SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December 31,
1997, by and between Softnet Systems, Inc., a New York corporation, with
headquarters located at 000 Xxxxx Xxxxxx, Xxxxxxxx Xxxx, XX 00000, (the
"Company"), and the purchaser set forth on the signature page hereto (the
"Buyer").
WHEREAS:
A. The Company and the Buyer 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 a new series of preferred stock, designated as
its Series A Convertible Preferred Stock (the "Preferred Stock"), having the
voting powers, preferences and rights set forth in the Certificate of Amendment
to its Certificate of Incorporation attached hereto as Exhibit "A" (the
"Certificate of Amendment");
C. The Preferred Stock is convertible into shares of Common Stock, par value
$.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 Amendment;
D. The Company has authorized the issuance to the Buyer of 150,000 warrants,
in the form attached hereto as Exhibit "B" (the "Warrants");
E. The Buyer desires to purchase from the Company and the Company desires to
issue and sell to the Buyer, upon the terms and conditions and in reliance on
the representations and warranties set forth in this Agreement, (i) Five
Thousand (5,000) shares of Preferred Stock, and (ii) Warrants to purchase One
Hundred Fifty Thousand (150,000) shares of Common Stock for a purchase price of
Five Million Dollars ($5,000,000);
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 Buyer 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 Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. The Company shall
issue and sell to the Buyer and the Buyer agrees to purchase from the Company
such number of shares of Preferred Stock (together with any Preferred Stock
issued in replacement thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the "Preferred Shares") and
Warrants, at a purchase price of five million dollars ($5,000,000) (the
"Purchase Price"). The issuance, sale and purchase of the Preferred Shares and
Warrants shall take place at the closing (the "Closing"). Subject to the
satisfaction (or waiver) of the conditions thereto set forth in Section 6 and
Section 7 below, at the Closing, the Company shall issue and sell to the Buyer
and the Buyer shall purchase from the Company Five Thousand (5,000) Preferred
Shares and One Hundred Fifty Thousand (150,000) Warrants.
b. Form of Payment. On the Closing Date (as defined below), (i) the
Buyer shall pay the Purchase Price for the Preferred Shares and Warrants to be
issued and sold to it at the Closing by wire transfer of immediately available
funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of a duly executed certificate(s) representing
the number of Preferred Shares and Warrants which the Buyer is purchasing, and
(ii) the Company shall deliver such certificate(s) and Warrants against delivery
of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, and further
subject to the terms and conditions of the Escrow Agreement, the date and time
of the issuance and sale of the Preferred Shares and Warrants pursuant to this
Agreement shall be 10:00a.m. California Time on December 31, 1997 or such other
mutually agreed upon date or time (the "Closing Date").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants to the Company that:
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 (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 for investment only and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 0000 Xxx.
b. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
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 and have received what the Buyer believes to be satisfactory answers to
any such inquiries. 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 consequently the Buyer may have to bear the risk of owning the
Securities for an indefinite period of time, and the Securities may not be
transferred unless (a) subsequently included in an effective registration
statement thereunder; (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) sold under Rule 144 promulgated under
the 1933 Act (or a successor rule) 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. The
Buyer covenants it will not make any sale, transfer or other disposition of the
Securities in violation of federal or state securities laws.
g. Legends. The Buyer understands that the certificates
representing the Preferred Shares, Warrants and, until such time as the
Conversion Shares and Warrants Shares have been registered under the 1933 Act or
otherwise may be sold by the Buyer under Rule 144, as contemplated by the
Registration Rights Agreement, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended. The securities have been acquired for
investment and may not be sold, transferred or assigned in the absence of an
effective registration statement for the securities under said Act, or an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, that registration is not required under said
Act or unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any 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 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). The Buyer agrees to sell all Securities, including
those represented by a certificate(s) 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.
h. Authorization; Enforcement. This Agreement and the Registration
Rights 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.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
j. Compliance with Short Sale Regulations. To the extent the Buyer
engages in any hedging transaction involving "short sales" of the Company's
Common Stock, the Buyer agrees to comply with applicable rules and regulations
applying to short sales (subject to applicable exemptions).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that:
a. Organization and Qualification. Except for the filing by the
Company of its Bienniel Statement with the State of New York, which the Company
shall exercise best efforts to file within 10 business days following the date
hereof, and except for Communicate Direct, Inc.'s failure to file its 1997
Annual Report with the State of Illinois, which the Company shall exercise its
best efforts to file within 10 business days following the date hereof, 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. Except with respect to the
jurisdictions specified in Schedule 3(a) (as to which the Company shall
exercise best efforts to become duly qualified to do business and is in good
standing in within 10 business days following the date hereof), 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 (1) the business,
operations, assets or financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or (ii) on the ability of the Company to
perform its obligations hereunder or under the agreements or instruments to be
entered into or filed in connection herewith, or (iii) the Securities.
"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 Amendment and to enter into and to perform its obligations under
this Agreement, the Registration Rights 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 Amendment, the issuance of the Preferred Shares and the Warrants
and the issuance and reservation for issuance of the Conversion Shares and
Warrant Shares issuable upon conversion or exercise thereof) 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 has been duly executed and delivered and the
Certificate of Amendment has been duly filed by the Company, and (iv) each of
this Agreement and the Certificate of Amendment constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement and the
Warrants, each such agreement will constitute, 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
6,970,546 shares are issued and outstanding, 1,600,952 shares are
reserved for issuance pursuant to the Company's employee and director stock
option plans, 1,320,687 shares are reserved for issuance pursuant to
securities (other than the Preferred Shares and the Warrants) exercisable for,
or convertible into or exchangeable for shares of Common Stock and 2,150,000
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); (ii) 4,000,000 shares of undesignated
preferred stock, par value $ .01 per share, of which no shares 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.
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 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
Buyer 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. The
Company shall provide the Buyer with a written update of this representation
signed by the Company's Chief Executive or Treasurer on behalf of the Company as
of the Closing Date.
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
Amendment 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 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 term Conversion Shares
includes the shares of Common Stock issuable upon conversion of the Preferred
Shares, including without limitation, such additional shares, if any, as are
issuable as a result of the events described in Section 2(c) of the Registration
Rights Agreement. 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 Amendment 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. The terms, designations, powers,
preferences and relative, participating, and optional or special rights, and the
qualifications, limitations, and restrictions of each series of preferred stock
of the Company (other than the Preferred Stock) are as stated in the Certificate
of Incorporation, filed on or prior to the date hereof, and the Bylaws. 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 Certificates of
Amendment.
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
Amendment 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 anti-dilution provision), acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations 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, and shall not be conducted so
long as a Buyer owns any of the Securities, 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 Amendment in
each case in accordance with the terms hereof or thereof. 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 and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company is not in violation of the
listing requirements of the American Stock Exchange ("AMEX") and does not
reasonably anticipate that the Common Stock will be delisted by the AMEX 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 January 1, 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 the 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. 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 of the Company
included in the SEC Documents or as set forth on Schedule 3(g), the Company has
no liabilities, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to September 30, 1997 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
h. Absence of Certain Changes. 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, 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. 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.
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") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 3(j) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); 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 (and,
except as set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' 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. 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 Buyer pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
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 the 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 the Buyer is not
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 advice given by any Buyer or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereby 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 the
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) for purposes of the 1933 Act or
any applicable rules of AMEX, other than the Warrants to be issued to Shoreline
Pacific Institutional Finance, the Institutional Division of Financial West
Group ("Shoreline Pacific") in connection with the transactions contemplated by
this Agreement.
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 , 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 September 30, 1996, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not 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), 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. The Company has no employee benefit plans
subject to the Employee Retirement Income Security Act of 1974, as amended.
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. 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.
aa. 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.
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 the 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 Buyer 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 Buyer on or prior to
the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3. The Company's
Common Stock is registered under Section 12(b) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports 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. Except for inadvertant failure of the Company to
disclose the information required to be disclosed under Rule 701 of Regulation
S-K under the Securities Act in the Company's Form 10-K for the fiscal year
ended September 30, 1996 and its Form 10-Q's for the first three quarters in the
fiscal year ended September 30, 0000, Xxxx Company currently meets, and will
take all 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 Buyer 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 Company agrees to file all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act. The financial
statements of the Company will be prepared in accordance with 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 the Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q 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. 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 the Buyer, which consent will
not be unreasonably withheld. 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 two (2) times the number that is then actually issuable upon
full conversion of the Preferred Shares plus the number that is then actually
issuable uponand full exercise of the Warrants (based on the Conversion Price of
the Preferred Shares or Exercise Price of the Warrants in effect from time to
time). 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 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 Amendment)) upon conversion or
exercise of the Preferred Shares and the Warrants. The Company will obtain and
maintain the listing and trading of its Common Stock on the AMEX, the Nasdaq
National Market System ("Nasdaq NMS"), 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 AMEX or other exchanges, as
applicable. The Company shall promptly provide to the Buyer copies of any
notices it receives regarding the continued eligibility of the Common Stock for
listing on the AMEX or other principal exchange or quotation system on which the
Common Stock is listed or traded.
i. Corporate Existence. So long as a Buyer beneficially owns any
Securities, 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 surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the agreements and instruments
entered into or filed in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on AMEX, Nasdaq NMS or
NYSE.
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 will not conduct any future offering
that will be integrated with the issuance of the Securities for purposes of the
rules promulgated by the SEC or AMEX.
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. Additional Equity Capital; Right of First Refusal. Subject to the
exceptions described below, the Company will not, without the prior written
consent of the Buyer, negotiate or contract with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (A) the issuance of Common Stock at a discount to the market price of
the Common Stock on the date of original initial issuance of such securities or
(B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock during the period (the "Lock-up
Period") beginning on the Closing Date and ending on the later of (i) ninety
(90) days from the Closing Date and (ii) thirty (30) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective. In addition, subject to the exceptions described below, the
Company will not conduct any equity financing (including debt with an equity
component) ("Future Offerings") during the period beginning on the Closing Date
and ending one hundred fifty (150) days after the end of the Lock-up Period
unless it shall have first delivered to the Buyer, at least fifteen (15)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof, and providing the Buyer an option during the ten (10) day period
following delivery of such notice to purchase the securities being offered in
the Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this and the immediately preceding sentence are
collectively referred to as the "Capital Raising Limitations"). The Capital
Raising Limitations shall not apply to any transaction involving (i) issuances
of securities in a firm commitment underwritten public offering (excluding a
continuous offering pursuant to Rule 415 under the 0000 Xxx) or (ii) issuances
of securities as consideration for a merger, consolidation or sale of assets, or
in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the Company. The
Capital Raising Limitations also shall not apply to the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan approved by a majority of the
Company's board of directors. The term "Capital Raising Limitations" shall not
apply to the issuance of up to $1,400,000 of convertible subordinated debt to R.
Mouran in exchange for certain leases and other assets to be convertible into
Common Stock at an initial conversion price not less than the market price for
the Common Stock on the date of issuance of such convertible subordinated debt;
provided that such convertible subordinated debt shall not be convertible into
Common Stock for a period of 12 months from the date of this Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent to
issue certificates, registered in the name of the Buyer or its nominee, for the
Conversion Shares and Warrant Shares in such amounts as specified from time to
time by the Buyer to the Company upon proper conversion or exercise of the
Preferred Shares and the Warrants (the "Irrevocable Transfer Agent
Instructions"). 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 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 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 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 COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares and the Warrants to a Buyer at the 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:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Escrow Agent.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The Certificate of Amendment shall have been filed with the
Secretary of State of the State of New York.
d. 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 Closing Date 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 Closing Date.
e. 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.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Preferred Shares and
the Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date of each of the following conditions, provided that these conditions
are for such Buyer's sole benefit and may be waived by such Buyer at any time in
its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Certificate of Amendment shall have been filed with the
Secretary of State of the State of New York, and evidence thereof reasonably
satisfactory to the Buyer shall have been delivered to such Buyer.
c. The Company shall have delivered to the Escrow Agent duly
executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and the Warrants being so purchased in
accordance with Section 1(b) above.
d. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date 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 Closing Date. The Buyer shall have
received a certificate or certificates, executed by the Chief Executive Officer
or the Treasurer of the Company, dated as of the Closing Date, 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 Closing Date.
e. 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.
f. Trading and listing of the Common Stock on the AMEX shall not
have been suspended by the SEC or the AMEX.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "DE"
attached hereto.
h. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
i. The Buyer shall have received executed lock-up agreements from
Xxxxxx Xxxxxxxxxx and Xxx Xxxxx whereby such persons agree not to sell any
shares of Common Stock for a period commencing on the Closing Date and ending on
June 30, 1999.
j. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's Transfer Agent.
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 the 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: Secretary
Phone: (000) 000-0000
Fax: (000) 000-0000
and with a copy to:
XxXxxxxxx, Will & Xxxxx
000 Xxxx Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
If to a Buyer: To the address set forth immediately below the 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 the Buyer. The Company agrees to indemnify and hold harmless
the Buyer and all its 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 the Buyer shall have the right to
review a reasonable period of time before issuance of any press releases, or
relevant portions of any SEC or AMEX 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 Buyer, to make
any press release or SEC or AMEX filings with respect to such transactions as is
required by applicable law and regulations (although the Buyer shall be
consulted by the Company 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
Buyer. The Company therefore agrees that the Buyer shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
Softnet Systems, Inc.
By:
RGC International Investors, LDC
By: Xxxx Xxxx Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By:
Name: Xxxx X. Xxxxxxxx
Its: Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Xxxx Xxxx Capital Management, L.P.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Fax: (000) 000-0000
Telephone: (000) 000-0000
Attn: Xxxx X. Xxxxxxxx
Exhibit A
Certificate of Amendment
Exhibit B
Stock Purchase Warrant
Exhibit C
Registration Rights Agreement
Exhibit D
Form of Legal Opinion Intentionally Omitted
