and shall
be provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
l. No Strict Construction. 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.
m. Equitable Relief. The Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to the Buyers.
The Company therefore agrees that the Buyers shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
n. Clarification Regarding Series A Preferred Stock. For purposes of determining
the aggregate number of shares of Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock (the "Series A Preferred Stock") pursuant
to Article V.B of the Certificate of Designations for the Series A Preferred
Stock, Certificate of Designations if the issuance of Series E Preferred Stock
and/or Series D Preferred Stock is aggregated with the Series A Preferred Stock
pursuant to the regulations of AMEX or the Nasdaq Stock Market, the shares of
Common Stock issuable upon conversion of the shares of Series A Preferred Stock
and/or shall be aggregated with the shares of Common Stock issuable pursuant to
and/or upon conversion of the shares of Series E Preferred Stock and Series D
Preferred Stock for purposes of calculation of any shareholder approval
requirement with respect to the Series A Preferred Stock.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
COMPANY:
SOFTNET SYSTEMS, INC.
By:__________________________________________
Name:
Title:
[SIGNATURES CONTINUED ONTO NEXT PAGE]
BUYERS:
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By:_____________________________________________
Name:
Its: Managing Director
Aggregate Subscription Amount: $15,000,000
No. of Shares of Series E Preferred Stock: 7,500
No. of Warrants at First Closing: 93,750
No. of Shares of Series D Preferred Stock: 7,500
No. of Warrants at Second Closing: 93,750
RESIDENCE: Cayman Islands
ADDRESS:
x/x Xxxx Xxxx Xxxxxxx Xxxxxxxxxx, X.X.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Fax: (000) 000-0000
Telephone: (000) 000-0000
Attn: Xxxxx Xxxxx
Exhibit A
Certificate of Designation
Exhibit B
Stock Purchase Warrant
Exhibit C
Registration Rights Agreement
Exhibit D
Form of Escrow Agreement
Exhibit E
Form of Investor Questionnaire
Exhibit F
Form of Legal Opinion
Exhibit G
Form of Press Release
Exhibit H
Form of Notice of Conversion
(See attached)
Exhibit I
SOFTNET SYSTEMS, INC.
CONVERSION NOTICE - SERIES [C/Dl CONVERTIBLE PREFERRED STOCK
Reference is made to the Statement of Terms (the "Article Third, Section [3/4]")
of the Series [C/D] Convertible Preferred Stock, face amount $1,000 per share
(the "Preferred Shares"), of SoftNet Systems, Inc., a New York corporation (the
"Company"). In accordance with and pursuant to Article Third, Section [3/4], the
undersigned hereby elects to convert the number of Preferred Shares indicated
below into shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Company, by tendering the stock certificates) representing the
share(s) of Preferred Stock specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Preferred Shares are being converted in the
following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
The undersigned hereby represents and covenants that it has complied, or will
comply, with any and all prospectus delivery requirements with respect to its
sale of the Common Stock of the Company being issued herewith.
[ADD INFORMATION RE: DTC / DWAC PROCEDURES]
[ACKNOWLEDGED AND AGREED:
SOFTNET SYSTEMS, INC.
By:
Name:
Title:
Date:
