SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 28,
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 a new series of preferred stock, designated as
its Series B Convertible Preferred Stock (the "Preferred Stock"), having the
voting powers, preferences and rights set forth in Article Third, Section 2 of
the Company's Amended and Restated Certificate of Incorporation, filed May 28,
1998, attached hereto as Exhibit "A" (the "Certificate of Designation");
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 Designation;
D. The Company has authorized the issuance to the Buyers of warrants to
purchase in the aggregate up to 200,000 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) Ten Thousand
(10,000) shares of Preferred Stock, and (ii) the Warrants, for an aggregate
purchase price of Ten Million Dollars ($10,000,000); 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 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 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 set forth under Buyer's name on
the signature page hereto executed by each Buyer, for an aggregate purchase
price of Ten Million U.S. Dollars (the "Purchase Price") and a per share of
Preferred Stock purchase price of One Thousand Dollars ($1,000). 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 each Buyer and each Buyer shall purchase
from the Company Twenty Thousand (20,000) Warrants for each $1,000,000 of
Preferred Shares purchased.
b. Form of Payment. The Purchasers shall pay their respective
Purchase Price for the 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
Closing specified herein, the escrowed Purchase Price shall be released to the
Company against delivery of duly executed certificates representing the number
of Preferred Shares and Warrants which the Buyers are purchasing.
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 10:00 a.m. Pacific Standard Time on May 28, 1998 or such
other mutually agreed upon date or time (the "Closing Date").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants to the Company as of the date
hereof and as of the 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 (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 from registration under the 1933 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) subsequently included
in 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) 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.
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 or
otherwise may be sold by the Buyer under Rule 144, as contemplated by the
Registration Rights Agreement, the Conversion Shares and Warrant Shares, shall
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, 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(k) under the 1933 Act (or a successor rule thereto).
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, 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. Each Buyer acknowledges that, as previously
publicly announced, the Company is considering offers to purchase its
telecommunications unit, Kansas Communications, Inc.
k. Concurrent Debt Offering. Each Buyer acknowledges that, as
publicly announced in the Press Release (as defined below), concurrent with the
transactions contemplated hereby, the Company is negotiating the issuance of
debt securities. Nothing in this Agreement, the Registration Rights Agreement,
the Certificate of Designation, or other document contemplated herein or
therein, prohibits the Company from incurring additional indebtedness, including
the indebtedness to be incurred as a result of the issuance of such debt
securities.
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 hereunder 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 Designation. "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 Designation 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 Designation, 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, the
Registration Rights Agreement, the Escrow Agreement and the Warrants have been
duly executed and delivered and the Certificate of Designation 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 Designation
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
7,595,796 shares are issued and outstanding, 1,438,233 shares are reserved for
issuance pursuant to the Company's employee and director stock option plans,
3,195,866 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 and 2,200,000 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 preferred stock, par value $.10 per share, of which 3,062.5
shares of Series A Convertible Preferred Stock are issued and outstanding and
2,000 shares of Series A Convertible Preferred Stock are held in the Company's
treasury after being converted. 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 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
Designation 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(d), 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 Designation 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 Preferred Stock and
the Series A Convertible 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 Designation.
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
Designation 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 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 Designation 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 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. 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 of the type 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' 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
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 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) 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.
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 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, 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 2,200,000 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 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 Designation)) upon conversion or
exercise of the Preferred Shares and the Warrants. The Company will use its
best efforts to obtain and 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 the 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 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, AMEX or Nasdaq.
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 on its behalf) 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 on the Buyer's behalf).
(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 common shares
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
$15.00.
o. Sales by Buyer. Each 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, except in connection with block trades of at least Five Thousand
(5,000) shares of Common Stock by brokers.
5. TRANSFER AGENT INSTRUCTIONS.
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 the
Closing Date to obtain the written acknowledgement of such transfer agent of
receipt of such 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, the
Registration Rights Agreement and the Escrow Agreement, and delivered the same
to the Company and the Escrow Agent.
b. The applicable Buyer shall have delivered the Purchase Price to
the Escrow Agent in accordance with Section 1(b) above, and an aggregate
Purchase Price of at least $10,000,000 shall have been received by the Escrow
Agent.
c. The Certificate of Designation shall have been accepted for
filing 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 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 each 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 each such Buyer's respective benefit and may be waived by each such
Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement, the Registration
Rights Agreement and the Escrow Agreement, and delivered the same to the Buyer.
b. The Certificate of Designation 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.
c. The Company shall have delivered to the Escrow Agent duly
executed certificates (in such denominations as the applicable Buyer shall
reasonably 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 Buyers 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 Buyers 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 Buyers and in substantially the same form as Exhibit "F"
attached hereto.
h. The Common Stock required to be authorized and reserved pursuant
to Section V(A) of the Certificate of Designation shall have been duly
authorized and reserved by the Company.
i. An aggregate Purchase Price of at least $10,000,000 shall have
been received by the Escrow Agent.
j. 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.
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 Designation for the Series
A Preferred Stock, if the issuance of Series B 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 shall be aggregated with the shares of Common
Stock issuable pursuant to the shares of Series B 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: $9,000,000
No. of Shares of Preferred Stock: 9,000
No. of Warrants: 180,000
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
[SIGNATURES CONTINUED ONTO NEXT PAGE]
BUYER SIGNATURES CONTINUED:
SHORELINE ASSOCIATES I, LLC
By:
Name:
Title:
Aggregate Subscription Amount: $1,000,000
No. of Shares of Preferred Stock: 1,000
No. of Warrants: 20,000
RESIDENCE: Delaware
ADDRESS:
Shoreline Associates I, LLC
000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, XX 00000
Fax: (000) 000-0000
Telephone: (000) 000-0000
Attn: Xx. Xxxx X. Xxxxxxx
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 H
SOFTNET SYSTEMS, INC.
CONVERSION NOTICE - SERIES B CONVERTIBLE PREFERRED STOCK
Reference is made to the Statement of Terms (the "Article Third, Section 2") of
the Series B 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 the Article Third, Section 2,
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 certificate(s)
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: ]
SoftNet Systems, Inc.: Securities Purchase Agreement Page 24
29
SHARED FILES:Legal:Transactions 1998:SOF:SECURITIES PURCHASE AGT:Purchase
Agreement 5/26
SoftNet Systems, Inc.: Securities Purchase Agreement
SoftNet Systems, Inc.: Securities Purchase Agreement
SHARED FILES:Legal:Transactions 1998:SOF:SECURITIES PURCHASE AGT:Purchase
Agreement 5/26
